<PAGE> 1
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 MARCH 31, 1999
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 0-19279
EVERFLOW EASTERN PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 34-1659910
--------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
585 West Main Street
P.O. Box 629
Canfield, Ohio 44406
- ----------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330)533-2692
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
--- ---
There were 6,172,537 Units of limited partnership interest of the
Registrant as of May 12, 1999. The Units generally do not have any voting
rights, but, in certain circumstances, the Units are entitled to one vote per
Unit.
Except as otherwise indicated, the information contained in this Report
is as of March 31, 1999.
<PAGE> 2
EVERFLOW EASTERN PARTNERS, L.P.
INDEX
<TABLE>
<CAPTION>
DESCRIPTION PAGE NO.
----------- --------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 F-1
Consolidated Statements of Income
Three Months Ended March 31, 1999 and 1998 F-3
Consolidated Statements of Partners' Equity
Three Months Ended March 31, 1999 and 1998 F-4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998 F-5
Notes to Unaudited Consolidated Financial Statements F-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 6
Signature 7
</TABLE>
2
<PAGE> 3
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and December 31, 1998
------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and equivalents $ 461,548 $ 294,518
Accounts receivable:
Production 2,027,147 2,323,510
Officers and employees 853,337 1,015,458
Joint venture partners 167,086 366,121
Short-term investments 2,250,148 2,221,056
Other 126,036 92,355
------------- -------------
Total current assets 5,885,302 6,313,018
PROPERTY AND EQUIPMENT
Proved properties (successful efforts
accounting method) 111,873,392 110,178,841
Pipeline and support equipment 530,538 506,153
Corporate and other 1,273,902 1,212,857
------------- -------------
113,677,832 111,897,851
Less accumulated depreciation, depletion,
amortization and write down (63,152,557) (61,651,637)
------------- -------------
50,525,275 50,246,214
OTHER ASSETS 53,047 53,721
------------- -------------
$ 56,463,624 $ 56,612,953
============= =============
</TABLE>
See notes to unaudited consolidated financial statements.
F-1
<PAGE> 4
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and December 31, 1998
------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 133,366 $ 30,805
Revolving credit facility 1,600,000 1,800,000
Accounts payable 1,307,206 1,666,792
Accrued expenses 43,950 391,187
----------- -----------
Total current liabilities 3,084,522 3,888,784
LONG-TERM DEBT, NET OF CURRENT PORTION 416,352 425,093
DEFERRED INCOME TAXES 128,000 128,000
COMMITMENTS AND CONTINGENCIES -- --
LIMITED PARTNERS' EQUITY, SUBJECT TO
REPURCHASE RIGHT
Authorized - 8,000,000 Units
Issued and outstanding - 6,172,537 Units 52,266,592 51,610,054
GENERAL PARTNER'S EQUITY 568,158 561,022
----------- -----------
Total partners' equity 52,834,750 52,171,076
----------- -----------
$56,463,624 $56,612,953
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
F-2
<PAGE> 5
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 1999 and 1998
------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
REVENUES
Oil and gas sales $ 4,085,041 $ 4,968,779
Well management and operating 134,224 136,844
Other 904 1,091
----------- -----------
4,220,169 5,106,714
DIRECT COST OF REVENUES
Production costs 592,797 564,383
Well management and operating 71,188 64,526
Depreciation, depletion and amortization 1,485,808 1,695,466
Abandonment and write down of
oil and gas properties 25,000 --
----------- -----------
Total direct cost of revenues 2,174,793 2,324,375
GENERAL AND ADMINISTRATIVE EXPENSE 591,596 450,377
----------- -----------
Total cost of revenues 2,766,389 2,774,752
----------- -----------
INCOME FROM OPERATIONS 1,453,780 2,331,962
OTHER INCOME (EXPENSE)
Interest income 36,317 12,650
Interest expense (46,469) (71,733)
----------- -----------
(10,152) (59,083)
----------- -----------
INCOME BEFORE INCOME TAXES 1,443,628 2,272,879
PROVISION FOR INCOME TAXES
Current -- --
----------- -----------
Deferred -- --
----------- -----------
NET INCOME $ 1,443,628 $ 2,272,879
=========== ===========
Allocation of Partnership Net Income
Limited Partners 1,428,104 2,248,559
General Partner 15,524 24,320
----------- -----------
$ 1,443,628 $ 2,272,879
=========== ===========
Earnings per unit $ .23 $ .36
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
F-3
<PAGE> 6
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
Three Months Ended March 31, 1999 and 1998
------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
PARTNERS' EQUITY - JANUARY 1 $ 52,171,076 $ 48,577,802
Net income 1,443,628 2,272,879
Cash distributions ($.125 per Unit) (779,954) (784,344)
------------ ------------
PARTNERS' EQUITY - MARCH 31 $ 52,834,750 $ 50,066,337
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
F-4
<PAGE> 7
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1999 and 1998
------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,443,628 $ 2,272,879
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 1,500,920 1,709,209
Abandonment and write down of
oil and gas properties 25,000
Changes in assets and liabilities:
Accounts receivable 495,398 321,827
Short-term investments (29,092) --
Other current assets (33,681) (31,080)
Other assets 674 (155,576)
Accounts payable (359,586) (38,284)
Accrued expenses (347,237) (18,173)
----------- -----------
Total adjustments 1,252,396 1,787,923
----------- -----------
Net cash provided by operating activities 2,696,024 4,060,802
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on receivables from officers and
employees 212,554 160,277
Advances disbursed to officers and employees (50,433) (79,583)
Purchase of property and equipment (1,804,981) (769,351)
----------- -----------
Net cash used by investing activities (1,642,860) (688,657)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions (779,954) (784,344)
Proceeds from issuance of debt, including
revolver activity 1,000,000 --
Payments on debt, including revolver activity (1,106,180) (3,109,365)
----------- -----------
Net cash used by financing activities (886,134) (3,893,709)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS 167,030 (521,564)
CASH AND EQUIVALENTS AT BEGINNING
OF YEAR 294,518 679,531
----------- -----------
CASH AND EQUIVALENTS AT END OF
FIRST QUARTER $ 461,548 $ 157,967
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 35,540 $ 83,943
Income taxes -- --
</TABLE>
See notes to unaudited consolidated financial statements.
F-5
<PAGE> 8
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Summary of Significant Accounting Policies
A. Interim Financial Statements - The interim
consolidated financial statements included herein
have been prepared by the management of Everflow
Eastern Partners, L.P., without audit. In the opinion
of management, all adjustments (which include only
normal recurring adjustments) necessary to present
fairly the financial position and results of
operations have been made.
Information and footnote disclosures normally
included in financial statements prepared in
accordance with generally accepted accounting
principles have been condensed or omitted. It is
suggested that these financial statements be read in
conjunction with the financial statements and notes
thereto which are incorporated in Everflow Eastern
Partners, L.P.'s report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1999.
The results of operations for the interim periods may
not necessarily be indicative of the results to be
expected for the full year.
B. Organization - Everflow Eastern Partners, L.P.
("Everflow") is a Delaware limited partnership which
was organized in September 1990 to engage in the
business of oil and gas exploration and development.
Everflow was formed to consolidate the business and
oil and gas properties of Everflow Eastern, Inc.
("EEI") and Subsidiaries and the oil and gas
properties owned by certain limited partnership and
working interest programs managed or sponsored by EEI
("EEI Programs" or "the Programs").
Everflow Management Limited, LLC, an Ohio limited
liability company, is the general partner of
Everflow. Everflow Management Limited, LLC is
authorized, in general, to perform all acts necessary
or desirable to carry out the purposes and conduct of
the business of Everflow. The members of Everflow
Management Limited, LLC are Everflow Management
Corporation ("EMC"), three individuals who are
Officers and Directors of EEI, and Sykes Associates,
a limited partnership controlled by Robert F. Sykes,
the Chairman of the Board of EEI. EMC is an Ohio
corporation formed in September 1990 and is the
managing member of Everflow Management Limited, LLC.
F-6
<PAGE> 9
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 1. Organization and Summary of Significant Accounting Policies
(Continued)
C. Principles of Consolidation - The consolidated
financial statements include the accounts of
Everflow, EEI and EEI's wholly owned subsidiaries,
and investments in oil and gas drilling and income
partnerships (collectively, "the Company") which are
accounted for under the proportional consolidation
method. All significant accounts and transactions
between the consolidated entities have been
eliminated.
D. Allocation of Income and Per Unit Data - Under the
terms of the limited partnership agreement,
initially, 99% of revenues and costs were allocated
to the Unitholders (the limited partners) and 1% of
revenues and costs were allocated to the General
Partner. Such allocation has changed and will change
in the future due to Unitholders electing to exercise
the Repurchase Right (see Note 4).
Earnings per limited partner Unit have been computed
based on the weighted average number of Units
outstanding, during the period for each period
presented. Average outstanding Units for earnings per
Unit calculations amounted to 6,172,537 and 6,207,651
for the three months ended March 31, 1999 and 1998,
respectively.
E. New Accounting Standards - In June 1997, SFAS 130,
"Reporting Comprehensive Income," was issued. SFAS
130 established new standards for reporting
comprehensive income and its components and is
effective for fiscal years beginning after December
15, 1997. In June 1997, the Financial Accounting
Standards Board issued SFAS 131, "Disclosure About
Segments of an Enterprise and Related Information."
