<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
AMENDMENT NO. 1
TO
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(Pursuant to Section 13(e) (1) of the Securities Exchange Act of 1934)
EVERFLOW EASTERN PARTNERS, L.P.
(Name of Issuer)
EVERFLOW EASTERN PARTNERS, L.P.
(Name of Person Filing Statement)
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class of Securities)
Not Applicable
(CUSIP Number of Class of Securities)
Thomas L. Korner, President
Everflow Eastern Partners, L.P.
585 West Main Street
Canfield, Ohio 44406
(330)533-2692
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Person Filing Statement)
Copy to:
Michael D. Phillips, Esq.
Calfee, Halter & Griswold LLP
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114
(216)622-8200
April 30, 1999
(Date Tender Offer First Published, Sent or Given to Security Holders)
Page 1 of 3 Pages
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The following item of the Company's Schedule 13E-4 filed with the Commission on
April 30, 1999 is hereby amended:
Item 9. Material to be Filed as Exhibits.
(a)(1) Form of Offer to Purchase, dated April 30, 1999
(a)(2) Form of Letter of Transmittal(4)
(a)(3) Form of 1998 Annual Report Newsletter to Unitholders,
dated April 30, 1999(4) (a)(4) Annual Financial
Statements of the Company and Management's Discussion and
Analysis of Financial Condition and Results of
Operations(3)
(a)(5) Form of letter prepared by Wright & Company, Inc. (4)
(b)(1) Loan Modification Agreement dated May 29, 1998 between
Bank One, N.A., Bank One, Texas, N.A. and Everflow
Eastern, Inc. and Everflow Eastern Partners, L.P. (2)
(c)(1) Amended and Restated Agreement of Limited Partnership of
the Company, dated as of February 15, 1991(1)
(c)(2) General Partnership Agreement of Everflow Management
Company(1)
(c)(3) Close Corporation Agreement of Everflow Management
Corporation(1)
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
- ------------------
(1) Incorporated herein by reference to the Company's Schedule 13E-4 filing
dated April 30, 1992. Items not mailed to Unitholders.
(2) Incorporated herein by reference to the Company's Form 10-Q filing for the
quarter ended June 30, 1998. Item not mailed to Unitholders.
(3) Incorporated herein by reference to the Company's Form 10-K filing for the
year ended December 31, 1998. Items mailed to Unitholders.
(4) Incorporated herein by reference to the Company's original Schedule 13E-4
filing dated April 30, 1999. Items mailed to Unitholders.
<PAGE> 3
SIGNATURE
After due inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true, complete and
correct.
Date: May 18, 1999 EVERFLOW EASTERN PARTNERS, L.P.
By: EVERFLOW MANAGEMENT LIMITED, LLC
General Partner
By: EVERFLOW MANAGEMENT CORPORATION
Managing Member
By: /s/William A. Siskovic
------------------------------------
William A. Siskovic
Vice President and Treasurer
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EXHIBITS
Exhibit
Number Description
(a)(1) Form of Offer to Purchase, dated April 30, 1999
(a)(2) Form of Letter of Transmittal(4)
(a)(3) Form of 1998 Annual Report Newsletter to Unitholders,
dated April 30, 1999(4)
(a)(4) Annual Financial Statements of the Company
and Management's Discussion and Analysis of
Financial Condition and Results of Operations(3)
(a)(5) Form of letter prepared by Wright & Company, Inc. (4)
(b)(1) Loan Modification Agreement dated May 29, 1998 between
Bank One, N.A., Bank One, Texas, N.A. and Everflow
Eastern, Inc. and Everflow Eastern Partners, L.P. (2)
(c)(1) Amended and Restated Agreement of Limited Partnership
of the Company, dated as of February 15, 1991(1)
(c)(2) General Partnership Agreement of Everflow Management
Company(1)
(c)(3) Close Corporation Agreement of Everflow Management
Corporation(1)
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
- --------------------
(1) Incorporated herein by reference to the Company's Schedule 13E-4 filing
dated April 30, 1992. Items not mailed to Unitholders.
(2) Incorporated herein by reference to the Company's Form 10-Q filing for the
quarter ended June 30, 1998. Item not mailed to Unitholders.
(3) Incorporated herein by reference to the Company's Form 10-K filing for the
year ended December 31, 1998. Items mailed to Unitholders.
(4) Incorporated herein by reference to the Company's original Schedule 13E-4
filing dated April 30, 1999. Items mailed to Unitholders.
