Exhibit (a)(1)
Offer to Purchase for Cash
by
EVERFLOW EASTERN PARTNERS, L.P.
of Up to
577,117 Units of Limited Partnership Interest
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, EASTERN DAYLIGHT TIME, ON FRIDAY, JUNE 28, 2002, UNLESS
EXTENDED.
Everflow Eastern Partners, L.P., a Delaware limited partnership (the
"Company" or "Everflow"), is offering to purchase up to 577,117, or 10%, of our
Units of limited partnership interests (the "Units") at a price of $5.66 per
Unit in cash (the "Purchase Price"), upon the terms and subject to the
conditions described in this Offer to Purchase and in the related Letter of
Transmittal (which together are referred to as the "Offer"). The Purchase Price
was determined pursuant to the terms of our partnership agreement. The Offer is
made based upon a predetermined annual calculation as defined in our partnership
agreement and described in detail in the Newsletter and Financial Statements
provided to each Unitholder. We reserve the right, in our sole discretion, to
purchase more than 577,117 Units pursuant to the Offer, but we have no current
intention to do so.
Acceptance of the Offer by a Unitholder is subject to certain risks,
including:
- The purchase price of $5.66 per Unit is (a) less than the book
value per Unit ($8.72) as of December 31, 2001, (b) in the
range of prices at which the Units were last traded ($5.35 to
$5.75) in private transactions, (c) may be less than fair
market value, and (d) may be less than the value which could
be received in a sale or other disposition of the Company's
assets. There have been two trades since June 30, 2000,
including one trade in August 2000 and one trade in September
2000. There were no trades during 2001 or 2002.
- The Company may incur increased debt to fund the Offer.
- Acceptance of the Offer is a taxable event to a Unitholder. A
portion or all of the taxable gain on the sale of Units is
subject to recapture for amounts representing intangible
drilling and development costs and certain depletion
deductions, which would be treated as ordinary income for
federal income tax purposes.
- Management will not tender Units, and its percentage ownership
of the Company will therefore increase as a result of the
Offer.
- The Company has not obtained or performed any valuation in
calculating the purchase price, other than the reserve report.
You should review "RISK FACTORS" for a more complete explanation of these risks.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF UNITS BEING
TENDERED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE ABSENCE OF
CERTAIN ADVERSE CONDITIONS DESCRIBED IN SECTION 6 - "CERTAIN CONDITIONS OF THE
OFFER."
IMPORTANT
Any Unitholder wishing to tender all or any portion of his, her or its
Units should complete and sign the enclosed Letter of Transmittal or a facsimile
copy thereof in accordance with the instructions in the Letter of Transmittal
and deliver it and any other required documents to us and deliver the
certificates, if any, for such Units to us. A Unitholder having Units registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
must contact that broker, dealer, commercial bank, trust company or other
nominee if he, she or it desires to tender such Units.
Questions and requests for assistance or for additional copies of this
Offer to Purchase and the Letter of Transmittal may be directed to William A.
Siskovic, Vice President and Secretary-Treasurer, at 330-533-2692.
The date of this Offer to Purchase is April 30, 2002
NEITHER THE COMPANY NOR ITS GENERAL PARTNER MAKES ANY RECOMMENDATION TO ANY
UNITHOLDER AS TO WHETHER THE OFFER IS FAIR OR WHETHER TO TENDER OR REFRAIN FROM
TENDERING ANY OR ALL OF HIS, HER OR ITS UNITS. EACH UNITHOLDER MUST MAKE HIS,
HER OR ITS OWN DECISION WHETHER TO TENDER UNITS AND, IF SO, WHAT AMOUNT OF UNITS
TO TENDER. EACH UNITHOLDER SHOULD CONSIDER THE APPLICABLE TAX CONSEQUENCES
BEFORE TENDERING UNITS. SEE SECTION 11.
THIS OFFER IS NOT CONDITIONED UPON ANY MINIMUM AMOUNT OF UNITS BEING
TENDERED.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF
THE COMPANY AS TO WHETHER UNITHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING
UNITS PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER OTHER
THAN THOSE CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE,
SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ITS GENERAL PARTNER.
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EVERFLOW EASTERN PARTNERS, L.P.
SUMMARY TERM SHEET FOR OFFER TO PURCHASE
The following summary term sheet contains a list of questions that you
may have about Everflow's Offer, and Everflow's answers to those questions. For
more information about the Offer, see the Offer to Purchase.
1. WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE OFFER, AND
WHO IS OFFERING TO BUY MY UNITS?
Everflow Eastern Partners, L.P., is offering to purchase up to 577,117
(10%) of its Units of limited partnership interest.
2. HOW MUCH IS EVERFLOW OFFERING TO PAY FOR MY UNITS, AND WHAT IS THE FORM
OF PAYMENT?
Everflow is offering to pay $5.66 per Unit in cash.
3. ARE THERE ANY SPECIAL TAX CONSIDERATIONS?
The sale proceeds from Units tendered is a taxable event. A significant
portion of the taxable gain on the sale of Units may be subject to
recapture and treated as ordinary income for federal income tax
purposes.
4. DOES EVERFLOW HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT?
Everflow intends to obtain the cash necessary to purchase Units
tendered in the Offer from short-term investments and Everflow's
existing credit facility.
5. HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER?
You have until 12:00 p.m. midnight on Friday, June 28, 2002 to tender
your Units in this Offer.
6. CAN THE OFFER BE EXTENDED, AND UNDER WHAT CIRCUMSTANCES, AND HOW WILL I
BE NOTIFIED OF AN EXTENSION?
Everflow can extend the Offer at any time, but has no present intention
to do so. If the Offer is extended, Everflow will give written notice
to Unitholders.
7. WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER?
Everflow is not required to purchase any Units in the Offer if there is
a reasonable likelihood that the consummation of the Offer would result
in the termination of Everflow, or if a governmental proceeding
challenges the making of the Offer or Everflow's purchase of Units.
Further, if any change occurs in Everflow's business that is reasonably
determined by Everflow to be material, then Everflow is not required to
purchase any Units in the Offer.
8. HOW DO I TENDER MY UNITS?
To tender your Units in this Offer, you should complete the attached
Letter of Transmittal and send it to Everflow at the address listed in
the Letter of Transmittal prior to 12:00 p.m. midnight on Friday, June
28, 2002.
9. UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED UNITS?
You can withdraw any of your previously tendered Units at any time
prior to 12:00 p.m. midnight on Friday, June 28, 2002.
10. IS THIS THE FIRST STEP IN A GOING-PRIVATE TRANSACTION?
The Offer is made on a yearly basis as required by Everflow's
partnership agreement. The Offer is not intended to be a going-private
transaction, nor is it the first step in a going-private transaction.
11. IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY UNITS?
The Offer is made on a yearly basis according to Everflow's partnership
agreement. Your Units will not be affected if you decide not to tender
in this Offer.
12. WHAT IS THE MARKET VALUE OR THE NET ASSET OR LIQUIDATION VALUE OF MY
UNITS AS OF A RECENT DATE?
The book value of a Unit as of December 31, 2001 was $8.72. Units were
last traded in private transactions in August and September 2000, at
prices between $5.35 and $5.75.
13. WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE TENDER OFFER?
If you have any questions about the Offer, you can contact Mr. William
A. Siskovic, Vice President and Secretary-Treasurer, at 585 West Main
Street, P.O. Box 629, Canfield, Ohio 44406. Everflow's telephone number
is 330-533-2692.
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CONTENTS
Page
Introduction .................................................... 5
Section 1. Background and Purposes of the Offer ................ 9
Section 2. Number of Units; Extension of the Offer; Proration .. 9
Section 3. Procedure for Tendering Units ....................... 10
Section 4. Withdrawal Rights ................................... 11
Section 5. Purchase of Units; Payment of Purchase Price ........ 12
Section 6. Certain Conditions of the Offer ..................... 12
Section 7. Price Range of Units; Cash Distribution Policy ...... 14
Section 8. Effects of the Offer ................................ 15
Section 9. Source and Amount of Funds .......................... 16
Section 10. Certain Information About the Company; Historical
and Pro Forma Financial Information ................. 17
Section 11. Certain Federal Income Tax Consequences ............. 22
Section 12. Transactions and Arrangements Concerning Units ...... 22
Section 13. Extensions of Tender Period; Terminations; Amendments 22
Section 14. Fees and Expenses ................................... 23
Section 15. Miscellaneous ....................................... 23
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To Holders of Units of
EVERFLOW EASTERN PARTNERS, L.P.
INTRODUCTION
In accordance with the requirements set forth in Article XI of its
Partnership Agreement, Everflow Eastern Partners, L.P., a Delaware limited
partnership (the "Company"), hereby offers to purchase up to 577,117, or 10%, of
its units of limited partnership interest (the "Units"), at a price of $5.66 per
Unit (the "Purchase Price") to the seller in cash upon the terms and subject to
the conditions set forth herein and in the related Letter of Transmittal (which
together constitute the "Offer"). The Company reserves the right in its sole
discretion to purchase more than 577,117 Units pursuant to the Offer, but has no
current intention to do so. The Company confirms that if it increases the amount
of Units sought by more than 2%, the Company will keep the Offer open for at
least ten (10) business days after notice of the increase is first published,
sent or given to Unitholders.
The Purchase Price calculation is included in the 2001 Annual Report
Newsletter which was mailed with this Offer to Purchase. The price per Unit
offered by the Company has been determined based on 66% of the Adjusted Book
Value of the Company to the Limited Partners as of January 1, 2002, divided by
5,771,174, the total number of Units then outstanding, as adjusted for cash
distributions of $.25 per Unit each made on January 2, 2002 and April 1, 2002,
as provided for in the Company's Partnership Agreement. The Adjusted Book Value
of the Company was determined utilizing the Company's audited financial
statements as of December 31, 2001. A copy of such statements is included with
this Offer. In calculating the Adjusted Book Value, the Company determined the
Partner's total equity from the Company's audited financial statements as of
December 31, 2001, added the "Standardized Measure of Discounted Future Net Cash
Flows" for the Company's Proved Developed Reserves as presented in the footnotes
to such financial statements and as adjusted without giving effect to any taxes,
and deducted the carrying value of the Company's oil and gas properties (cost
less accumulated depreciation, depletion and amortization) evaluated at December
31, 2001. For purposes of this calculation, the future net cash flows of the
Company were determined based upon a review and analysis of the Company's Proved
Developed Reserves by Wright & Company, Inc., independent petroleum consultants,
as of December 31, 2001. Such future net cash flows were discounted by 10% to
arrive at the net present value of such reserves, consistent with the Company's
footnote disclosure of supplemental unaudited oil and gas information as
required by Statement of Financial Accounting Standards No. 69, "Disclosures
about Oil and Gas Producing Activities." No reserve value was attributed to any
of the Company's undeveloped lease acreage or properties. Other than the report
prepared by Wright & Company, Inc., the Company has not obtained any independent
valuations in calculating the Purchase Price. Management of the Company believes
that the Purchase Price may be less than the value which could be realized by
the Unitholders in the event of a liquidation or sale of the Company. Management
has, from time to time, explored the possible sale of the Company. Management
has not discussed the potential sale of the Company with a potential buyer in
the past year. Although management
5
may 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 to maximize Unitholder
value.
The Company will purchase up to 577,117 Units. If more than 577,117
Units are tendered during the Offer, the Units to be purchased will be
determined on a pro rata basis with the amount of Units purchased from a
Unitholder equal to a fraction of the Units tendered, the numerator of which
will be 577,117 and the denominator of which will be the total number of Units
properly tendered. The fraction so calculated will be applied to the Units
tendered by any individual Unitholder to determine the number of Units, rounded
down to the nearest whole number, which will be purchased by the Company from
such Unitholder. Fractions of Units will not be purchased. Notice will be given
to a Limited Partner for those Units not purchased. If a Unitholder delivers any
certificates representing Units to the Company, a new certificate for the Units
not purchased by the Company will be sent to the Unitholder. Should such
Unitholder present the non-purchased Units for purchase in any subsequent year,
no preferential rights will attach as a result of any prior presentment of Units
pursuant to a previous Offer. Units purchased by the Company pursuant to this
Offer will be held as Treasury Units and shall not be subject to resale.
The Company will continue to make yearly tender offers for Units
pursuant to the terms of the Partnership Agreement. The Company's intention is
not to acquire Units over time at minimum prices, but rather to fulfill its
obligations under the Partnership Agreement.
The Offer is not conditioned upon any minimum amount of Units being
tendered. The Offer is conditioned upon, among other things, the absence of
certain adverse conditions described in Section 6. The Offer will not be
consummated if, in the opinion of the Board of Directors of the Managing Member
of the General Partner of the Company, there is a reasonable likelihood that
such a purchase would result in the termination of the Company (as a
partnership) under Section 708 of the Internal Revenue Code of 1986, as amended
(the "Code"), or termination of the Company's status as a partnership for
federal income tax purposes under Section 7704 of the Code. See Section 6.
There are currently 1,443 Unitholders of record. In 2001, prior to a
similar offer, there were 1,499 Unitholders of record, and 59 of those
Unitholders tendered their Units in that offer. In 2000, there were 1,567
Unitholders of record, and 82 of those Unitholders tendered their Units in that
offer. In 1999, there were 1,620 Unitholders of record, and 53 of those
Unitholders tendered their Units in that offer. Similarly, in 1998, there were
1,652 Unitholders of record, and 33 of those Unitholders tendered their Units in
that offer.