SFAS 131 changes the standards for reporting
financial results by operating segments, related
products and services, geographical areas and major
customers and is adoptable by December 31, 1998. In
February 1998, SFAS 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits,"
was issued. SFAS 132 standardizes the disclosure
requirements for pension and other postretirement
benefit plans but does not change the measurement or
recognition of those plans. SFAS 132 is effective for
fiscal years beginning after December 15, 1997. In
June 1998, SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," was issued. SFAS
133 establishes accounting and reporting standards
for derivative instruments and hedging activities.
SFAS 133 is
F-7
<PAGE> 10
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 1. Organization and Summary of Significant Accounting Policies
(Continued)
E. New Accounting Standards (Continued)
effective for fiscal years beginning after June 15,
1999. The effect of adoption or anticipated adoption
of the above standards had no, or is expected to have
no, material effect on the Company's financial
statements.
F. Year 2000 - The Year 2000 problem, software, hardware
or an embedded chip that does not correctly process
date information for years after 1999, results from
the practice of storing date information with only
the last two digits of the year. The Company began to
address Year 2000 issues in 1997. The scope of the
Year 2000 readiness effort includes the Company's
internal information technology ("IT") systems, such
as hardware and software; non-IT systems with
date-sensitive characteristics; the status of key
third parties, including suppliers, service providers
and customers. The Company's major IT applications
are currently Year 2000 ready. Remediation and
testing of the balance of the IT systems are expected
to be completed by fall 1999. The Company is in the
early stages of analyzing the readiness of non-IT
systems and anticipates that remediation and testing
of any noncompliant systems will be completed by
October 1999. The Company also has taken initial
steps to determine the compliance of key third
parties and expects that it will have received and
reviewed responses from the majority of such parties
by October 1999. Although the Company expects to meet
the target dates for completion of remediation and
testing and for determining the status of key third
parties, the Company will attempt to develop
contingency plans should the programs not be
completed when anticipated or should the third
parties not be ready on a timely basis.
Costs of addressing the Year 2000 issue to date
approximate $50,000. It is anticipated that an
additional $100,000 will be incurred. Substantially
all of these outlays are expected to result from
remediation of existing systems as opposed to
replacing existing systems. Costs are being funded
from operating cash flows. The actual costs of the
Company's Year 2000 efforts may vary from current
estimates, which are based on information available
at this time.
F-8
<PAGE> 11
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 1. Organization and Summary of Significant Accounting Policies
(Continued)
F. Year 2000 (Continued)
Although the Company believes that it is taking
appropriate precautions against disruption of its
systems due to the Year 2000 issue, there can be no
assurance that the Company will identify all Year
2000 problems in advance of their occurrence(s) or
that the Company will be able to successfully remedy
all problems that are discovered. Furthermore, there
can be no assurance that the Company's third party
relationships will not be adversely affected by Year
2000 issues. The Company is in the process of
developing contingency plans to address the potential
effects of problems arising from Year 2000
noncompliance. While the Company does not anticipate
that costs of Year 2000 disruptions will have a
material adverse effect, Year 2000 disruptions,
arising either from within the Company or through
third party relationships, could have a material
adverse effect on the Company's business, operating
results and financial condition.
Note 2. Short-Term Investments
Short-term investments consist of marketable corporate debt
securities which are classified as trading. The fair values of
the investments approximate cost.
Note 3. Credit Facilities and Long-Term Debt
In May 1998, the Company entered into an agreement that
replaced its prior credit agreements. The agreement provides
for a revolving line of credit in the amount of $7,000,000,
all of which is available. The revolving line of credit
provides for interest payable quarterly at LIBOR plus 175
basis points with the principal due at maturity (as renewed),
May 31, 1999. The Company anticipates renewing the facility on
a yearly basis to minimize debt origination, carrying and
interest costs associated with long-term bank commitments.
Borrowings under the facility are unsecured; however, the
Company has agreed, if requested by the bank, to execute any
supplements to the agreement including security and mortgage
agreements on the Company's assets. The agreement contains
restrictive covenants requiring the Company to maintain the
following: (i) loan balance not to exceed the borrowing base
of $7,000,000; (ii) tangible net worth of at least
$40,000,000; and (iii) a total debt to tangible net worth
ratio of not more than 0.5 to 1.0. In addition, there
F-9
<PAGE> 12
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 3. Credit Facilities and Long-Term Debt (Continued)
are restrictions on mergers, sales and acquisitions, the
incurrence of additional debt and the pledge or mortgage of
the Company's assets.
The Company purchased a building and funded its cost,
including improvements, in part, through mortgage notes. Two
of the notes, which have an aggregate balance of $358,783 and
$363,053 at March 31, 1999 and December 31, 1998,
respectively, bear interest at 6.51% per annum until October
6, 2001 and then a variable rate of .5% above prime or the
three year constant treasury maturity index plus 2.25% until
maturity. A third note, which has a balance of $90,935 and
$92,845 at March 31, 1999 and December 31, 1998, respectively,
bears interest at 8.41% per annum until June 25, 2000 and then
a variable rate of .5% above prime or the three year constant
treasury maturity index plus 2.25% until maturity. The three
notes require aggregate payments of principal and interest of
approximately $5,300 per month. A fourth note, which has a
balance of $100,000 at March 31, 1999, bears interest at 7.75%
per annum. This note has not yet been termed out and currently
is an interest only note.
Note 4. Partners' Equity
Units represent limited partnership interests in Everflow. The
Units are transferable subject only to the approval of any
transfer by Everflow Management Limited, LLC and to the laws
governing the transfer of securities. The Units are not listed
for trading on any securities exchange nor are they quoted in
the automated quotation system of a registered securities
association. However, Unitholders have an opportunity to
require Everflow to repurchase their Units pursuant to the
Repurchase Right.
Under the terms of the limited partnership agreement,
initially, 99% of revenues and costs are allocated to the
Unitholders (the limited partners) and 1% of revenues and
costs are allocated to the General Partner. Such allocation
has changed and will change in the future due to Unitholders
electing to exercise the Repurchase Right.
The partnership agreement provides that Everflow will
repurchase for cash up to 10% of the then outstanding Units,
to the extent Unitholders offer Units to Everflow for
repurchase pursuant to the Repurchase Right. The Repurchase
Right entitles any Unitholder, between May 1, and June 30 of
each year, to notify Everflow that he elects to exercise the
Repurchase Right and have
F-10
<PAGE> 13
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 4. Partners' Equity (Continued)
Everflow acquire certain or all of his Units. The price to be
paid for any such Units will be calculated based upon the
audited financial statements of the Company as of December 31
of the year prior to the year in which the Repurchase Right is
to be effective and independently prepared reserve reports.
The price per Unit will be equal to 66% of the adjusted book
value of the Company allocable to the Units, divided by the
number of Units outstanding at the beginning of the year in
which the applicable Repurchase Right is to be effective less
all Interim Cash Distributions received by a Unitholder. The
adjusted book value is calculated by adding partners' equity,
the Standardized Measure of Discounted Future Net Cash Flows
and the tax effect included in the Standardized Measure and
subtracting from that sum the carrying value of oil and gas
properties (net of undeveloped lease costs). If more than 10%
of the then outstanding Units are tendered during any period
during which the Repurchase Right is to be effective, the
Investors' Units so tendered shall be prorated for purposes of
calculating the actual number of Units to be acquired during
any such period. The price associated with the Repurchase
Right, based upon the December 31, 1998 calculation, is $5.79
per Unit, net of the distributions ($.375 per Unit in total)
made in January and April 1999.
Units repurchased pursuant to the Repurchase Right for each of
the four years in the period ended December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Calculated Units
Price for Less # of Outstanding
Repurchase Premium Interim Net Units Following
Year Right Offered Distributions Price Paid Repurchased Repurchase
---- ---------- ------- ------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $4.72 $.28 $.375 $4.625 81,522 6,433,044
1996 $4.48 $.27 $.250 $4.500 53,103 6,379,941
1997 $5.46 $ - $.250 $5.210 172,290 6,207,651
1998 $5.24 $ - $.250 $4.990 35,114 6,172,537
</TABLE>
Note 5. Commitments and Contingencies
Everflow paid a quarterly dividend in April 1999 of $.25 per
Unit to Unitholders of record on March 31, 1999. The
distribution amounted to approximately $1,560,000.
F-11
<PAGE> 14
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 5. Commitments and Contingencies (Continued)
EEI is the general partner in certain oil and gas
partnerships. As general partner, EEI shares in unlimited
liability to third parties with respect to the operations of
the partnerships and may be liable to limited partners for
losses attributable to breach of fiduciary obligations.
The Company operates exclusively in the United States, almost
entirely in Ohio and Pennsylvania, in the exploration,
development and production of oil and gas.
The Company operates in an environment with many financial
risks, including, but not limited to, the ability to acquire
additional economically recoverable oil and gas reserves, the
inherent risks of the search for, development of and
production of oil and gas, the ability to sell oil and gas at
prices which will provide attractive rates of return, and the
highly competitive nature of the industry and worldwide
economic conditions. The Company's ability to expand its
reserve base and diversify its operations is also dependent
upon the Company's ability to obtain the necessary capital
through operating cash flow, additional borrowings or
additional equity funds. Various federal, state and
governmental agencies are considering, and some have adopted,
laws and regulations regarding environmental protection which
could adversely affect the proposed business activities of the
Company. The Company cannot predict what effect, if any,
current and future regulations may have on the operations of
the Company.
