Exhibit (a)(1)
Offer to Purchase for Cash
by
EVERFLOW EASTERN PARTNERS, L.P.
of Up to
571,474 Units of Limited Partnership Interest
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 12:00 MIDNIGHT, EASTERN TIME, ON WEDNESDAY, JUNE 30, 2004,
UNLESS EXTENDED.
Everflow Eastern Partners, L.P., a Delaware limited
partnership (the "Company" or "Everflow"), is offering to purchase up to
571,474, or 10%, of our Units of limited partnership interests (the "Units") at
a price of $12.44 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 571,474 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 $12.44 per Unit is (a) more
than the book value per Unit ($9.67) as of December
31, 2003, (b) higher than the price at which the
Units were last traded ($6.00) in private
transactions, (c) may be less than fair market value
since the purchase price of $12.44 per Unit, as
adjusted for cash distributions of $1.00 per Unit in
2004 is determined based on 66% of the adjusted Book
Value of the Company, which utilizes the
"Standardized Measure of Discounted Future Net Cash
Flows" from the Company's Proved Developed Reserves
as evaluated at December 31, 2003 in place of the
carrying value of the Company's oil and gas
properties, and (d) may be less than the value which
could be received in a sale or other disposition of
the Company's assets. There was one trade during
2002, occuring in September 2002, in which two
independent parties agreed upon a transaction price
of $5.16 per Unit based upon the $5.66 per Unit
purchase price in the 2002 Offer less the $.50 per
Unit distribution that occurred in July 2002. There
was one trade during 2003, occurring in September
2003, in which two independent parties agreed upon a
transaction price of $6.00 per Unit. There were no
trades during 2004.
- 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 may be forced to reduce any discretionary
cash distributions to Unitholders resulting from a
decrease in cash and equivalents to fund 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, 2004
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.
2
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 571,474
(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 $12.44 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 existing cash and equivalents.
5. HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER?
You have until 12:00 p.m. midnight on Wednesday, June 30, 2004 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 Wednesday,
June 30, 2004.
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 Wednesday, June 30, 2004.
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, 2003 was $9.67. Units were
last traded in private transactions in September 2003, at a price of
$6.00.
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 330-5332692.
3
CONTENTS
Page
----
Introduction 5
Section 1. Background and Purposes of the Offer 10
Section 2. Number of Units; Extension of the Offer; Proration 10
Section 3. Procedure for Tendering Units 11
Section 4. Withdrawal Rights 12
Section 5. Purchase of Units; Payment of Purchase Price 12
Section 6. Certain Conditions of the Offer 13
Section 7. Price Range of Units; Cash Distribution Policy 15
Section 8. Effects of the Offer 16
Section 9. Source and Amount of Funds 17
Section 10. Certain Information About the Company; Historical
and Pro Forma Financial Information 17
Section 11. Certain Federal Income Tax Consequences 21
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
4
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 571,474, or 10%, of
its units of limited partnership interest (the "Units"), at a price of $12.44
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 571,474 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 2003 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, 2004, divided
by 5,714,739, the total number of Units then outstanding, as adjusted for cash
distributions of $.50 per Unit each made on January 2, 2004 and April 1, 2004,
as provided for in the Company's Partnership Agreement. The Adjusted Book Value
of the Company was determined based upon the Company's audited financial
statements as of December 31, 2003. 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, 2003, 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, 2003. 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, 2003. 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 any potential buyer in
the past year. Although management may continue to engage in discussions
concerning a potential sale, management does not intend
5
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 571,474 Units. If more than
571,474 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 571,474 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.
Due to recent increased volatility in oil and gas prices, the
Company is evaluating the possibility of proposing an amendment to the
Partnership Agreement provisions which determine the price per Unit for future
repurchase offers. The current formula (described above) uses the prices in
effect at December 31 of the applicable year end. Management's concern is that
price volatility at year end potentially could distort the calculation of fair
and reasonable repurchase prices. Management intends to monitor and further
study this question and no determination has been made as to what change, if
any, might be proposed.