Based upon the Company's estimate and supported by the Company's
experience with past tender offers, the Company does not anticipate that the
number of Unitholders of record will decrease to less than 300. Therefore, the
tender offer should not be considered a "Rule 13e-3 transaction" as that term is
defined under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
6
All purchases of Units pursuant to the Offer will be effective as of
June 28, 2002. Each Unitholder who tenders Units pursuant to the Offer will
receive only the Purchase Price and will not receive any additional cash
distributions on any tendered Units, including any cash distributions to be paid
after the April 1, 2002 distribution.
The price at which Units may be repurchased by the Company pursuant to
the Offer should not necessarily be viewed as the fair market value of a Unit.
The sale of a Unit will be a taxable event, and gain (including recapture of
intangible drilling costs and depreciation expense) or loss will be recognized
by a Unitholder for federal income tax purposes. Unitholders are urged to review
carefully all the information contained or referred to in this Offer to Purchase
and the Letter of Transmittal including, without limitation, the information
presented in Section 11 regarding certain federal income tax consequences.
As of March 31, 2002, Everflow Management Limited, LLC, the General
Partner of the Company, owned 1.15% of the Company and all Directors and
executive officers of Everflow Management Corporation ("EMC"), the managing
member of the General Partner of the Company, beneficially owned an aggregate of
1,261,440 Units, in addition to their beneficial ownership of Everflow
Management Limited, LLC's interest, collectively representing approximately 22%
of the outstanding Units. The Company has been advised that Everflow Management
Limited, LLC does not intend to tender any Units pursuant to the Offer. No
executive officers and Directors of EMC intend to tender Units pursuant to the
Offer. Assuming the Offer is fully subscribed, all Directors and executive
officers of EMC will own, after the Offer, approximately 24% of the outstanding
Units.
RISK FACTORS
The tender of Units to the Company involves a number of significant
risks.
Purchase Price May Be Less Than Fair Market Value of Assets. The fair
market value of the Company's assets may be greater than the aggregate Purchase
Price per Unit. Pursuant to Article XI of the Amended and Restated Agreement of
Limited Partnership of the Company (the "Partnership Agreement"), the Purchase
Price was calculated to equal 66% of the Adjusted Book Value of the Partnership
as of December 31, 2001, as adjusted for cash distributions of $.25 per Unit
each on January 2, 2002 and April 1, 2002. There is currently no established
trading market for the Units. The Company is aware that some Units have been
sold at prices ranging from $5.35 to $5.75 in August and September 2000. The
Company is not aware of any Units sold since September 2000. However, the
Company is not always aware of all of the prices at which Units have traded. The
Purchase Price of $5.66 is in the range of prices at which the Units have
last traded in the private market. The Company is not aware of any person or
persons who would be interested in purchasing up to 577,117 Units.
The Company, pursuant to the terms of the Partnership Agreement, began
offering to repurchase Units in April 1992, and has made an offer each year
since 1992. It is the Company's belief that the Purchase Price relating to the
Offer for each year was below the fair market value of the Company's assets.
Management believes that this is a function of the
7
calculation of the Purchase Price, which is, by definition, a percentage of the
Adjusted Book Value per Unit. Therefore, the fair market value of the Company's
assets is greater than the aggregate Purchase Price per Unit. During 1995 and
1996, the price at which the Company offered to purchase the Units pursuant to
the Repurchase Right included a special premium, primarily as a result of the
Company's increased revenues. This special premium is not included for the 2002
Repurchase Right. There can be no assurance that any special premium will be
included in future Repurchase Rights.
Management has explored the possible sale of the Company, but has not
discussed the potential sale of the Company with a potential purchaser in the
past year. There have been a number of transactions involving the purchase and
sale of oil and gas properties in the Appalachian Basin over the past several
years. Management believes that, if the Company could receive values comparable
to those reported in certain of these acquisitions, the values which could be
realized by the Unitholders from a sale of the Company's assets would likely
exceed the Purchase Price.
The legal termination date of the Partnership as set forth in the
Partnership Agreement is December 31, 2035.
Repurchase Right is a Taxable Event. The acceptance of this Offer and
subsequent sale of Units to the Company generally will be a taxable event for
federal and most state tax purposes. The amount of gain realized on the sale of
a Unit will be, in general, the excess of $5.66, plus the Unitholder's allocable
share of liabilities of the Company which have resulted in a basis increase,
over the Unitholder's adjusted tax basis of the Units which are sold to the
Company. The sale of Units held by a Unitholder for more than one year would
result in long-term capital gain or loss, except to the extent of unrealized
receivables (including deductions for intangible drilling and development costs,
cost recovery deductions and to any depletion deductions which are subject to
recapture) and substantially appreciated inventory, which could be treated as
ordinary income. The deduction of net capital losses is limited to $3,000 per
year.
Deductions for intangible drilling and development costs, cost recovery
deductions and all depletion deductions (except for percentage depletion
deductions in excess of the basis of a property) will be subject to recapture on
the disposition of a Unit. Any such recaptured deductions will be treated as
ordinary income, with the amount recaptured limited to the amount of taxable
gain on the sale of the Unit.
Increased Voting Control by Management. If the Offer is fully
subscribed, the percentage ownership of Units held by all Directors and
executive officers of the Company will increase. As of March 31, 2002, all
Directors and executive officers of the managing general partner of the Company
beneficially own an aggregate of 1,261,440 Units, representing approximately 22%
of the outstanding Units. The Company has been advised that Everflow Management
Limited, LLC does not intend to tender any Units pursuant to the Offer. Assuming
the Offer is fully subscribed, all Directors and executive officers will, after
the Offer, own approximately 24% of the outstanding Units. Limited Partners are
entitled to vote on only
8
certain matters relating to the Partnership, including removing the General
Partner and terminating the Partnership. Any such vote must be approved by a
majority of the Limited Partners.
The Company makes yearly tender offers for Units pursuant to the terms
of the Partnership Agreement. The Purchase Price for the Offer was determined,
as it has been determined for each yearly tender offer, in accordance with a
specific formula set forth in the Partnership Agreement and discussed elsewhere
in this Offer. In the process of initiating the Offer, neither the Company,
Everflow Management Limited, LLC, nor EMC considered the benefits of conducting
the Offer compared to the potential benefits of liquidating the Company, and
neither the Company, Everflow Management Limited, LLC, nor EMC was influenced by
any other factors in conducting the Offer. EMC does not receive any management
fees as managing member of the General Partner of the Company.