F-12
<PAGE> 15
Part I: Financial Information
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the Company's financial position at
March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------------- -------------------
(Amounts in Thousands) Amount % Amount %
------ --- ------ ---
<S> <C> <C> <C> <C>
Working capital $ 2,801 5% $ 2,424 5%
Property and equipment (net) 50,525 95 50,246 95
Other 53 -- 54 --
------- ------- ------- -------
Total $53,379 100% $52,724 100%
======= ======= ======= =======
Long-term debt $ 416 1% 425 1%
Deferred income taxes 128 -- 128 --
Partners' equity 52,835 99 52,171 99
------- ------- ------- -------
Total $53,379 100% $52,724 100%
======= ======= ======= =======
</TABLE>
Working capital surplus of $2,801 thousand as of March 31, 1999
represented an increase of $377 thousand from December 31, 1998 due to
reductions in accounts payable, accrued expenses and payments on the Company's
revolving credit facility. These reductions were partially offset by a reduction
in accounts receivable and an increase in cash.
In May 1998, the Company modified its revolving credit facility. The
facility provides for a revolving line of credit in the amount of $7.0 million,
all of which is available. The revolving line of credit provides for interest
payable quarterly at LIBOR plus 175 basis points with principal due at maturity,
May 31, 1999. The Company anticipates renewing the facility on a yearly basis to
minimize debt origination, carrying and interest costs associated with long-term
bank commitments. Management of the Company believes this revolving credit
facility is sufficient to allow the Company to continue to fund the development
of oil and gas properties, repurchase Units pursuant to the Repurchase Right and
make quarterly Cash Distributions.
The Company's cash flow from operations before the change in working
capital decreased $1.0 million, or 25%, during the three months ended March 31,
1999 as compared to the same period in 1998. Changes in working capital other
than cash and cash equivalents decreased cash by $274 thousand during the three
months ended March 31, 1999. The
3
<PAGE> 16
reductions in accounts payable of $360 thousand and accrued expenses of $347
thousand at March 31, 1999 compared to December 31, 1998 are primarily the
result of lower production payables and accrued payroll expenses at March 31,
1999.
Cash flows provided by operating activities was $2.7 million for the
three months ended March 31, 1999. Cash was primarily used to purchase property
and equipment and pay a quarterly distribution.
Additional borrowings for operations may be required during the summer
months due to the seasonal nature of the gas purchase agreements with The East
Ohio Gas Company entered into beginning in 1991. Seasonal price reductions and
production restrictions during the summer months reduce operating revenues and
consequently cash flows from operations during such periods.
In the fall of 1998, the Company received a decrease in the price
received for natural gas pursuant to the pricing adjustments contained in the
Company's Intermediate Term Adjustable Price Gas Purchase Agreements with The
East Ohio Gas Company. The Company anticipates these pricing adjustments should
decrease cash flows from operations during 1999.
Recently, management of the Company has explored the possible sale of
the Company. Although management may, from time to time, continue to engage in
discussions concerning a potential sale, management does not intend to pursue
actively a sale of the Company at the present time. Management will continue to
evaluate other alternatives in attempting to maximize Unitholder value.
4
<PAGE> 17
RESULTS OF OPERATIONS
The following table and discussion is a review of the results of
operations of the Company for the three months ended March 31, 1999 and 1998.
All items in the table are calculated as a percentage of total revenues. This
table should be read in conjunction with the discussions of each item below:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Revenues:
Oil and gas sales 97% 97%
Well management and operating 3 3
----- ----
Total Revenues 100 100
Expenses:
Production costs 14 11
Well management and operating 2 1
Depreciation, depletion and amortization 35 33
Abandonment and write down of
oil and gas properties 1 -
General and administrative 14 9
Other - 1
----- ----
Total Expenses 66 55
----- ----
Earnings 34% 45%
===== ====
</TABLE>
Revenues for the three months ended March 31, 1999 decreased $887
thousand, or 17%, compared to the same period in 1998. This decrease was due to
a decrease in oil and gas sales during the first three months of 1999, as
compared to the same period in 1998.
Oil and gas sales decreased $884 thousand, or 18%, during the three
months ended March 31, 1999 compared to the same period in 1998. Lower
production volumes and gas prices during the first quarter of 1999, due to a
$.19 pricing adjustment received in the Company's Intermediate Term Adjustable
Price Gas Purchase Agreements with The East Ohio Gas Company, were responsible
for this decrease compared to this same period in 1998.
Production costs increased $28 thousand, or 5%, during the three months
ended March 31, 1999 compared to the same period in 1998. Additional producing
properties and increased costs were responsible for this increase between 1998
and 1999.
Depreciation, depletion and amortization decreased $210 thousand, or
12%, during the three months ended March 31, 1999 compared to the same period in
1998. The decrease
5
<PAGE> 18
in depreciation, depletion and amortization is the result of decreased
production from producing oil and gas properties.
General and administrative expenses increased $141 thousand, or 31%,
during the first quarter of 1999 compared to the first quarter of 1998. This
increase was the result of higher professional fees and associated costs
involved with exploring the possible sale of the Company during the first
quarter of 1999.
The Company reported net income of $1.4 million, a decrease of $829
thousand, or 36%, during the three months ended March 31, 1999 compared to the
same period in 1998. The decrease in oil and gas sales was primarily responsible
for this decrease in net income. Net income represented 34% and 45% of total
revenue during the three months ended March 31, 1999 and 1998, respectively.
Except for historical financial information contained in this Form
10-Q, the statements made in this report are forward-looking statements. Factors
that may cause actual results to differ materially from those in the forward
looking statement include price adjustments pursuant to the Company's
Intermediate Term Adjustable Price Gas Purchase Agreements with The East Ohio
Gas Company, price fluctuations in the gas market in the Appalachian Basin, the
weather in the Northeast Ohio area, the number of Units tendered pursuant to the
Repurchase Right and the ability to locate economically productive oil and gas
prospects for development by the Company.
Part II. Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.15 Articles of Organization of Everflow
Management Limited, LLC.
4.16 Operating Agreement of Everflow Management
Limited, LLC dated March 8, 1999.
(b) No reports on Form 8-K were filed with the Commission
during the Company's first quarter.
6
<PAGE> 19
SIGNATURE
Pursuant to the requirement 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.
EVERFLOW EASTERN PARTNERS, L.P.
By: EVERFLOW MANAGEMENT LIMITED, LLC
General Partner
By: EVERFLOW MANAGEMENT CORPORATION
Managing Member
May 12, 1999 By: /s/William A. Siskovic
------------------------
William A. Siskovic
Vice President and Principal Financial and
Accounting Officer
(Duly Authorized Officer)
7
<PAGE> 1
[SEAL-LOGO] Exhibit 4.15
Prescribed by
Bob Taft, Secretary of State Approved______________
Date__________________
Form LCA (July 1994) Fee $85.00
ARTICLES OF ORGANIZATION
(Under Section 1705.04 of the Ohio Revised Code)
Limited Liability Company)
The undersigned, desiring to form a limited liability company, under
Chapter 1705 of the Ohio Revised code, do hereby state the following:
FIRST: The name of said limited liability company shall be
------------------
Everflow Management Limited, LLC
- -------------------------------------------------------------------------------
(the name must include the words "limited liability company", "limited", "Ltd"
or "Ltd.")
SECOND: This limited liability company shall exist for a period of
Perpetual, subject to dissolution
- --------------------------------------------------------------------------------
THIRD: The address to which interested persons may direct requests for copies
of any operating agreement and any bylaws of this limited liability company is:
585 West Main Street
----------------------------------------------------
(street or post office box)
Canfield OH 44406
----------------------------------------------------
(city, village or township) (state) (zip code)
[ ] Please check this box if additional provisions are attached hereto
Provisions attached hereto are incorporated herein and made a part of these
articles of organizations.
<PAGE> 2
FOURTH: PURPOSE (OPTIONAL)
IN WITNESS WHEREOF, we have hereunto subscribed our names, this 5th day of
March, 1999
Signed: /s/ William A. Siskovic Signed:
------------------------------ ------------------------------
Signed: /s/ Thomas L. Korner Signed:
------------------------------ ------------------------------
Signed: Signed:
------------------------------ ------------------------------
(If insufficient space for all signatures, please attach a separate sheet
containing additional signatures)
INSTRUCTIONS
1. The fee for filing Articles of Organization for a limited liability
company is $85.00.
2. Articles will be returned unless accompanied by a written appointment
of agent signed by all or a majority of the members of the limited
liability company which must include a written acceptance of the
appointment by the named agent.
3. A limited liability company must be formed by a minimum of two persons.
4. Any other provisions that are from the operating agreement or that are
not inconsistent with applicable Ohio law and that the members elect to
set out in the articles for the regulation of the affairs of the
limited liability company may be attached.
(Ohio Revised Code Section 1705.04)
<PAGE> 1
OPERATING AGREEMENT OF
EVERFLOW MANAGEMENT LIMITED, LLC
AN OHIO LIMITED LIABILITY COMPANY
THIS OPERATING AGREEMENT (the "Agreement") is made and entered
into effective as of the 8th day of March, 1999, by and among Everflow
Management Corporation, an Ohio corporation ("EMC"), Thomas L. Korner, an
individual ("Korner"), David T. Matak, an individual ("Matak"), William A.