<PAGE> 1
Exhibit (a)(1)
Offer to Purchase for Cash
by
EVERFLOW EASTERN PARTNERS, L.P.
of Up to
617,254 Units of Limited Partnership Interest
-----------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, EASTERN DAYLIGHT TIME, ON
WEDNESDAY, JUNE 30, 1999, UNLESS EXTENDED.
------------------------------------------------------------------
Everflow Eastern Partners, L.P., a Delaware limited
partnership (the "Company"), is offering to purchase up to 617,254 of its Units
of limited partnership interests (the "Units") at a price of $5.79 per Unit in
cash (the "Purchase Price"), upon the terms and subject to the conditions set
forth herein and in the related Letter of Transmittal (which collectively
constitute the "Offer"). The Company reserves the right, in its sole discretion,
to purchase more than 617,254 Units pursuant to the Offer, but has no current
intention to do so.
Acceptance of the Offer by a Unitholder is subject to certain
risks, including:
- The purchase price of $5.79 per Unit is (a) less than the
book value per Unit ($8.36) as of December 31, 1998, (b)
more than certain of the prices at which the Units have
recently traded ($4.99 to $5.50) in private transactions
from January 1, 1998 through the date of this Offer, (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.
- The Company will incur increased debt to fund the Offer.
- Acceptance of the Offer is a taxable event to a
Unitholder.
- Management of the Company will increase its percentage
ownership of the Company 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.
See "RISK FACTORS."
--------------------------------
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 the Company and
deliver the certificates, if any, for such Units to the Company. 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, 1999
<PAGE> 2
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.
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Introduction ........................................................................... 3
Section 1. Background and Purposes of the Offer ...................................... 6
Section 2. Amount of Units; Extension of the Offer; Proration ........................ 7
Section 3. Procedure for Tendering Units ............................................. 7
Section 4. Withdrawal Rights ......................................................... 8
Section 5. Purchase of Units; Payment of Purchase Price .............................. 9
Section 6. Certain Conditions of the Offer ........................................... 9
Section 7. Price Range of Units; Cash Distribution Policy ............................ 12
Section 8. Effects of the Offer ...................................................... 12
Section 9. Source and Amount of Funds ................................................ 13
Section 10. Certain Information About the Company; Historical
and Pro Forma Financial Information ....................................... 13
Section 11. Certain Federal Income Tax Consequences ................................... 19
Section 12. Transactions and Arrangements Concerning Units ............................ 19
Section 13. Extensions of Tender Period; Terminations; Amendments ..................... 19
Section 14. Fees and Expenses ......................................................... 20
Section 15. Miscellaneous ............................................................. 20
</TABLE>
2
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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 617,254 of its
units of limited partnership interest (the "Units"), at a price of $5.79 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 617,254 Units pursuant to the Offer, but has no
current intention to do so.
The Purchase Price calculation is included in the 1998 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, 1999, divided
by 6,172,537, the total number of Units then outstanding, as adjusted for cash
distributions of $.125 per Unit made on January 4, 1999 and $.25 per Unit made
on April 1, 1999, 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, 1998. A copy of such statements
are 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, 1998, 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, 1998. 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, 1998. 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 is aware of private trades of Units
between Unitholders which were slightly higher than the Purchase Price. In
addition, 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. Recently, management has explored the
possible sale of the Company. Although management may, from time to time,
continue to engage in discussions concerning a potential sale, management does
not intend to pursue actively
3
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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 617,254 Units. If more than
617,254 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 617,254 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 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.
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.
All purchases of Units pursuant to the Offer will be effective
as of June 30, 1999. 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, 1999 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 expensed) 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 herein in Section 11 regarding certain federal income
tax consequences.
As of March 31, 1999, Everflow Management Limited, LLC, the
General Partner of the Company, owned 1.08% 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
1,400,457 Units, in addition to their beneficial ownership of Everflow
Management Limited, LLC's interest, collectively representing
4
<PAGE> 5
approximately 23% of the outstanding Units. The Company has been advised that
neither Everflow Management Limited, LLC, nor any of the executive officers or
Directors of EMC, intend to tender any Units pursuant to the Offer. Assuming the
Offer is fully subscribed, such individuals will own, after the Offer,
approximately 25% of the outstanding Units.
RISK FACTORS
------------
The tender of Units to the Company involves a number of
significant risks.