Increase in Debt to Fund the Offer. The total amount of funds required
by the Company to consummate the transaction and pay related fees and expenses,
if fully subscribed, is estimated to be approximately $3,300,000. The Company
intends to obtain these funds from short-term investments and its revolving line
of credit pursuant to the Company's credit agreement. Although there can be no
assurance, the Company believes that its cash flow from operating activities
will be sufficient to repay the amounts borrowed to fund the Offer. If the
Company is unable to repay funds borrowed under its credit agreement, it will be
forced to reduce its level of development of oil and gas properties and reduce
or eliminate any cash distributions to Unitholders.
No Fairness Opinion. The Company has not obtained a fairness opinion
from an investment banking firm or performed any valuations in calculating the
purchase price, other than the reserve report. The Company engaged Wright &
Company, Inc., Petroleum Consultants, to prepare a report on the Company's oil
and gas reserves, future net income and standardized measure of discounted
future net income for all properties in which the Company owns an interest. This
information was utilized to calculate the Adjusted Book Value of the Company.
The Company has not performed any other valuations in calculating the Purchase
Price.
SECTION 1. BACKGROUND AND PURPOSES OF THE OFFER. The Company is making
the Offer in accordance with the requirements of Article XI of the Partnership
Agreement. The Company believes the Offer also provides Unitholders with the
opportunity to sell their illiquid Units, for which no established trading
market exists.
Units purchased by the Company pursuant to the Offer will be held as
Treasury Units and will not be subject to resale.
SECTION 2. NUMBER OF UNITS; EXTENSION OF THE OFFER; PRORATION. The
Company will, upon the terms and subject to the conditions of the Offer,
purchase up to 577,117 Units at a price of $5.66 per Unit that are properly
tendered and not withdrawn prior to the Expiration Date. The Company reserves
the right in its sole discretion to purchase more than 577,117 Units, but
9
has no current intention to do so. The term "Expiration Date" shall mean 12:00
midnight, Eastern Daylight Time, on Friday, June 28, 2002, unless and until the
Company shall have extended the period of time for which the Offer is open, in
which event "Expiration Date" shall mean the latest time and date at which the
Offer, as extended by the Company, shall expire. Although the Company has
reserved the right to extend the Offer, it has no current intention to do so.
For a description of the Company's right to extend the period of time during
which the Offer is open and to terminate or amend this Offer, see Section 13.
THIS OFFER IS NOT CONDITIONED UPON ANY MINIMUM AMOUNT OF UNITS BEING
TENDERED.
The Company will purchase up to 577,117 Units. If more than 577,117
Units are tendered during the Offer, the Units to be purchased will be
determined on a pro rata basis with the amount of Units purchased from a
Unitholder equal to a fraction, the numerator of which will be 577,117 and the
denominator of which will be the total number of Units properly tendered. The
fraction so calculated will be applied to the Units tendered by any individual
Unitholder to determine the number of Units, rounded down to the nearest whole
number, which will be purchased by the Company from such Unitholder. Fractions
of Units will not be purchased. Notice will be given to a Limited Partner whose
Units are not purchased. If a Unitholder delivers any certificates representing
Units to the Company, a new certificate for the Units not purchased by the
Company will be sent to the Unitholder. Should such Unitholder present the
non-purchased Units for purchase in any subsequent year, no preferential rights
will attach as a result of any prior presentment of Units pursuant to a previous
Offer to Purchase. Units purchased by the Company pursuant to this Offer to
Purchase will be held as Treasury Units and shall not be subject to resale.
SECTION 3. PROCEDURE FOR TENDERING UNITS. Pursuant to the Partnership
Agreement, certificates or other instruments representing Units are not
generally issued to Limited Partners of the Company. All Units are listed in the
names of the Unitholders on the record books of the Company. To tender Units
pursuant to this Offer, a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile thereof), with any other required
documents, must be transmitted to and received by the Company at its address
listed on the Letter of Transmittal on or prior to the Expiration Date.
In certain unique circumstances, such as Individual Retirement Accounts
and brokerage accounts, certificates representing Units have been issued to
Unitholders. In order to tender Units represented by such certificates, a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof), and the certificates for the Units being tendered, with any
other required documents, must be transmitted to and received by the Company at
its address listed in the Letter of Transmittal on or prior to the Expiration
Date.
Method of Delivery. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL
AND CERTIFICATES FOR UNITS, IF ANY, IS AT THE OPTION AND RISK OF THE TENDERING
UNITHOLDER. IF SUCH DOCUMENTS ARE SENT BY U.S.
10
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, BE USED.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Units will be determined by the Company, EMC, or the officers of EMC, which
determination shall be final and binding. The Company reserves the absolute
right to reject any or all tenders of any Units determined by it, in its sole
discretion, not to be in proper form, or the acceptance for payment of or
payment for which may be unlawful. The Company also reserves the absolute right
to waive any of the conditions of the Offer or any defect or irregularity in any
tender of Units, or in the related transmittal documents. None of the Company,
EMC, any officer of EMC, or any other person will be under any duty to give
notification of any defects, irregularities or rejections in tenders or incur
any liability for failure to give any such notification.
It is a violation of Section 10(b) of the Exchange Act and Rule 14e-4
promulgated thereunder for a person to tender Units for his or her own account
unless the person so tendering owns such Units. Section 10(b) and Rule 14e-4
provide a similar restriction applicable to the tender or guarantee of a tender
on behalf of another person.
The tender of Units to the Company pursuant to any of the procedures
described herein will constitute an agreement between the tendering Unitholder
and the Company upon the terms and subject to the conditions of the Offer,
including the tendering Unitholder's representation that (i) such Unitholder
owns the Units being tendered within the meaning of Rule 14e-4 under the
Exchange Act and (ii) the tender of such Units complies with Rule 14e-4.
SECTION 4. WITHDRAWAL RIGHTS. Units tendered pursuant to the Offer may
be withdrawn at any time prior to the Expiration Date. The Purchase Price will
be paid in cash to each Unitholder whose Units are accepted pursuant to the
Offer within five (5) business days after June 28, 2002. No tendering Unitholder
will be entitled to interest on such funds. See Section 5. Tenders made pursuant
to the Offer will otherwise be irrevocable.
For a withdrawal to be effective, a written, telegraphic, or facsimile
transmission of a notice of withdrawal must be received in a timely manner by
the Company. Any notice of withdrawal must specify the name of the tendering
Unitholder, the number of Units tendered and the number of Units to be
withdrawn. Withdrawals may not be rescinded, and any Units withdrawn thereafter
will not be deemed to be properly tendered for purposes of the Offer. However,
properly withdrawn Units may be re-tendered in any subsequent year. A tender
which is withdrawn may be re-submitted if it is received by the Company on or
prior to the Expiration Date. The Company will not accept or refuse any tenders
prior to 12:00 midnight on the Expiration Date, which is currently scheduled to
be June 28, 2002.