Siskovic, an individual ("Siskovic"), and Sykes Associates, a New York limited
partnership ("Sykes") (EMC, Korner, Matak, Siskovic and Sykes are collectively
referred to herein as the "Members").
RECITALS
--------
WHEREAS, the Members have organized Everflow Management
Limited, LLC, an Ohio limited liability company (the "Company"), to engage in
any lawful acts or activities for which limited liability companies can be
formed under the laws of the State of Ohio;
NOW, THEREFORE, in consideration of the covenants and
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. Certain capitalized words and phrases used in
this Agreement shall have the meanings set forth on EXHIBIT 1 attached hereto
and incorporated herein by reference.
ARTICLE II
ORGANIZATION OF THE COMPANY
2.1 ORGANIZATION. On March 8, 1999, the Company was organized
upon the execution and delivery of Articles of Organization to the Secretary of
State of Ohio in accordance with and pursuant to the Ohio Act.
2.2 NAME. The name of the Company is Everflow Management
Limited, LLC.
2.3 PRINCIPAL PLACE OF BUSINESS. The principal place of
business of the Company shall be located at 585 West Main Street, Canfield, Ohio
44406 or at such other location as shall be determined from time to time by the
Manager.
2.4 STATUTORY AGENT. The name and address of the agent for
service of process in Ohio shall be William A. Siskovic, 585 West Main Street,
Canfield, OH 44406.
1
<PAGE> 2
2.5 TERM. The term of the Company shall commence on the date
of filing of the Articles of Organization with the Secretary of State of Ohio
and shall continue until terminated in accordance with the terms of this
Agreement.
ARTICLE III
PURPOSES OF THE COMPANY
The purpose for which the Company is organized and the powers
which it may exercise, all being in furtherance of and not in limitation of the
general powers conferred upon limited liability companies by the laws of the
State of Ohio, are to act as the general partner of Everflow Eastern Partners,
L.P., a Delaware limited partnership ("Everflow"), and manage the business and
affairs of Everflow; and to take all such actions which may be necessary,
appropriate or incidental thereto as the Manager may determine from time to
time. The Company shall have the power and authority to incur indebtedness, to
invest Company funds and to enter into joint ventures, partnerships and other
business arrangements to achieve the purposes of the Company, and shall have all
other rights and powers not expressly prohibited to limited liability companies
under the laws of the State of Ohio.
ARTICLE IV
NAMES AND ADDRESSES OF MEMBERS
The names and addresses of the Members are as set forth on
SCHEDULE A attached to this Agreement and incorporated herein by reference.
ARTICLE V
MANAGEMENT OF THE COMPANY
5.1 MANAGER. Everflow Management Corporation, an Ohio
corporation, is the initial Manager of the Company (the "Manager").
5.2 AUTHORITY OF THE MANAGER. Except as specifically reserved
to the Members in Section 6.7 or elsewhere in this Agreement, the Manager shall
have all power and authority to manage, and direct the management of, the
business and affairs of the Company. Any action taken by the Manager shall
constitute the act of and serve to bind the Company. In dealing with the Manager
acting on behalf of the Company, no person shall be required to inquire into the
authority of the Manager to bind the Company. Persons dealing with the Company
are entitled to rely conclusively on the power and authority of the Manager as
set forth in this Agreement.
5.3 POWERS OF THE MANAGER. Subject to the limitation imposed
by the Ohio Act and this Agreement, the Manager shall exercise all powers
necessary or convenient for the management and operation of the Company and
shall use its best efforts to further the interests of the Company.
2
<PAGE> 3
5.4 RESTRICTIONS ON AUTHORITY. With respect to the Company and
its property, the Manager shall have no authority to perform any act in
violation of the Ohio Act or any other applicable laws or regulations
thereunder, nor shall the Manager have any authority, except as expressly
provided in this Agreement, to:
(a) withdraw as the general partner of Everflow;
(b) take any action which could result in the
dissolution of Everflow;
(c) do any act in contravention of limited
partnership agreement of Everflow;
(d) do any act in contravention of this
Agreement;
(e) do any act which would make it impossible to
carry on the ordinary business of the
Company;
(f) possess Company property or assign the right
of the Company in specific Company property
for other than a Company purpose;
(g) guarantee in the name or on behalf of the
Company the payment of money or the
performance of any contract or other
obligation of any person; and
(h) without having received the prior written
consent of a Majority-in-Interest of the
Members, assign Company property in trust
for creditors or on the assignee's promise
to pay the debts of the Company, consent to
a judgment against the Company or submit a
Company claim or liability to arbitration.
5.5 STANDARD OF CARE. At all times the Manager will have a
fiduciary relationship to the Company and to each Member. In performing its
duties under this Agreement, the Manager shall act in good faith and on a fair
dealing basis with the Company and each of the Members.
5.6 TIME DEVOTED. The Manger shall devote such time to the
business of the Company as, in the Manager's sole discretion, the Manager deems
to be necessary to conduct the Company's affairs properly.
5.7 COMPENSATION. The Manager shall not be entitled to receive
any compensation for its services pursuant to this Agreement. The Company shall
reimburse the Manager for any expenses it incurs in connection with the business
and affairs of the Company and shall cause Everflow to reimburse the Manager for
any expenses it incurs in connection with the business and affairs of Everflow.
5.8 TERMINATION OF MANAGER. The Members may terminate all
management powers, duties and responsibilities of the Manager by a vote of the
Members owning seventy-one percent (71%) or more of the aggregate Percentage
Interests. In the event the Members
3
<PAGE> 4
terminate and replace the Manager in accordance with the foregoing provision,
such Members owning such Percentage Interests shall have the right to elect and
name a replacement to the Manager who shall become the successor Manager and be
entitled to all powers, duties and responsibilities of the Manager as set forth
in this Agreement.
ARTICLE VI
RIGHTS AND POWERS OF THE MEMBERS
6.1 NO COMMITMENTS. In dealing with third parties with respect
to the Company's business or on behalf of the Company, the Members shall act in
accordance with the policies established by the Manager or by consent of the
Majority-in-Interest of the Members. No Member shall, in the name of or on
behalf of the Company, sign or execute any contract, instrument or document,
perform any other act, engage in any transaction, commit or bind the Company to
any act, contract, instrument or document, or incur any debt, except as
expressly permitted by this Agreement or with the written concurrence of a
Majority-in-Interest of the Members or the Manager.
6.2 NEW MEMBERS. Notwithstanding anything to the contrary
contained in this Agreement, no person shall be admitted as an additional Member
or Substituted Member of the Company without the prior written consent of all of
the Members.
6.3 MEETINGS OF THE MEMBERS. Any Member may call a meeting of
the Members upon fifteen (15) days notice in writing (which may be facsimile),
which notice shall specify the date, time and purpose or purposes of the
meeting. Meetings of the Members shall be held at the Company's principal
executive offices, unless a Majority-in-Interest of the Members agree to meet at
another location. Members may be present at any meeting of the Members by
telephone, provided that each Member can hear all other present Members. A
Majority-in-Interest of the Members shall constitute a quorum of the Members for
the transaction of business at any meeting.
6.4 DECISIONS OF THE MEMBERS. Except as expressly provided
otherwise herein, decisions of the Members shall be made by a
Majority-in-Interest of the Members.
6.5 ACTIONS OF THE MEMBERS WITHOUT A MEETING. Any action which
may be taken by the Members at a meeting may be taken by written action without
a meeting signed by all of the Members, provided that the writing setting forth
such action shall be kept with the minutes of the meetings of the Members.
6.6 WAIVER OF NOTICE. Notice of any meeting of the Members may
be waived by a Member by a waiver of the notice in writing, signed by the Member
entitled to the notice, whether before, at or after the time stated for the
meeting. Attendance of a Member at any meeting, whether in person, by proxy or
by telephone as provided above, shall constitute waiver of notice of such
meeting. Any waiver of notice of a meeting by a Member hereunder shall be
equivalent to the giving of such notice.
6.7 RIGHTS OF THE MEMBERS. Each Member shall be entitled to
(i) have the Company books kept at the principal place of business of the
Company, and at all times, during
4
<PAGE> 5
reasonable business hours, inspect and copy any of them; (ii) have a list of all
the Members kept at the principal place of business of the Company, and at all
times, during reasonable business hours, inspect and copy such list; (iii) have
on demand true and full information of all matters affecting the Company and a
formal account of Company affairs whenever circumstances render it just and
reasonable; (iv) have dissolution and winding up of the Company as provided by
this Agreement; and (v) have such additional rights as are elsewhere provided in
this Agreement.
Notwithstanding anything to the contrary elsewhere in
this Agreement, the Manager shall not have the right to undertake any of the
following actions without the prior written approval of Members owning at least
seventy-one percent (71%) of the aggregate Percentage Interests:
(a) admit a person or persons as Members;
(b) withdraw as general partner of Everflow;
(c) take any action which could result in the
dissolution of Eveflow;
(d) propose any amendment to the partnership
agreement of Everflow;
(e) vote its interest as a general partner of
Everflow on any matter put to a vote of the
limited partners of Everflow; and
(f) effect a dissolution of the Company.