PURCHASE PRICE LESS THAN FAIR MARKET VALUE OF ASSETS. The fair
market value of the Company's assets is 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, 1998, as adjusted for cash distributions of $0.125 per Unit
on January 4, 1999 and $.25 per Unit made on April 1, 1999. There is currently
no established trading market for the Units. The Company is aware that some
Units have been sold at prices ranging from $4.99 to $5.50 between July 1, 1998
and March 31, 1999. However, the Company is not aware of all of the prices at
which Units have recently traded. The Purchase Price of $5.79 is more than
certain of the prices at which the Units have recently traded in the private
market. The Company is not aware of any person or persons which would be
interested in purchasing up to 617,254 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 then. It is the Company's belief that the Purchase Price
calculation each year was below the prices at which the Units had previously
traded. Management of the Company believes that this is a function of the
calculation of the Purchase Price, which is, by definition, a percentage of 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 1999
Repurchase Right. There can be no assurance that any special premium will be
included in future Repurchase Rights.
Recently, management of the Company has explored the possible
sale of the Company. There have been a number of transactions involving the
purchase and sale of oil and gas properties in the Appalachian Basin recently.
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.
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 $5.79, plus the
Unitholder's allocable share of liabilities of the Company which have
5
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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 management of the Company
will increase. As of March 31, 1999, all Directors and executive officers of the
managing general partner of the Company beneficially own an aggregate of
1,400,457 Units, representing approximately 23% of the outstanding Units. The
Company has been advised that such individuals do not intend to tender any Units
pursuant to the Offer. Assuming the Offer is fully subscribed, such individuals
will, after the Offer, own approximately 25% 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.
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 is estimated to be approximately $3,600,000. The Company intends to
obtain these funds from 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 set forth in the
provisions of Article XI of the
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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 617,254 Units at a price of $5.79 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 617,254 Units, but has no
current intention to do so. The term "Expiration Date" shall mean 12:00
midnight, Eastern Daylight Time, on Wednesday, June 30, 1999, 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 617,254 Units. If more than
617,254 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 617,254 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
Company's 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.
7
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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 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 Securities Exchange
Act of 1934 (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, 1999. 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
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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 30, 1999.
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 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 $5.79
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 any of the following events should occur (or shall have
been 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
9
<PAGE> 10
indirectly relates to the Offer or (ii) reasonably, as determined by
the Company (determined 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
or agency or tribunal, domestic or foreign, which reasonably, as
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, in the Company's sole judgment, might
affect, the extension of credit by banks or other lending
institutions in the United States;
10
<PAGE> 11
(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) reasonably, as determined
by the Company, makes it inadvisable to proceed with the
Offer; or
(vi) in the case of the foregoing existing at the time of
the commencement of the Offer, a material acceleration or
worsening thereof as reasonably determined by the Company; 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, 1999 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 sole benefit and may be
asserted by the Company 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. 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. Any determination by the Company concerning the
events described in this Section
11
<PAGE> 12
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. In addition, as of the date hereof,
the Company believes that the current U.S. military involvement in Iraq,
Albania, Serbia and Kosovo does not reasonably make it inadvisable to proceed
with the Offer or with such purchase or payment, and therefore, the Company
believes that paragraph (e)(iii) above will not 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, 1999. 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
$780,000 during 1998 and 1999. The Company paid a quarterly distribution of $.25
per Unit on April 1, 1999 amounting to $1,560,000. The Purchase Price has been
adjusted for cash distributions made in January 1999 and April 1999, which
amount to an aggregate of $.375 per Unit. The Company is not required by the
Partnership Agreement to make cash distributions, but management anticipates
paying quarterly distributions of $.125 per Unit at least through the end of
fiscal 1999. Unitholders who tender the Units pursuant to the Offer will NOT be
entitled to any cash distributions after April 1, 1999 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 617,254 Units pursuant
to the Offer.
12
<PAGE> 13
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 6,172,537 to 5,555,283.
CASH FLOW. The purchase of 617,254 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 $309,000 on an annualized basis through April
2000, assuming quarterly cash distributions remain at $.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; however, management anticipates paying quarterly distributions of
$.125 per Unit at least through 1999. 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 will 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 617,254 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, 1998 is an
increase of 3% from $8.36 to $8.64 per Unit assuming all 617,254 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 617,254
Units pursuant to the Offer, and to pay related fees and expenses, is estimated
to be $3,600,000. The Company intends to obtain the funds to purchase tendered
Units from a revolving line of credit pursuant to its credit agreement. The
existing facility has principal indebtedness of $2,000,000 outstanding as of
April 26, 1999. The current unused availability under the existing line of
credit is $5,000,000.
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, an Ohio limited liability
company, is the general partner of the Company.
13
<PAGE> 14
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
units of limited partnership interest (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 such date, 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 to the Company
Interests 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. Following the consummation of the Exchange Offer, 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 acting as the general partner or sponsor of the Programs. Prior
to consummation of the Exchange Offer, EEI had acted as general contractor in
the drilling and completion of more than 550 wells and had served as operator of
more than 650 producing wells, the substantial majority of which are located in
the State of Ohio.