All questions as to the form and validity (including time of receipt)
of notices of withdrawal will be determined by the Company in its sole
discretion, which determination shall be final and binding. None of the Company,
EMC, any officer of EMC, or any other person will
11
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give such
notification.
SECTION 5. PURCHASE OF UNITS; PAYMENT OF PURCHASE PRICE. Upon the terms
and subject to the conditions of the Offer, the Company will pay $5.66 per Unit
for properly tendered Units within five (5) business days after the Expiration
Date. No tendering Unitholder will be entitled to interest on the Purchase
Price. In the event of a proration, the Company may not be able to determine the
proration factor and pay for those Units which it has accepted for payment, and
for which payment is otherwise due, until approximately five (5) business days
after the Expiration Date.
At the time that the Company accepts the Units for payment, the Units
will be deemed purchased by the Company and will be held as Treasury Units and
will not be subject to resale. This acceptance is intended to occur within five
(5) business days after the Expiration Date.
SECTION 6. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other
provision of the Offer, the Company will not be required to purchase or pay for
any Units tendered and may terminate the Offer as provided in Section 13 or may
postpone the purchase of, or payment for, Units tendered if, on or before the
Expiration Date, any of the following events should occur (or as reasonably
determined by the Company to have occurred, which determination shall be made
prior to the Expiration Date):
(a) there is a reasonable likelihood that consummation of the
Offer would result in the termination of the Company (as a partnership)
under Section 708 of the Code; or
(b) there is a reasonable likelihood that consummation of the
Offer would result in termination of the Company's status as a
partnership for federal income tax purposes under Section 7704 of the
Code; or
(c) there shall have been instituted or threatened or shall be
pending any action or proceeding before or by any court or
governmental, regulatory or administrative agency or instrumentality,
or by any other person, which (i) challenges the making of the Offer or
the acquisition by the Company of Units pursuant to the Offer or
otherwise directly or indirectly relates to the Offer or (ii) as
reasonably determined by the Company (within five (5) business days
prior to the Expiration Date), could materially affect the business,
condition (financial or other), income, operations or prospects of the
Company and its subsidiaries, taken as a whole, or otherwise materially
impair in any way the contemplated future conduct of the business of
the Company or any of its subsidiaries or materially impair the Offer's
contemplated benefits to the Company; or
(d) there shall have been any action threatened or taken, or
approval withheld, or any statute, rule or regulation proposed, sought,
promulgated, enacted, entered, amended, enforced or deemed to be
applicable to the Offer or the Company or any of its subsidiaries, by
any government or governmental, regulatory or administrative authority
12
or agency or tribunal, domestic or foreign, which, as reasonably
determined by the Company, would or might directly or indirectly:
(i) make the acceptance for payment of, or payment
for, some or all of the Units illegal or otherwise restrict or
prohibit consummation of the Offer;
(ii) delay or restrict the ability of the Company, or
render the Company unable, to accept for payment or pay for
some or all of the Units;
(iii) materially impair the contemplated benefits of
the Offer to the Company; or
(iv) materially affect the business, condition
(financial or other), income, operations, or prospects of the
Company and its subsidiaries, taken as a whole, or otherwise
materially impair in any way the contemplated future conduct
of the business of the Company or any of its subsidiaries; or
(e) there shall have occurred:
(i) the declaration of any banking moratorium or
suspension of payment in respect of banks in the United
States;
(ii) any general suspension of trading in, or
limitation on prices for, securities on any United States
national securities exchange or in the over-the-counter
market;
(iii) the commencement of war, armed hostilities or
any other national or international crisis directly or
indirectly involving the United States;
(iv) any limitation (whether or not mandatory) by any
governmental, regulatory or administrative agency or authority
on, or any event which, as reasonably determined by the
Company, might affect, the extension of credit by banks or
other lending institutions in the United States;
(v) (A) any significant increase, as reasonably
determined by the Company, in the general level of market
prices of equity securities or securities convertible into or
exchangeable for equity securities in the United States or
abroad or (B) any change in the general political, market,
economic or financial conditions in the United States or
abroad that (1) could have a material adverse effect on the
business, condition (financial or other), income, operations
or prospects of the Company, or (2) as reasonably determined
by the Company, makes it inadvisable to proceed with the
Offer; or
13
(vi) in the case of the foregoing existing at the
time of the commencement of the Offer, as reasonably
determined by the Company, a material acceleration or
worsening thereof; or
(f) any change shall occur or be threatened in the business,
condition (financial or other), income, operations, Unit ownership or
prospects of the Company and its subsidiaries, taken as a whole, which,
as reasonably determined by the Company, is or may be material to the
Company; or
(g) a tender or exchange offer for any or all of the Units of
the Company, or any merger, business combination or other similar
transaction with or involving the Company or any subsidiary, shall have
been proposed, announced or made by any person; or
(h) (i) any entity, "group" (as that term is used in Section
13(d)(3) of the Exchange Act) or person (other than entities, groups or
persons, if any, who have filed with the Commission on or before April
30, 2002 a Schedule 13G or a Schedule 13D with respect to any of the
Units) shall have acquired or proposed to acquire beneficial ownership
of more than 5% of the outstanding Units, or (ii) such entity, group,
or person that has publicly disclosed any such beneficial ownership of
more than 5% of the Units prior to such date shall have acquired, or
proposed to acquire, beneficial ownership of additional Units
constituting more than 2% of the outstanding Units or shall have been
granted any option or right to acquire beneficial ownership of more
than 2% of the outstanding Units or (iii) any person or group shall
have filed a Notification and Report Form under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 or made a public announcement
reflecting an intent to acquire the Company or any of its subsidiaries
or any of their respective assets or securities;
which, as reasonably determined by the Company, in any such case and regardless
of the circumstances (including any action of the Company) giving rise to such
event, makes it inadvisable to proceed with the Offer or with such purchase or
payment. The foregoing conditions are for the Company's benefit and may be
asserted by the Company, on or before the Expiration Date (other than those
subject to applicable law), regardless of the circumstances giving rise to any
such condition (including any action or inaction by the Company) or may be
waived by the Company in whole or in part on or before the Expiration Date
(other than those subject to applicable law). The Company's failure at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time on or before the Expiration Date. Any
determination by the Company concerning the events described in this Section 6
shall be final and shall be binding on all parties. As of the date hereof, the
Company believes that neither paragraph (a) nor paragraph (b) of Section 6 above
will prohibit the consummation of the Offer.
SECTION 7. PRICE RANGE OF UNITS; CASH DISTRIBUTION POLICY. There is
currently no established trading market for the Units. The Company is not aware
of all of the prices at which Units have traded since February 15, 1991, when
they were issued. However, the
14
Company is aware that certain officers of EMC, and their affiliates, have
purchased Units at prices ranging from $4.50 to $6.00 during the period from
February 15, 1991 to March 31, 2002. The last trade date involving an officer of
EMC, or their affiliates, was August 2000. See Section 12.