6.8 LIMITATIONS ON THE RIGHTS OF MEMBERS. No Member shall have
the right:
(a) to have his capital contribution repaid
except to the extent provided in this
Agreement, to demand property other than
cash in payment of his capital contribution
or to receive interest on his capital
contribution;
(b) to require partition of Company property or
to compel any sale or appraisement of
Company assets or sale of a deceased
Member's Interest therein, notwithstanding
any provisions of law to the contrary;
(c) to sell or assign his Member Interest or to
constitute the vendee or assignee thereunder
a substituted Member, except as provided in
Article 11; or
(d) to withdraw as a Member except as provided
in Article 11.
5
<PAGE> 6
ARTICLE VII
LIMITATION OF LIABILITY; INDEMNIFICATION
7.1 PROOF OF FAILURE TO SATISFY STANDARD OF CONDUCT. A Member,
a Manager or an officer, director, shareholder, employee, agent or Affiliate of
the Manager shall not be deemed to have violated any standard of conduct under
this Article 7 unless such violation is proved by clear and convincing evidence,
in an action brought against such Person. The termination of any action, suit or
proceeding by judgment, order, settlement or upon a plea of nolo contendre or
its equivalent shall not of itself constitute proof or create a presumption that
the appropriate standard of conduct has been violated.
7.2 LIMITATION OF LIABILITY. Neither the Manager, nor any
officer, director, shareholder, employee, agent or Affiliate of the Manager, nor
any Member is to be held liable for damages to the Company or any Member with
respect to claims relating to his, her or its conduct for or on behalf of the
Company, except that any of the foregoing persons is to be liable to the Company
for damages to the extent that it is proved by clear and convincing evidence (i)
that his, her or its conduct was not taken (A) in good faith, (B) in a manner
reasonably believed to be in or not opposed to the best interests of the
Company, or (C) with the care that an ordinarily prudent person in a like
position would use under similar circumstances; or (ii) with respect to any
criminal action, proceeding, or investigation, that he, she, or it had no
reasonable cause to believe his, her or its conduct was unlawful.
7.3 INDEMNIFICATION OF MEMBERS AND THE MANAGER. The Company
agrees to indemnify each Member and the Manager, its officers, directors,
shareholders, employees, agents and Affiliates acting in good faith (each an
"Indemnified Party"), to the fullest extent permitted by law, and to save and
hold each Indemnified Party harmless from, and in respect of, all (1) fees,
costs and expenses incurred in connection with or resulting from any claim,
action or demand against such Indemnified Party or the Company that arise out of
or in any way relate to the Company, its properties, business or affairs, and
(2) such claims, actions or demands, and any losses or damages resulting from
such claims, actions and demands, including amounts paid in settlement or
compromise (if recommended by attorneys for the Company) of any such claim,
action or demand; PROVIDED, however, that this indemnification shall apply only
so long as the Indemnified Party has acted in good faith on behalf of the
Company, in a manner reasonably believed by him or her to be within the scope of
his or her authority under this Agreement and in the best interests of the
Company, and only if such action or failure to act did not constitute willful
misconduct, fraud or gross negligence. Expenses, including attorneys' fees,
incurred by an Indemnified Party in defending any proceeding referred to in this
Section 7.3, shall be paid by the Company, in advance of the final disposition
of such proceeding, upon receipt of an undertaking by or on behalf of the
Indemnified Party to repay such amount, if it shall ultimately be determined
that he or she is not entitled to be indemnified by the Company as authorized in
this Section 7.3.
6
<PAGE> 7
ARTICLE VIII
CAPITAL CONTRIBUTION
8.1 INITIAL CAPITAL CONTRIBUTION. Upon the execution of this
Operating Agreement, the Members shall contribute initially to the capital of
the Company the sum of money or the gross fair market value of property set
forth opposite each Member's name on Exhibit A attached hereto in full payment
of his Initial Capital Contribution.
8.2 ADDITIONAL CAPITAL CONTRIBUTIONS. Except as otherwise
specifically provided in this Operating Agreement, no Member shall be required
to make any other contributions to the capital of the Company.
8.3 INTEREST. No Member shall be entitled to receive any
interest on the Member's Capital Account.
8.4 CAPITAL ACCOUNTS
(a) A separate capital account ("Capital Account")
for each Member shall be established on the books of the Company and maintained
throughout the term of the Company. As funded and adjusted in accordance with
this Agreement, the Capital Accounts of the Members shall reflect the underlying
economic arrangements of the Members.
(b) In the event any Interest is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the transferred
Interest.
(c) The foregoing provisions and the other provisions
of this Agreement relating to the maintenance of Capital Accounts are intended
to comply with Regulations Section 1.704-1(b), and shall be interpreted and
applied in a manner consistent with such Regulations. In the event the Manager
shall determine that it is prudent to modify the manner in which the Capital
Accounts (or any debits or credits thereto) are computed in order to comply with
such Regulations, the Manager may make such modification, provided that it shall
not have a material effect on the amounts distributable to any Member pursuant
to Article 9 or Article 12 hereof.
ARTICLE IX
ALLOCATION OF PROFITS AND LOSSES; DISTRIBUTIONS
9.1 PROFITS AND LOSSES. Except as provided in Section 9.2
below, Profits and Losses shall be allocated among the Members in proportion to
each Member's respective Interest in the Company. All Profits and Losses
allocated to the Members shall be credited or charged, as the case may be, to
their respective Capital Accounts.
7
<PAGE> 8
9.2 TAX ALLOCATION.
(a) In accordance with Code Section 704(c) and the
Regulations thereunder, income, gain, loss and deduction with respect to any
property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company for federal income
tax purposes and its initial gross fair market value (as reflected on Exhibit A
attached hereto).
(b) Any elections or other decisions relating to such
allocations shall be made by the Manger in any manner that reasonably reflects
the purpose and intention of this Agreement. Allocations pursuant to this
Section 9.2 are solely for the purposes of federal, state and local taxes and
shall not affect, or in any way be taken into account in computing, any Member's
Capital Account or share of Profits, or other items or distributions pursuant to
any provision of this Agreement.
9.3 OTHER ALLOCATION RULES
(a) For purposes of determining Profits, Losses or
any other items allocable to any period, Profits, Losses and any such other item
shall be determined on a daily, monthly or other basis, as determined by the
Manager using any permissible method under Code Section 706 and the Regulations
thereunder.
(b) Except as otherwise provided in this Agreement,
all items of Company income, gain, loss, deduction and any other allocations not
otherwise provided for shall be among the Members in the same proportions as
they share Profits and Losses, as the case may be, for each fiscal year.
9.4 DISTRIBUTIONS
(a) GENERAL. From time to time, the Manager may
determine the amount of Cash Flow, if any, of the Company available for
distribution to the Members. Distributions of Cash Flow shall be made to the
Members, when, as, and if determined by the Manager; PROVIDED, HOWEVER, that the
Company shall distribute Cash Flow to the Members in amounts and at the times
necessary to cover the Members' Federal, state and local income and franchise
taxes attributable to the Company's operations.
(b) DISTRIBUTION OF CASH FLOW. All Cash Flow
distributable other than in connection with the dissolution of the Company (as
to any Member) or the termination and winding up of the Company (as to all of
the Members) shall be distributed in proportion to their respective aggregate
Capital Contribution to the Company.
(c) DISTRIBUTIONS UPON WINDING UP. Cash available for
distribution in connection with the liquidation, termination and winding up of
the Company shall be distributed in accordance with the provisions of Article
12.
8
<PAGE> 9
(d) NO WITHDRAWAL. No Member shall be entitled to
withdraw or obtain a return of all or any part of his Capital Contribution,
except upon liquidation, termination and winding up of the Company or upon
unanimous prior approval of the other Members.
ARTICLE X
BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS
10.1 BOOKS AND RECORDS. The Manager shall maintain full and
accurate books at its principal office or such office as shall be designated for
such purpose by the Members with respect to the operations of the Company. The
books shall be closed and balanced at the end of each calendar year and annual
statements showing (i) cash, receipts and disbursements; (ii) Company profits
and losses for the calendar year, and (iii) profits and losses for each Member
for income tax purposes shall be prepared by the accountants for the Company and
distributed to all Members within a reasonable time after the close of each
calendar year. Accounts shall also be maintained showing the basis for federal
income tax purposes of each Member's Interest and the Members shall be advised
of such basis annually.
10.2 REPORTS. The Manager shall deliver to each Member within
ninety (90) days after the end of its fiscal year, tax information necessary for
the preparation of the Members' Federal income tax returns.
10.3 TAX MATTERS MEMBER. The Manager shall be the designated
party to receive all notices from the Internal Revenue Service which pertain to
the tax affairs of the Company. The Manager shall be the "tax matters partner"
as such term is defined in Section 6231(a)(7) of the Code with respect to
operations conducted by the Company pursuant hereto and in accordance therewith
take such actions and execute and file all statements and forms on behalf of the
Company which may be permitted or required by the applicable provisions of the
Code or Regulations.
10.4 BANK ACCOUNTS. The Manager shall cause one or more
accounts to be maintained in a bank (or banks) which is (are) a member(s) of the
Federal Deposit Insurance Corporation, which accounts shall be used for the
payment of the expenditures incurred by the Company in connection with its
business and in which shall be deposited any and all Company monies. All such
amounts shall be and remain the property of the Company and will be received,
held and disbursed by the Manager for only such purposes as are specified in
this Agreement. There shall not be deposited in any of such accounts any funds
other than funds belonging to the Company, and no other funds shall in any way
be commingled with such funds. The Manager may invest such funds, as it may deem
appropriate, in short term certificates of deposit, government obligations, or
prime grade commercial paper. All Company checks written upon and any
withdrawals from any such bank account or accounts may be made by the Manager.