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 1,413 Unitholders of record. In 2003,
prior to a similar offer, there were 1,434 Unitholders of record, and 22 of
those Unitholders tendered their Units in that offer. In 2002, there were 1,443
Unitholders of record, and 16 of those Unitholders tendered their Units in that
offer. In 2001, there were 1,499 Unitholders of record, and 59 of those
Unitholders tendered their Units in that offer. Similarly, in 2000, there were
1,567 Unitholders of record, and 82 of those Unitholders tendered their Units in
that offer. Other factors that affect the number of Unitholders of record
include private sales and transfer of Units.
6
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").
All purchases of Units pursuant to the Offer will be effective
as of June 30, 2004. 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, 2004 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, 2004, Everflow Management Limited, LLC, the
General Partner of the Company, owned 1.16% 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
1,266,770 Units, in addition to their beneficial ownership of Everflow
Management Limited, LLC's interest, collectively representing approximately 23%
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 26% 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. Because the Purchase Price per Unit was calculated to
equal 66% of the Adjusted Book Value of the Partnership, the Company believes
the fair market value of the Company's assets may be greater than the aggregate
Purchase Price per Unit. The Adjusted Book Value was calculated to equal
$117,757,000, or $20.37 per Unit, while 66% of the Adjusted Book Value was
calculated to equal $77,720,000, or $13.44 per Unit, as of December 31, 2003.
The Purchase Price of $12.44 per Unit was adjusted for cash distributions of
$1.00 per Unit in 2004.
There is currently no established trading market for the
Units. The Company is aware that Units were sold at $6.00 per Unit in September
2003, in which two independent parties agreed upon the transaction price. The
Company is also aware that Units were sold at
7
$5.16 per Unit in September 2002, in which two independent parties agreed upon
the transaction price based on the $5.66 Unit purchase price in the 2002 Offer
less the $.50 per Unit distribution occurring in July 2002. The Company is not
aware of any Units sold since September 2003. However, the Company is not always
aware of all of the prices at which Units have traded. The Purchase Price of
$12.44 is higher than the price 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 571,474 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 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 could be greater than the aggregate Purchase Price per Unit.
Management has previously explored the possible sale of the
Company, but has not discussed the potential sale of the Company with any
potential purchaser in the past few years. 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 could 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 $12.44, 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, 2004, all
Directors and executive officers of the managing general
8
partner of the Company beneficially own an aggregate of 1,266,770 Units,
representing approximately 23% 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 26% of
the outstanding Units. Limited Partners are entitled to vote on only 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.
Decrease in Cash and Equivalents 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
$7,109,000. The Company intends to obtain these funds from existing cash and
equivalents. The Company currently has approximately $7,300,000 of cash and
equivalents as of April 30, 2004. If the Company needs to use a significant
portion of its cash and equivalents for the Offer, it may be forced to reduce
any discretionary 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. The evaluation of the Company's oil and gas reserves in the reserve
report provides the basis for determining the Adjusted Book Value of
$117,757,000. The Standardized Measure of Discounted Future Net Cash Flows of
$101,843,000 is $59,475,000 higher than the carrying value of the oil and gas
properties on the Company's books of $42,368,000 as of December 31, 2003. The
Standardized Measure of Discounted Future Net Cash Flows from the Company's
Proved Developed Reserves, as evaluated at December 31, 2003 was utilized to
calculate the Adjusted Book Value of the Company. The Company has not performed
any other valuations in calculating the Purchase Price. The Purchase Price of
$12.44 per Unit is calculated as follows:
9
Total partners' equity at December 31, 2003 $ 55,928,000
Add:
Standardized Measure of Discounted
Future Net Cash Flows 101,843,000
Tax effect adjustment 2,354,000
------------
104,197,000
Deduct:
Carrying value of oil and gas properties (net of
undeveloped lease costs and prepaid well costs):
Historical cost 122,006,000
Less Depletion and Amortization 79,638,000
------------
42,368,000
------------
Adjusted Book Value 117,757,000
66% of Adjusted Book Value 77,720,000
98.84% Limited Partners' share 76,818,000
Unit price based on 5,714,739 Units 13.44
Less Distribution - January 2, 2004 .50
Less Distribution - April 1, 2004 .50
------------
Calculated Purchase Price $ 12.44
============
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 571,474 Units at a price of $12.44 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 571,474 Units, but has no
current intention to do so. The term "Expiration Date" shall mean 12:00
midnight, Eastern Time, on Wednesday, June 30, 2004, unless and until the
Company extends 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.