The Company commenced operations in February 1991 with the consummation
of the Exchange Offer. Management's stated intention at that time was to make
quarterly cash distributions of $.125 per Unit ($.50 per Unit on an annualized
basis) for the first eight quarters following consummation of the Exchange
Offer. The Company has paid a quarterly cash distribution of at least $.125 per
Unit every quarter since July 1991. The aggregate amount of each quarterly
distribution has ranged from approximately $837,000 in 1991 to $744,000 during
2000, assuming quarterly cash distributions of $.125 per Unit. Annual cash
distributions increased from $.50 per Unit during 1992 through 1998 to $.625 per
Unit in 1999, $1.25 per Unit in 2000 and $1.50 per Unit in 2001. Increases in
cash flows resulting from reductions in recent drilling and development
activities and increases in oil and gas prices are the primary reasons for these
increases in cash distributions. The Company paid a quarterly distribution of
$.25 per Unit each on January 2, 2002 and April 1, 2002, amounting to
approximately $1,460,000 each. The Purchase Price has been adjusted for cash
distributions made in January 2002 and April 2002, which amount to an aggregate
of $.50 per Unit. The Company is not required by the Partnership Agreement to
make cash distributions, but management anticipates paying quarterly
distributions of at least $.125 per Unit through the end of fiscal 2002.
Unitholders who tender the Units pursuant to the Offer will not be entitled to
any cash distributions after April 1, 2002 on any Units which are tendered and
accepted by the Company.
The Company is no longer obligated to maintain a particular quarterly
or annual distribution rate. The Company intends to make quarterly cash
distributions to Unitholders from internally generated funds to the extent
determined by the Company to be consistent with its intention to participate in
the oil and gas business on an ongoing basis and maintain and possibly increase
its reserve base. While quarterly cash distributions will not be fixed at any
particular amounts for any given quarter or year, the Partnership Agreement
requires cash distributions to Unitholders be no less than 80% of Net Available
Cash. For those purposes, "Net Available Cash" is generally defined as all cash
generated by the Company from any source whatsoever less the cash expended by
the Company (i) to pay the costs of its operations including general and
administrative expenses, drilling and development costs, and debt repayment,
(ii) to acquire undeveloped acreage or other oil and gas properties, and (iii)
to fulfill the Company's obligations pursuant to this and future offers to
purchase.
SECTION 8. EFFECTS OF THE OFFER. See Section 10 for the pro forma
financial information of the Company's purchasing 577,117 Units pursuant to the
Offer.
Capitalization. The purchase of Units by the Company pursuant to the
Offer will immediately reduce the Company's total capitalization. The total
number of issued and outstanding Units, assuming the Offer is fully subscribed,
will decrease from 5,771,174 to 5,194,057.
15
Cash Flow. The purchase of 577,117 Units by the Company will decrease
the amount paid when the Company declares a cash distribution. Assuming the
Offer is fully subscribed, the amount of distributions which the Company would
have made will be reduced by approximately $289,000 on an annualized basis
through April 2003, assuming quarterly cash distributions of $.125 per Unit. It
is not currently possible to determine the amount of savings as a result of the
Offer since the Company is not required by the Partnership Agreement to make
cash distributions. While quarterly cash distributions will not be fixed at any
particular amount for any given quarter or year, the Partnership Agreement
requires cash distributions to Unitholders to be no less than 80% of Net
Available Cash.
Increase in Indebtedness. The purchase of Units by the Company pursuant
to the Offer may require the Company to obtain funding from a revolving line of
credit pursuant to the Company's credit agreement. This will result in a
decrease in the unused availability under the revolving line of credit.
Increase in Book Value. The purchase of 577,117 Units by the Company
will increase the Book Value per Unit of the Company. The effect of the Offer on
the Book Value per Unit of the Company as of December 31, 2001 is an increase of
1% from $8.72 to $9.06 per Unit assuming all 577,117 Units are tendered and
purchased.
SECTION 9. SOURCE AND AMOUNT OF FUNDS. The total amount of funds
required by the Company to consummate the transaction and purchase 577,117 Units
pursuant to the Offer, and to pay related fees and expenses, is estimated to be
$3,300,000. The Company intends to obtain the funds to purchase tendered Units
from short-term investments and a revolving line of credit pursuant to its
credit agreement. The Company has no alternative financing plan, nor does it
anticipate that one will be necessary. The existing facility has no principal
indebtedness outstanding as of April 30, 2002. The existing credit facility with
Bank One, N.A., entered into in August 2001, provides for a line of credit in
the amount of $4,000,000, all of which is available. The facility provides for
interest payable quarterly at LIBOR plus 150 basis points with the principal due
at maturity, May 31, 2003. The Company anticipates renewing the facility every
other year 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 $4,000,000; (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 are restrictions on mergers, sales and acquisitions, the incurrence of
additional debt and the pledge or mortgage of the Company's assets.
The Company intends to repay borrowings in connection with the Offer
from existing cash flows.
16
SECTION 10. CERTAIN INFORMATION ABOUT THE COMPANY; HISTORICAL AND PRO
FORMA FINANCIAL INFORMATION.
Certain Information About the Company
Introduction
The Company engages in the business of oil and gas exploration and
development. The Company was formed for the purpose of consolidating the
business and oil and gas properties of Everflow Eastern, Inc., an Ohio
corporation ("EEI"), and the oil and gas properties owned by certain limited
partnerships and working interest programs managed or operated by EEI (the
"Programs"). Everflow Management Limited, LLC (the "General Partner"), an Ohio
limited liability company, is the General Partner of the Company.
Exchange Offer. The Company made an offer (the "Exchange Offer") to
acquire the common shares of EEI (the "EEI Shares") and the interests of
investors in the Programs (collectively the "Interests") in exchange for the
Units. The Exchange Offer was made pursuant to a Registration Statement on Form
S-1 declared effective by the Securities and Exchange Commission on December 19,
1990 (the "Registration Statement") and the Prospectus dated December 19, 1990,
as filed with the Commission pursuant to Rule 424(b).
The Exchange Offer terminated on February 15, 1991, and holders of
interests with an aggregate value (as determined by the Company for purposes of
the Exchange Offer) of $66,996,249 accepted the Exchange Offer and tendered
their Interests. Effective on February 15, 1991, the Company acquired such
Interests, which include partnership interests and working interests in the
Programs, and all of the outstanding EEI Shares. Of the Interests tendered in
the Exchange Offer, $28,565,244 was represented by the EEI Shares and
$38,431,005 by the remaining Interests.
The parties who accepted the Exchange Offer and tendered their
Interests received an aggregate of 6,632,464 Units. Everflow Management Company,
a predecessor of the General Partner of the Company, contributed Interests to
the Company with an aggregate Exchange Value of $670,980 in exchange for a 1%
interest in the Company.