10.5 FISCAL YEAR. The fiscal year of the Company shall be the
calendar year.
9
<PAGE> 10
ARTICLE XI
TRANSFER OF INTERESTS; EFFECT OF WITHDRAWAL EVENTS
11.l TRANSFER OF INTERESTS. No Member shall be entitled to
sell, mortgage, hypothecate, transfer, pledge, assign, donate, create a security
interest in or lien on, encumber, give, place in trust (voting or other) or
otherwise dispose of, including any involuntary transfer or transfer by
operation of law upon divorce, in bankruptcy or by way of execution, seizure or
sale by legal process (hereinafter "transfer"), all or any portion of his, her
or its Interest or any portion thereof unless the applicable provisions of this
Article 11 are complied with in full. Any attempted transfer of a Member's
Interest other than in accordance with the preceding sentence shall be null and
void and be of no force or effect. Each Member hereby further agrees to hold the
Company and each Member (and each Member's successors and assigns) wholly and
completely harmless from any cost, liability or damage (including without
limitation liabilities for income taxes and costs of enforcing this indemnity)
incurred by any such indemnified persons as a result of a transfer or an
attempted transfer in violation of this Agreement.
11.2 REQUIREMENTS OF TRANSFER.
(a) In the event a Member seeks to withdraw from the
Company and transfer his Interest ("Withdrawing Member"), he shall first be
required to obtain the approval of a majority of the then-remaining Members (on
a PER CAPITA basis). If such approval is granted, the Withdrawing Member shall
then be required to transfer such Interest PRO RATA to all of the then-remaining
Members. Each such remaining Member shall be obligated to acquire from such
Withdrawing Member that portion of such Withdrawing Member's Interest equal to
the amount obtained by multiplying such Withdrawing Member's Interest by a
fraction, the numerator of which is the Interest of the Member acquiring the
Withdrawing Member's Interest and the denominator of which is all of the
Interests in the Company less the Withdrawing Member's Interest.
(b) The consideration to be paid by the
then-remaining Members to the Withdrawing Member for such Interest shall be
Units of Everflow. The value of the Withdrawing Member's Interest shall be equal
to the percentage interest such Withdrawing Member's Interest represents in
Everflow. Accordingly, such value shall be calculated as a percentage interest
in Everflow and be paid to the Withdrawing Member in such number of Units (which
also represent a percentage interest in Everflow) as shall equal the indirect
percentage interest of the Withdrawing Member in Everflow.
(c) The provisions of Subsection 11.2(a) and (b)
notwithstanding, no Member shall be able to withdraw and transfer his Interest
to another Original Member pursuant to this Agreement, if the effect of any such
withdrawal or transfer would be to reduce the number of Original Members to
fewer than three (3) Original Members. In such event, a Member shall only be
able to withdraw as a Member and transfer his Interest to a substitute Member
acceptable to all of the then remaining Members in their absolute discretion and
otherwise comply with the provisions of Section 11.2(e).
10
<PAGE> 11
(d) In the event the provisions of Section 11.2(c)
prevent a Member from withdrawing from the Company, such a Member shall be
entitled to withdraw from the Company only upon compliance with the provisions
of Section 11.2(e).
(e) Upon the prior written approval of all
then-remaining Members, a substitute Member may acquire such Withdrawing
Member's Interest pursuant to the provisions of Section 11.2(b) (i.e. such
substitute Member shall pay the Withdrawing Member for such Withdrawing Member's
Interest in Units of Everflow and such Interest shall be valued equal to such
Interest's indirect percentage in Everflow). In the event such substitute Member
does not own any Units or sufficient Units to acquire such Withdrawing Member's
Interest, the then-remaining Members, on a PRO RATA basis, shall be obligated to
acquire such Withdrawing Member's Interest by payment to such Withdrawing Member
of such number of Units as shall be equal to such Interest's indirect percentage
interest in Everflow. Upon the occurrence of the events described in the
previous sentence, the substitute Member shall still be admitted to the Company
but shall be obligated to make such capital contribution to Everflow as the
Manager shall determine (any such transfer as heretofore described in this
Section 11.2(e) shall also be deemed a "Permitted Transfer" for purposes of this
Article VIII). In addition, such proposed substitute Member shall have agreed to
assume, perform and discharge all of the duties and obligations of a Member
hereunder.
(f) In addition to the requirements of subsections
11.2(a) through (e), no sale, exchange, assignment or transfer by a Member may
be made (i) if the Interests sought to be sold, exchanged, assigned or
transferred, when added to the total of all other Interests sold, exchanged,
assigned or transferred within the period of twelve (12) months prior thereto,
would result in the termination of the Company under Section 708 of the Code, or
any successor section thereto; (ii) except pursuant to an effective registration
statement under all applicable federal and state securities laws or in a
transaction which is exempt from registration under such laws; and (iii) (if the
Manger shall request) unless the transferor Member delivers to the Manager an
opinion, in form and substance and issued by counsel acceptable to the Manager,
covering such securities laws, tax and other aspects of the proposed transfer as
the Manager may request.
(g) Any Member who sells, assigns or otherwise
transfers all or any portion of his Interest in strict compliance with the terms
and provisions of this Agreement shall promptly notify the Manager of such
transfer and furnish the Manager the name and address of the transferee and such
other information as might be required under Section 650K of the Code and the
Regulations.
11.3 EFFECT OF EMPLOYMENT TERMINATION, DEATH OR DISABILITY.
Notwithstanding anything to the contrary herein, in the event any Member (i) who
is an employee of the Company, Everflow, EEI or EMC, has such employment
involuntarily terminated by the Company, Everflow, EEI or EMC, as the case may
be, (ii) dies or (iii) becomes permanently disabled, any such Member shall be
obligated to sell and all the then-remaining Members shall be obligated to
acquire, the Interest of such Member as if such purchase and sale were a
Permitted Transfer pursuant to the provisions of Section 11.2, and all the terms
and conditions of Section 11.2 shall apply to such purchase and sale. For
purposes of this Section 11.3, the death or disability of Robert F. Sykes,
Managing General Partner of Sykes Associates, one of the Members, shall be
deemed a "death" or "disability" as applicable of
11
<PAGE> 12
Member pursuant to subclause (ii) or (iii) hereof, and the Interests of Sykes
Associates shall thereupon be sold pursuant to the provisions of this Section
11.3.
11.4 SUBSTITUTE MEMBER. The assignee or successor in interest
of a Member in a Permitted Transfer may become a substitute Member only when:
(a) the Manager shall have consented thereto, and
such consent may be withheld by the Manager in its sole discretion;
(b) the assignee shall have expressed his intention
to become a substitute Member and accepts and adopts all of the terms and
provisions of this Agreement and any amendments hereto (including, without
limitation, the restrictions imposed under this Article VIII) by becoming a
party to this Agreement by executing a Substitute Member Counterpart Signature
Page;
(c) such certificates or instruments as are required
by law shall have been executed and filed; and
(d) the assignor or the assignee shall have paid or
obligated himself to pay all reasonable expenses (as the Manger may determine)
connected with such admission or substitution.
11.5 RESTRICTIONS OF SUBSTITUTE MEMBER. Notwithstanding
anything to the contrary herein, a Member's Interest or any portion thereof
shall not be assigned or transferred to any person who is insane, incompetent or
has not attained the age of majority, or to a person or entity not lawfully
empowered to own such Interest, and any assignment or transfer directly to a
person or entity under such disability may be disregarded by the Company, in its
discretion.
11.6 TIME OF TRANSFER. Any transfer of an Interest to a third
party by a Member permitted under this Article 11 shall be effective as of
midnight of the last day of the calendar month in which it is made, or, at the
election of a Majority-in-Interest of the remaining Members, as of 7:00 A.M. the
day following the date of the transfer (the "Effective Transfer Date.")
11.7 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED
INTEREST. If any Interest is transferred during any accounting period to a third
party or to a Member in compliance with the provisions of this Article 11,
Profits, Losses and each item thereof and all other items attributable to such
Interest for such period, shall be divided and allocated between the transferor
and the transferee by taking into account their varying interests during the
period in accordance with Article 9 hereof and Code Section 706(d), using the
Effective Transfer Date as the date upon which the change in ownership of the
Interest occurred, and using any conventions permitted by law and selected by a
Majority-in-Interest of the remaining Members. All distributions on or before
the Effective Transfer Date shall be made by the transferor and all
distributions thereafter shall be made to the transferee. Neither the Company
nor any Manager or Member shall incur any liability for making allocations and
distributions in accordance with the provisions of this Section 11.7, whether or
not any of them has knowledge of any transfer of ownership of any Interest.
12
<PAGE> 13
11.8 EFFECT OF WITHDRAWAL EVENTS
(A) NO RESIGNATION. No Member shall be entitled to
resign as a Member, except in connection with a transfer of such Member's entire
Member's Interest in the Company in compliance with the terms and conditions of
this Article 11 and, in the case of a resigning Member, with respect to which
his or her transferee has been admitted as a substitute Member in accordance
with Section 11.4.
(B) DEATH, DISSOLUTION, ADJUDICATION OF INCOMPETENCY.