10
THIS OFFER IS NOT CONDITIONED UPON ANY MINIMUM AMOUNT OF UNITS
BEING TENDERED.
The Company will purchase up to 571,474 Units. If more than
571,474 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 571,474 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 Limited Partners that
tender Units which 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. 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
11
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 30, 2004. 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 Eastern Time on the Expiration Date, which is currently
scheduled to be June 30, 2004.
All questions as to the form and validity (including time of
receipt) of notices of withdrawal will be determined by the Company, EMC, or the
officers of EMC in their sole discretion, which determination shall be final and
binding. None of the Company, EMC, any officer of EMC, or any other person will
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 remit
$12.44 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.
12
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 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 relates to the
Offer or (ii) as reasonably determined by the Company (within five (5)
business days prior to the Expiration Date), would have a material
adverse effect on the business, condition (financial or other), income,
operations or prospects of the Company and its subsidiaries, taken as a
whole, or otherwise have a material adverse effect on the future
conduct of the business of the Company or any of its subsidiaries (as
contemplated by the Company's current business plan as discussed below
under "Item 10 - Certain Information About the Company; Historical and
Pro Forma Financial Information - Certain Information About the Company
- Description of Business - Business Plan") or have a material adverse
effect on the Company's ability to purchase up to 571,474 Units in the
Offer; or
(d) there shall have been any action 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
or agency or tribunal, domestic or foreign, which, as reasonably
determined by the Company, would:
(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;
13
(iii) materially impair the Company's ability to
purchase up to 571,474 Units in the Offer; or
(iv) have a material adverse effect on the
business, condition (financial or other), income, operations,
or prospects of the Company and its subsidiaries, taken as a
whole, or otherwise have a material adverse effect on the
future conduct of the business of the Company or any of its
subsidiaries (as contemplated by the Company's current
business plan as discussed below under "Item 10 - Certain
Information About the Company; Historical and Pro Forma
Financial Information - Certain Information About the Company
- Description of Business - Business Plan"); 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, would adversely affect, the extension of credit
by banks or other lending institutions in the United States;
(v) (A) a 10% or greater decrease in the New
York Stock Exchange Index, the Nasdaq Composite Index, the Dow
Jones Industrial Average, the S&P 500 Composite Index or the
market prices of equity securities or securities convertible
into or exchangeable for equity securities generally in the
United States, as measured from the close of business on
Thursday, April 29, 2004, the last trading day prior to the
commencement of the Offer, and the close of business on the
last trading day prior to the expiration of the Offer; or (B)
any change in the general political, market, economic or
financial conditions in the United States or abroad that (1)
would 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, prohibit the Company from proceeding with the
Offer; or
(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
14
(f) any change shall occur 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, would have a material adverse
effect on 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, 2004 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 giving rise to such event, prohibits the Company from
proceeding 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 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 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, 2004. The last
trade date involving an officer of EMC, or their affiliates, was September 2003.
See Section 12.
15
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 $770,000 to $2,919,000.
Annual cash distributions increased from $.50 per Unit during 1992 through 1998
to $.625 per Unit in 1999, $1.25 per Unit in 2000, $1.50 per Unit in 2001 and
$1.25 per Unit in 2002 and 2003. 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 $.50 per Unit each
on January 2, 2004 and April 1, 2004, amounting to approximately $2,891,000
each. The Purchase Price has been adjusted for cash distributions made in
January 2004 and April 2004, which amount to an aggregate of $1.00 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 2004. Unitholders who tender the Units pursuant
to the Offer will not be entitled to any cash distributions after April 1, 2004
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 571,474 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 5,714,739 to 5,143,265.