The Company. The Company was organized in September 1990. The principal
executive offices of the Company, Everflow Management Limited, LLC and EEI are
located at 585 West Main Street, Canfield, Ohio 44406 (telephone number
330-533-2692).
Description of the Business
General. The Company has participated on an on-going basis in the
acquisition and development of undeveloped oil and gas properties and has
pursued the acquisition of producing oil and gas properties.
17
Subsidiaries. The Company has two subsidiaries. EEI was organized as an
Ohio corporation in February 1979 and, since the consummation of the Exchange
Offer, has been a wholly-owned subsidiary of the Company. EEI is engaged in the
business of drilling, developing and operating oil and gas properties and
maintains a leasehold inventory from which the Company selects prospects for
development.
A-1 Storage of Canfield, Ltd. ("A-1 Storage"), was organized as an Ohio
limited liability company in late 1995 and is 99% owned by the Company and 1%
owned by EEI. A-1 Storage's business includes the leasing of office space to the
Company as well as rental of storage units to non-affiliated parties.
Current Operations. The properties of the Company consist in large part
of fractional undivided working interests in properties containing Proved
Reserves of oil and gas located in the Appalachian Basin region of Ohio and
Pennsylvania. Approximately 91% of the estimated total future cash inflows
related to the Company's oil and gas reserves as of December 31, 2001 are
attributable to natural gas reserves. The substantial majority of such
properties are located in Ohio and consist primarily of proved producing
properties with established production histories.
The Company's operations since February 1991 primarily involve the
production and sale of oil and gas and the drilling and development of 259 (net)
wells. The Company serves as the operator of approximately 76% of the gross
wells and 86% of the net wells which comprise the Company's properties.
The Company expects to hold its producing properties until the oil and
gas reserves underlying such properties are substantially depleted. However, the
Company may from time to time sell any of its producing or other properties or
leasehold interests if the Company believes that such sale would be in its best
interest.
Business Plan. The Company continually evaluates whether the Company
can develop oil and gas properties at historical levels given the current costs
of drilling and development activities, the current prices of oil and gas, and
the Company's experience with regard to finding oil and gas in commercially
productive quantities. The Company has decreased its level of activity in the
development of oil and gas properties compared with historical levels.
Management has from time to time explored and evaluated the possible sale of the
Company. The Company intends to continue to evaluate this and other alternatives
to maximize Unitholders' value.
Acquisition of Prospects. The Company, through its wholly-owned
subsidiary, EEI, maintains a leasehold inventory from which the General Partner
will select oil and gas prospects for development by the Company. EEI makes
additions to such leasehold inventory on an ongoing basis. The Company may also
acquire leases from third parties. Prior to 2000, EEI generated approximately
90% of the prospects which were drilled. Beginning in 2000, the Company began
generating fewer prospects and has participated in more joint ventures with
18
other operators. EEI's current leasehold inventory consists of approximately 32
prospects in various states of maturity representing approximately 700 net acres
under lease.
In choosing oil and gas prospects for the Company, the General Partner
does not attempt to manage the risks of drilling through a policy of selecting
diverse prospects in various geographic areas or with potential of oil and gas
production from different geological formations. Rather, substantially all
prospects are expected to be located in the Appalachian Basin of Ohio (and, to a
lesser extent, Pennsylvania) and to be drilled primarily to the Clinton/Medina
Sands geological formation or closely related oil and gas formations in such
area.
Acquisition of Producing Properties. As a potential means of increasing
its reserve base, the Company expects to evaluate opportunities which it may be
presented with to acquire oil and gas producing properties from third parties in
addition to its ongoing leasehold acquisition and development activities. The
Company has acquired a limited amount of producing oil and gas properties.
The Company will continue to evaluate properties for acquisition. Such
properties may include, in addition to working interests, royalty interests, net
profits interests and production payments, other forms of direct or indirect
ownership interests in oil and gas production, and properties associated with
the production of oil and gas. The Company also may acquire general or limited
partner interests in general or limited partnerships and interests in joint
ventures, corporations or other entities that have, or are formed to acquire,
explore for or develop, oil and gas or conduct other activities associated with
the ownership of oil and gas production.
Funding of Activities. The Company finances its current operations,
including undeveloped leasehold acquisition activities, through cash generated
from operations and the proceeds of borrowings.
The Company is permitted to incur indebtedness for any partnership
purpose. It is currently anticipated that any such indebtedness will consist
primarily of borrowings from commercial banks. The Company and EEI have a
revolving credit facility with Bank One, N.A., pursuant to which it had no
borrowings in 2001 and no principal indebtedness was outstanding as of March 20,
2002.
Although the Partnership Agreement does not contain any specific
restrictions on borrowings, the Company has no specific plans to borrow for the
acquisition of producing oil and gas properties. The Company expects that
borrowings may be made for the acquisition of undeveloped acreage for future
drilling and development and to fund the Company's costs of drilling and
completing wells. In addition, the Company could borrow funds to enable it to
repurchase any Units tendered in connection with the Repurchase Right.
The Company has a substantial amount of oil and gas reserves which have
not been pledged as collateral for its existing loans. The Company generally
would not expect to borrow funds, from whatever source, in excess of 40% of its
total Proved Reserves (as
19
determined using the Company's Standardized Measure of Discounted Future Net
Cash Flows), although there can be no assurance that circumstances would not
lead to the necessity of borrowings in excess of this amount. Based upon its
current business plan, management has no present intention to have the Company
borrow in excess of this amount. The Company has estimated Proved and Proved
Developed Reserves, determined as of December 31, 2001, which aggregate
$45,094,000 (Standardized Measure of Discounted Future Net Cash Flows) with no
bank debt outstanding under the revolving credit facility as of December 31,
2001.
Historical Financial Information
A copy of the Company's audited financial statements as of December 31,
2001 and Management's Discussion and Analysis of Financial Condition and Results
of Operations are included with the 2001 Annual Report Newsletter which was
mailed along with this Offer. Unitholders are strongly urged to review such
discussion and statements prior to making a decision whether or not to tender
Units to the Company pursuant to the Offer. Set forth below is summary financial
data for the years ended as of December 31, 2000 and 2001.
For the Year Ended
December 31,
2001 2000
Revenue ...................... $16,261,220 $16,921,139
Net Income ................... 7,842,162 8,590,757
Net Income Per Unit .......... 1.33 1.42
Total Assets ................. 52,254,265 55,043,294
Long-Term Debt and Debt under
Revolving Credit Facility 512,014 637,822
Cash Distribution Per Unit ... 1.50 1.25
20
Following is the summarized audited balance sheet for the Company as of
December 31, 2001.