If the Company is continued in accordance with Section 12.1 below following the
death, dissolution or adjudication of incompetency of a Member, such Member's
Interest shall not be terminated or repurchased and the successor-in-interest or
legal representative of such Member shall be substituted as a Member upon
compliance with the terms and conditions of Section 11.4.
(C) BANKRUPTCY EVENT. If the Company is continued in
accordance with Section 12.1 below following the occurrence of a Bankruptcy
Event with respect to a Member, then (1) his or her Member Interest shall be
immediately converted into an Economic Interest only and such Member shall be
immediately removed as a Member and shall thereafter have only the rights of an
Economic Interest Owner; (2) unless the call option provided under clause (3)
below is exercised by the Company, such Member shall not withdraw or resign from
the Company, have his or her Member Interest repurchased or have any right to
compel any payment by the Company for his or her Member Interest; and (3) the
Company shall have the option, but not the obligation, to repurchase such
Member's Interest in its entirety, which such option shall be exercisable by the
delivery to such Member of written notice to such effect within 180 days after a
Majority-in-Interest of the remaining Members have elected to continue the
Company. The price for such Member's Interest in connection with a purchase and
sale hereunder shall be the Appraised Price. Such purchase and sale shall be
consummated not more than ninety (90) days after the date the Company elects to
exercise its option hereunder, by the payment of the purchase price by the
Company in cash or by certified check against the delivery by such Member (or
its successors) of written representations and warranties with respect to his or
its good and marketable title to the Member Interest, free and clear of adverse
claims, his or its full capacity and legal right to transfer the Interest to the
Company and his or its right to transfer the Member Interest to the Company
without the consent or action of any third party.
(D) NO OTHER WITHDRAWAL. Except as expressly provided
in this Section 11.8 and in Section 12.2 in connection with the termination and
winding up of the Company, the Company shall not be obligated to repurchase the
Member's Interest of any Member, nor shall a Member be entitled to receive any
other payment or distribution in connection with his or her withdrawal from the
Company.
ARTICLE XII
TERMINATION, LIQUIDATION AND WINDING UP
12.1 TERMINATION OF THE COMPANY. The Company shall terminate
upon the first to occur of: (a) the unanimous written agreement of the Members;
(b) the occurrence of a Withdrawal Event as to any Member, unless a
Majority-in-Interest of the remaining Members
13
<PAGE> 14
agree to continue the Company within ninety (90) days after the occurrence of
such Withdrawal Event. Except as specifically stated in this Section 12.1, no
event that would cause a dissolution under the Act causes a dissolution of the
Company.
12.2 METHOD OF DISTRIBUTION UPON WINDING UP. Upon termination
of the Company pursuant to Section 12.1 above, the assets of the Company and
proceeds of any liquidation shall be applied and distributed in the following
manner and order of priority:
(a) to the payment and discharge of all of the
Company's debts and liabilities and expenses of liquidation and dissolution;
(b) to the setting up of any reserves reasonably
necessary for any contingent or unforeseen liabilities or obligations of the
Company;
(c) to the payment of the balance, if any, of the
respective Capital Accounts of the Members (after making the allocations
required under the provisions of Article IX), but if the amount available for
such payment shall be insufficient, then PRO RATA among all of the Members
according to the respective positive balances of their Capital Accounts at such
time; and
(d) the remainder, if any, to the Members in
accordance with their respective balances.
12.3 WINDING UP AND LIQUIDATION. As soon as possible following
the occurrence of any event of termination, the Company shall execute and file
as provided in the Ohio Act a statement of intent to dissolve in such form as
shall be prescribed by the Secretary of State of Ohio or which otherwise
complies with the Act. Upon the filing of such statement of intent to dissolve
with the Secretary of State of Ohio, the Company shall cease to carry on its
business, except insofar as may be necessary for the winding up of its affairs,
but its separate existence shall continue until a certificate of dissolution has
been filed with the Secretary of State of Ohio or until a decree dissolving the
Company has been entered by a court of competent jurisdiction. The filing of the
statement of intent to dissolve shall not affect the limited liability of the
Members. A reasonable time shall be allowed for the orderly liquidation of the
assets of the Company and the discharge of liabilities to creditors so as to
enable the Members to minimize the normal losses attendant upon a liquidation.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 NOTICES. Any notice or communication required or
permitted to be given by any provision of this Agreement shall be deemed to have
been given and received for all purposes when delivered personally to the party
to whom the same is directed or when mailed or sent by overnight delivery
service, charges prepaid, addressed to the party to whom the same is directed at
the address set forth in this Agreement, or such other address as the Company
has received written notice from time to time.
14
<PAGE> 15
13.2 GOVERNING LAW. The Company, this Agreement and the rights
of the Members hereunder shall be governed by the laws of the State of Ohio.
13.3 WAIVER OF ACTION FOR PARTITION. Each Member irrevocably
waives any right that he, she or it may have to maintain any action for
partition with respect to the property of the Company.
13.4 AMENDMENTS. The Agreement may be amended from time to
time by a writing executed by the Majority-in-Interest of the Members; PROVIDED,
HOWEVER, that (i) Schedule A may be modified from time to time by the Manager to
reflect any change in the Members or in their respective interests, (ii) no
amendment shall reduce a Member's percentage interest unless the writing is
executed by him, (iii) no amendment shall effect any change in this section
unless the writing is executed by all of the Members, and (iv) no amendment
shall effect any change in any provision of this Agreement providing for action
to be taken by a specified percentage of Interests in the Company unless the
writing is executed by Members whose aggregate Interests at least equal the
percentage specified in the provision to be changed.
13.5 CONSTRUCTION. Whenever the singular is used in this
Agreement and when required by the context, the same shall include the plural
and vice versa, and the masculine gender shall include the feminine and neuter
genders and vice versa. The headings in this Agreement are for convenience only
and are in no way intended to describe, interpret, define or limit the scope,
extent or intent of this Agreement or any of its provisions.
13.6 ENTIRE AGREEMENT. This Agreement contains the entire
understanding among the parties with respect to the subject matter hereof and
supersedes any prior understandings and agreements, whether written or oral,
with respect to such subject matter.
13.7 SEVERABILITY. If any provision of this Agreement or its
application to any person or circumstance shall, for any reason and to any
extent, be invalid, illegal or unenforceable, the remainder of this Agreement
and the application of such provision to other persons or circumstances shall
not be affected thereby, but rather shall be enforceable to the fullest extent
permitted by law.
13.8 HEIRS, SUCCESSORS AND ASSIGNS. Each and all of the
covenants, terms, provisions and agreements contained in this Agreement shall be
binding upon and inure to the benefit of the parties hereto and, to the extent
permitted by this Agreement, their respective heirs, legal representatives,
successors and assigns.
13.9 CREDITORS. None of the provisions of this Agreement shall
be for the benefit of or enforceable by any creditors of the Company.
13.10 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
13.11 FEDERAL INCOME TAX ELECTION. In the event of a transfer
of all or any portion of the Interest of any Member, the Company shall elect
pursuant to Section 754 of the Code to adjust the basis of assets of the Company
upon written request of the transferee.
15
<PAGE> 16
13.12 INJUNCTIVE RELIEF. Each Member acknowledges that it will
be impossible to measure in money the damage to the Company and to the other
Members if there is a failure to comply with this Agreement. It is therefore
agreed that the Company or any other Member, in addition to any other rights or
remedies which they may have, shall be entitled to immediate injunctive relied
and to specific performance to enforce this Agreement and that if any action or
proceeding is brought in equity to enforce it, no party will urge, as a defense,
that there is an adequate remedy at law.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
16
<PAGE> 17
IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement as of the date first above written.
EVERFLOW MANAGEMENT CORPORATION
By: /s/William A. Siskovic
--------------------------------------
Its: Vice President
--------------------------------------
SYKES ASSOCIATES
By: /s/Robert F. Sykes
--------------------------------------
Robert F. Sykes, general partner
/s/Thomas L. Korner
--------------------------------------
Thomas L. Korner
/s/William A. Siskovic
--------------------------------------
William A. Siskovic
/s/David T. Matak
--------------------------------------
David T. Matak
17
<PAGE> 18
SCHEDULE A
----------
MEMBERS' NAMES, CAPITAL CONTRIBUTION
------------------------------------
AND PERCENTAGE INTERESTS
------------------------
<TABLE>
<CAPTION>
Capital Percentage
Account Interest
------- --------
<S> <C> <C>
Everflow Management Corporation $ 4,916 1%
585 West Main Street
Canfield, Ohio 44406
Sykes Associates $ 278,131 56.571471%
60 Brookside Drive
Rochester, NY 14618
Thomas L. Korner $ 69,533 14.142843%
4200 W. Middletown Road
Canfield, Ohio 44406
William A. Siskovic $ 69,533 14.142843%
3745 Fawn Drive
Youngstown, Ohio 44406
David T. Matak $ 69,533 14.142843%
1953 Quaker Lane
Salem, Ohio 44460
</TABLE>
<PAGE> 19
EXHIBIT 1
---------
DEFINITIONS
-----------
Certain capitalized words and phrases used in this Agreement shall have the
following meanings:
(A) "AFFILIATE" means with respect to another person, (i) any
person who directly or indirectly owns, controls or holds, with power
to vote, five percent (5%) or more of the outstanding voting securities
of such other person, (ii) any person with respect to which five
percent (5%) or more of the outstanding voting securities are directly
or indirectly owned, controlled or held, with power to vote, by such
other person, (iii) any person directly or indirectly controlling,
controlled by or under common control with such other person, (iv) any
officer, director or partner of such other person, and (v) if such
other person is an officer, director or partner, any company,
partnership, association or other entity or organization for which such
person acts in any such capacity.