Cash Flow. The purchase of 571,474 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 $286,000 on an annualized basis
through April 2005, 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
16
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.
Decrease in Cash and Equivalents. The purchase of Units by the
Company pursuant to the Offer will require the Company to reduce existing cash
and equivalents to fund the Offer. This may result in a decrease in any
discretionary cash distributions to Unitholders.
Decrease in Book Value. The purchase of 571,474 Units by the
Company will decrease 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, 2003 is a
decrease of 3% from $9.67 to $9.37 per Unit assuming all 571,474 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 571,474
Units pursuant to the Offer, and to pay related fees and expenses, is estimated
to be $7,109,000. The Company intends to obtain the funds to purchase tendered
Units from existing cash and equivalents. The Company has no alternative
financing plan, nor does it anticipate that one will be necessary. The Company
currently has approximately $7,300,000 of cash and equivalents as of April 30,
2004.
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
17
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.
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 93% of the estimated total future cash inflows
related to the Company's oil and gas reserves as of December 31, 2003 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 291
(net) wells. The Company serves as the operator of approximately 75% of the
gross wells and 85% 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.
18
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 other operators. EEI's current leasehold inventory consists
of approximately 12 prospects in various states of maturity representing
approximately 430 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. The Company had no borrowing in 2003 and no principal
indebtedness was outstanding as of April 30, 2004. 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.
19
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 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,
2003, which aggregate $101,843,000 (Standardized Measure of Discounted Future
Net Cash Flows) with no bank debt outstanding under the revolving credit
facility as of December 31, 2003.
Historical Financial Information
A copy of the Company's audited financial statements as of
December 31, 2003 and Management's Discussion and Analysis of Financial
Condition and Results of Operations are included with the 2003 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, 2003 and
2002.
For the Year Ended
December 31,
---------------------------
2003 2002
---------------------------
Revenue .......................... $ 21,834,446 $ 16,757,418
Net Income ....................... 11,951,300 8,004,090
Net Income Per Unit .............. 2.06 1.37
Total Assets ..................... 58,136,578 52,579,304
Cash Distribution Per Unit ....... 1.25 1.25
Following is the summarized audited balance sheet for the
Company as of December 31, 2003.
Assets
Current Assets $ 13,764,239
Property and Equipment (net) 44,251,663
Other Assets 120,676
------------
Total Assets $ 58,136,578
============
Liabilities and Partners' Equity
Current Liabilities $ 1,173,897
Asset Retirement Obligations 1,034,685
Partners' Equity 55,927,996
------------
Total Liabilities and Partners' Equity $ 58,136,578
============
Book Value per Unit $ 9.67
============
20
Pro Forma Financial Information
Following is a summarized unaudited pro forma balance sheet
for the Company as of December 31, 2003 disclosing the effect of the Offer,
assuming all 571,474 Units are tendered and purchased.
Assets
Current Assets $ 6,655,102
Property and Equipment (net) 44,251,663
Other Assets 120,676
------------
Total Assets $ 51,027,441
============
Liabilities and Partners' Equity
Current Liabilities $ 1,173,897
Asset Retirement Obligations 1,034,685
Partners' Equity 48,818,859
------------
Total Liabilities and Partners' Equity $ 51,027,441
============
Book Value per Unit $ 9.37
============
The Company's income statement for the year ended December 31,
2003 will not be affected by the Offer. Net income per Unit would have increased
by 11%, from $2.06 to $2.29, had the effect of the Offer, assuming all 571,474
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.
21
Management of the Company believes that any proceeds on the
sale of Units for most Unitholders would likely result in these proceeds being
taxed as ordinary income and not capital gains. 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 or subsidiaries 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 30, 2004. 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 571,474
Units pursuant to the Offer, but has no current intention to do so.
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 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 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.
22
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, 2004
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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
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