Assets
Current Assets $ 7,819,424
Property and Equipment (net) 44,325,269
Other Assets 109,572
-----------
Total Assets $52,254,265
===========
Liabilities and Partners' Equity
Current Liabilities, including Revolver $ 834,156
Long-Term Debt 458,114
Deferred Income Taxes 50,000
Partners' Equity 50,911,995
-----------
Total Liabilities and Partners' Equity $52,254,265
-----------
Book Value per Unit $ 8.72
===========
Pro Forma Financial Information
Following is a summarized unaudited pro forma balance sheet for the
Company as of December 31, 2001 disclosing the effect of the Offer, assuming all
577,117 Units are tendered and purchased.
Assets
Current Assets $ 4,552,942
Property and Equipment (net) 44,325,269
Other Assets 109,572
-----------
Total Assets $48,987,783
===========
Liabilities and Partners' Equity
Current Liabilities, including Revolver $ 834,156
Long-Term Debt 458,114
Deferred Income Taxes 50,000
Partners' Equity 47,645,513
-----------
Total Liabilities and Partners' Equity $48,987,783
===========
Book Value per Unit $ 9.06
===========
The Company's income statement for the year ended December 31, 2001
will not be affected by the Offer. Net income per Unit would have increased by
11%, from $1.33 to
21
$1.47, had the effect of the Offer, assuming all 577,117 Units were tendered and
purchased, been reflected in such calculation for the entire year.
SECTION 11. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following is a
very brief summary of certain of the material federal income tax consequences of
a Unitholder's acceptance of this Offer. The summary is not intended to be
exhaustive or to serve as a substitute for careful personal tax planning and
certain tax consequences may depend upon specific personal tax circumstances for
each Unitholder. THEREFORE, EACH UNITHOLDER SHOULD SATISFY HIMSELF AS TO THE
INCOME AND OTHER TAX CONSEQUENCES AND THE PROPOSED SALE OF HIS UNITS BY
OBTAINING TAX ADVICE FROM HIS PERSONAL TAX COUNSEL.
The acceptance of this Offer and subsequent sale of Units to the
Company generally will be a taxable event for federal and most state tax
purposes. The amount of gain realized on the sale of a Unit will be, in general,
the excess of the sale price (in this case the Purchase Price), plus the
Unitholder's allocable share of liabilities of the Company which have resulted
in a basis increase, over the Unitholder's adjusted tax basis of the Units which
are sold to the Company. The sale of Units held by a Unitholder for more than
one year would result in long-term capital gain or loss, except to the extent of
unrealized receivables (including deductions for intangible drilling and
development costs, cost recovery deductions and to any depletion deductions
which are subject to recapture) and substantially appreciated inventory, which
would be treated as ordinary income. The deduction of net capital losses is
limited to $3,000 per year.
Deductions for intangible drilling and development costs, cost recovery
deductions and all depletion deductions (except for percentage depletion
deductions in excess of the basis of a property) will be subject to recapture on
the disposition of a Unit. Any such recaptured deductions will be treated as
ordinary income, with the amount recaptured limited to the amount of taxable
gain on the sale of the Unit.
SECTION 12. TRANSACTIONS AND ARRANGEMENTS CONCERNING UNITS. Based upon
the Company's records and information provided to the Company by the officers
and affiliates of EMC, neither the Company, Everflow Management Limited, LLC,
EMC, nor, to the best of the Company's knowledge, any officers or affiliates of
EMC, nor any associates of any of the foregoing, has effected any transactions
in the Units during the 60 business days prior to the date hereof.
SECTION 13. EXTENSIONS OF TENDER PERIOD; TERMINATIONS; AMENDMENTS. The
Company reserves the right, at any time and from time to time, to extend the
period of time during which the Offer is open by giving oral or written notice
of such extension to the Unitholders. The Company has no current intention of
extending the Offer beyond June 28, 2002. If there is any extension, all Units
previously tendered and not purchased or withdrawn will remain subject to the
Offer and may be purchased by the Company, except to the extent that such Units
may be withdrawn as set forth in Section 4. The Company also reserves the right,
in its sole discretion, to purchase more than 577,117 Units pursuant to the
Offer, but has no current intention to do so.
22
If the Company shall decide, in its sole discretion, to increase the
amount of Units being sought by more than 2% of the aggregate amount of Units
outstanding and at the time that the notice of such increase is first published,
sent or given to holders of Units, the Offer is scheduled to expire at any time
earlier than the expiration of a period ending on the tenth business day from,
and including, the date that such notice is first so published, sent or given,
then the Offer will be extended until the expiration of such period of 10
business days. For purposes of the Offer, a "business day" means any day other
than a Saturday, Sunday or federal holiday and consists of the time period from
12:01 a.m. through 12:00 midnight, Eastern Daylight Time. The Company also
reserves the right (i) to terminate the Offer and not to purchase or pay for any
Units not previously purchased or paid for upon the occurrence of any of the
conditions specified in Section 6, by giving oral or written notice of such
termination to the Unitholders and making a public announcement thereof, or (ii)
at any time and from time to time, to amend the Offer in any respect. Any
extension, delay in payment or amendment will be followed by public announcement
thereof, such announcement in the case of an extension to be issued no later
than 9:00 a.m. Eastern Daylight Time, on the next business day after the
previously scheduled Expiration Date. Without limiting the manner in which the
Company may choose to make any public announcement, except as provided by
applicable law (including Rule 13e-4(e)(2) under the Exchange Act), the Company
will have no obligation to publish, advertise or otherwise communicate any such
public announcement, other than by issuing a release to the Dow Jones News
Service.
SECTION 14. FEES AND EXPENSES. The Company will not pay any fees or
commissions to any broker, dealer or other person for soliciting tenders of
Units pursuant to the Offer. The Company will reimburse brokers, dealers,
commercial banks and trust companies for customary handling and mailing expenses
incurred in forwarding the Offer to their customers.
Section 15. Miscellaneous. The Offer is open to all Unitholders.
EVERFLOW EASTERN PARTNERS, L.P.
April 30, 2002
23
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal and certificates for Units, if any, should
be sent or delivered by each Unitholder or such Unitholder's broker, dealer,
commercial bank, trust company or other nominee to the Company as follows:
To: Everflow Eastern Partners, L.P.
By Mail: By Hand or Overnight Mail/Express:
Everflow Eastern Partners, L.P. Everflow Eastern Partners, L.P.
P.O. Box 629 585 West Main Street
Canfield, Ohio 44406 Canfield, Ohio 44406
By Facsimile:
330-533-9133
Any questions, requests for assistance, or requests for additional
copies of this Offer to Purchase and the Letter of Transmittal may be directed
to the Company as follows:
Everflow Eastern Partners, L.P.
c/o William A. Siskovic, Vice President and Secretary-Treasurer
585 West Main Street
P.O. Box 629
Canfield, Ohio 44406
330-533-2692
24