(B) "AGREEMENT" means this Operating Agreement of Everflow
Management Limited, LLC, as originally executed and as amended from
time to time in accordance with Section 13.4 hereof.
(C) "APPRAISED PRICE" means the price determined by a
qualified appraiser selected by the Manager.
(D) "ARTICLES OF ORGANIZATION" mean the Articles of
Organization of the Company as filed with the Secretary of State of
Ohio on March 8, 1999, as the same may be amended from time to time in
accordance with the Ohio Act.
(E) "BANKRUPTCY EVENT" means, with respect to any Member:
(1) the making of an assignment for the benefit
of creditors;
(2) the filing of a voluntary petition in
bankruptcy;
(3) the adjudication of bankruptcy or
insolvency, or the entry of an order for
relief, in any bankruptcy or insolvency
proceeding;
(4) the filing of a petition or answer seeking
for the Member any reorganization,
arrangement, composition, readjustment,
liquidation, dissolution or similar relief
under any statute, law or regulation;
(5) the filing of an answer or other pleading
admitting or failing to contest the material
allegations of a petition filed against the
Member in any proceeding of a nature
described in (1) - (4) above;
<PAGE> 20
(6) seeking, consenting to or acquiescing in the
appointment of a trustee, receiver or
liquidator of the Member or of all or any
substantial part of his or its properties;
or
(7) the passage of 120 days after the
commencement of any proceeding against the
Member seeking reorganization, arrangement,
composition, readjustment, liquidation,
dissolution or similar relief under any
statute, law or regulations, if the
proceeding has not been dismissed, or the
passage of 90 days after the appointment
without his or its consent or acquiescence
of a trustee, receiver or liquidator of the
Member or of all or any substantial part of
his or its properties, if the appointment is
not vacated or stayed, or the passage of 90
days after the expiration of any such stay,
if the appointment is not vacated.
(F) "CAPITAL ACCOUNT" means, with respect to any Member, the
Capital Account maintained for such Person pursuant to the provisions
of Section 8.4 of this Agreement, which shall be determined and
adjusted as follows:
(1) To each Member's Capital Account, there
shall be credited the following: (a) such
Member's Capital Contributions; and (b) such
Member's allocations of Profits; and
(2) To each Member's Capital Account there shall
be debited the following: (a) the amount of
cash distributed to such Member pursuant to
any provision of this Agreement; and (b)
such Member's allocation of Losses.
(G) "CAPITAL CONTRIBUTION" means the amount in cash or
agreed-upon value of property contributed by each Member (or its or
his/her predecessors in interest) to the capital of the Company for its
or his/her Interest, as set forth on SCHEDULE A attached hereto.
(H) "CASH FLOW" means the excess of all cash received by the
Company (whether from the sale of Company assets or otherwise), over
amounts applied to the payment of the obligations and expenses incurred
by the Company and any reserves deemed necessary and prudent by the
Manager for future operations of the Company.
(I) "CODE" means the Internal Revenue Code of 1986, as
amended, or corresponding provisions of succeeding federal revenue
laws.
(J) "COMPANY" means Everflow Management Limited, LLC.
(K) "ECONOMIC INTEREST" means the interest in the Company's
Profits, Losses and distributions owned by a Person who is not a
Member.
<PAGE> 21
(L) "ECONOMIC INTEREST OWNER" means any Person who owns an
Economic Interest but who is not a Member.
(M) "EFFECTIVE TRANSFER DATE" is defined in Section 11.6.
(N) "EVERFLOW" means Everflow Eastern Partners, L.P., a
Delaware limited partnership.
(O) "GROSS ASSET VALUE" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as
follows:
(1) The Gross Asset Values of all Company assets
shall be adjusted to equal their respective
gross fair market values as of the following
times: (a) the acquisition of an additional
Member's Interest or Economic Interest
(other than pursuant to Section 8.1 hereof)
by any new or existing Member in exchange
for more than a DE MINIMIS Capital
Contribution; (b) the distribution by the
Company to a Member of more than a DE
MINIMIS amount of Company property
(including cash) as consideration for an
Interest, if the Manager reasonably
determines that such adjustment is necessary
or appropriate to reflect the relative
economic interests of the Members in the
Company; and (iii) the liquidation of the
Company within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g).
(2) The Gross Asset Values of Company assets
shall be increased (or decreased) to reflect
any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b)
or Code Section 743(b), but only to the
extent that such adjustments are taken into
account in determining Capital Accounts
pursuant to Regulation Section
1.704-1(b)(2)(iv)(m); PROVIDED, HOWEVER,
that Gross Asset Values shall not be
adjusted pursuant to this paragraph (O)(2)
to the extent the Manager shall determine
that an adjustment pursuant to paragraph
(O)(1) is necessary or appropriate in
connection with a transaction that would
otherwise result in an adjustment pursuant
to this paragraph (O)(2).
(P) "INTERESTS" means the interest in the Company's Profits,
Losses and distributions owned by a Member.
(Q) "MAJORITY-IN-INTEREST", when used with respect to the
Members, means Members holding more than 71% of the Percentage
Interests held in the aggregate by all Members.
(R) "MANAGER" means Everflow Management Corporation, an Ohio
corporation.
<PAGE> 22
(S) "MEMBER" means (1) any Person whose name is set forth on
SCHEDULE A attached hereto under the caption "Member," or (2) any
Person who has been admitted as a additional or substituted Member
pursuant to the terms of this Agreement; PROVIDED, that, if a Member
transfers all of his or its interest in the Company's Profits, Losses
and distributions, from and after the date of such transfer such
transferor shall no longer be a Member and shall thereafter have none
of the other rights associated with his or its Member's Interest.
"Members" means all such Persons.
(T) "MEMBER'S INTEREST" means the entire interest in the
Company owned by a Member, including such Member's (1) interest in the
Company's Profits, Losses and distributions, (2) rights with respect to
the management and administration of the Company, (3) access to or
rights to demand or require any information or account of the Company
or its affairs, and (4) rights to inspect the books and records of the
Company.
(U) "OHIO ACT" means the Ohio Limited Liability Company Act,
Ohio Revised Code Sections 1705.01 et seq., as amended from time to
time (or any corresponding provisions of succeeding law).
(V) "PERCENTAGE INTEREST" means the Members' relative shares
of the Company's Profits, Losses and interim distributions, as set
forth from time to time on SCHEDULE A attached hereto.
(W) "PERSON" has the meaning set forth in Section 1705.01(K)
of the Ohio Revised Code, as amended from time to time (or any
corresponding provisions of succeeding law).
(X) "PROFITS" and "LOSSES" means, for each fiscal year or
other period, an amount equal to the Company's taxable income or loss
for such year or period, determined in accordance with Code Section
703(a) (for this purpose, all items of income, gain, loss or deduction
required to be stated separately pursuant to Code Section 703(a)(1)
shall be included in taxable income or loss), with the following
adjustments:
(1) Any income of the Company that is exempt
from federal income tax and not otherwise
taken into account in computing Profits or
Losses pursuant to this paragraph (X) shall
be added to such taxable income or loss.
(2) Any expenditures of the Company described in
Code Section 705(a)(2)(B) or treated as Code
Section 705(a)(2)(B) expenditures pursuant
to Regulations Section 1.704-1(b)(2)(iv)(i),
and not otherwise taken into account in
computing Profits or Losses pursuant to this
paragraph (X), shall be subtracted from such
taxable income or loss.
(3) At any time the Gross Asset Value of any
Company property is adjusted pursuant to
paragraph (O)(1), the amount of such
<PAGE> 23
adjustment shall be taken into account as
gain or loss from the disposition of such
property for purposes of computing Profits
or Losses.
(4) Gain or loss resulting from the disposition
of any Company asset with respect to which
gain or loss is recognized for federal
income tax purposes shall be computed by
reference to the Gross Asset Value of the
property disposed of, notwithstanding that
the adjusted tax basis of such property
differs from its Gross Asset Value.
(Y) "REGULATIONS" means the regulations promulgated under the
Code, as the same may be amended from time to time, including
corresponding provisions of any succeeding regulations.
(Z) "WITHDRAWAL EVENT" means the death, dissolution,
adjudication of incompetency, occurrence of a Bankruptcy Event or
resignation (except as expressly permitted by this Agreement) of or
with respect to a Member.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 461,548
<SECURITIES> 2,250,148
<RECEIVABLES> 3,047,570
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,885,302
<PP&E> 113,677,832
<DEPRECIATION> 63,152,557
<TOTAL-ASSETS> 56,463,624
<CURRENT-LIABILITIES> 3,084,522
<BONDS> 549,718
0
0
<COMMON> 0
<OTHER-SE> 52,834,750
<TOTAL-LIABILITY-AND-EQUITY> 56,463,624
<SALES> 4,085,041
<TOTAL-REVENUES> 4,220,169
<CGS> 592,797
<TOTAL-COSTS> 2,174,793
<OTHER-EXPENSES> 591,596
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,469
<INCOME-PRETAX> 1,443,628
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,443,628
<EPS-PRIMARY> .23
<EPS-DILUTED> 0
</TABLE>