A-1 Storage of Canfield, Ltd. ("A-1 Storage") was organized an
Ohio Limited Liability Company in late 1995 and is 99% owned by the Company and
1% owned by EEI. A-1 Storage owns a building and leases office space to the
Company and rents storage units to non-affiliated parties.
14
<PAGE> 15
CURRENT OPERATIONS. The properties acquired in the Exchange
Offer 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 94% of the estimated future
gross cash flow from the oil and gas properties owned by the Company are
attributable to natural gas reserves. The substantial majority of such
properties are located in Ohio and consist of primarily proved producing
properties with established production histories.
The Company's operations since February 1991, following
consummation of the Exchange Offer, primarily involve the production and sale of
oil and gas from the properties acquired pursuant to the Exchange Offer and the
drilling and development of an additional 219 (net) wells. The Company serves as
the operator of approximately 78% of the gross wells and 88% of the net wells
which comprise the Company's properties.
The Company expects to hold its producing properties acquired
pursuant to the Exchange Offer until the 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 interests.
BUSINESS PLAN. The Company intends to conduct its
business to enable it to maintain and possibly expand its reserve base. In order
to further this plan, the Company primarily intends to acquire and subsequently
drill and develop non-producing oil and gas properties and possibly acquire
producing oil and gas properties. 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. Recently, management has explored the
possible sale of the Company. Although management may, from time to time,
continue to engage in discussions concerning a potential sale, management does
not intend to pursue actively a sale of the Company at the present time.
Management will continue to evaluate other alternatives to maximize Unitholder
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. Historically, EEI
generated approximately 90% of the prospects which were drilled by the Programs.
EEI's current leasehold inventory consists of approximately 107 prospects in
various states of maturity representing approximately 1,600 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 anticipated to be located in the Appalachian Basin of Ohio
(and, to a lesser extent, Pennsylvania) and be drilled primarily to the
Clinton/Medina Sands geological formation or closely related oil and gas
formations in such area.
15
<PAGE> 16
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 currently finances its
current operations, including undeveloped leasehold acquisition activities,
through cash generated from operations and the proceeds of borrowings. Prior to
the Exchange Offer, EEI had relied upon the formation of investor drilling
programs to fund a portion of its operations; but to date, the Company has
elected not to pursue such activities.
The Company and EEI entered into a revolving credit facility
with Bank One, NA as of May 29, 1998 (the "New Credit Facility") which provides
the Company with a revolving line of credit in the amount of $7,000,000, subject
to certain limitations. Amounts borrowed under the New Credit Facility bear
interest at LIBOR plus 175 basis points. The New Credit Facility matures on May
31, 1999 and is unsecured. The Company anticipates renewing the facility on a
year-to-year basis to minimize debt origination, carrying and interest costs
associated with long-term book commitments. The Credit Facility contains
restrictive covenants requiring the Company to maintain: loan balance not to
exceed the borrowing base of the lesser of $7,000,000; tangible net worth of at
least $40,000,000; 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.
Although the Partnership Agreement does not contain any
specific restrictions on borrowings, the Company has no specific plans to borrow
to acquire any producing oil and gas properties. The Company expects that
borrowings may be made to acquire undeveloped acreage for future drilling and
development and to fund the Company's costs of drilling and completing wells.
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 Developed 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
16
<PAGE> 17
present intention to have the Company borrow in excess of this amount. The
Company has estimated Proved Developed Reserves, determined as of December 31,
1998, which aggregate $51,479,000 (Standardized Measure of Discounted Future Net
Cash Flows) with $1,800,000 of bank debt under its revolving credit facility (as
of such date).
Historical Financial Information
- --------------------------------
A copy of the Company's audited financial statements as of
December 31, 1998 and Management's Discussion and Analysis of Financial
Condition and Results of Operations are included with the 1998 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, 1997 and
1998.
<TABLE>
<CAPTION>
For the Year Ended
DECEMBER 31,
----------------------------------
1998 1997
----------------------------------
<S> <C> <C>
Revenue ................................................. $ 16,558,366 $ 15,932,197
Net Income .............................................. 6,897,089 5,696,407
Net Income Per Unit ..................................... 1.10 .90
Total Assets ............................................ 56,612,953 54,760,106
Long-Term Debt and Debt under
Revolving Credit Facility .......................... 2,255,898 4,589,143
Cash Distribution Per Unit .............................. .50 .50
</TABLE>
17
<PAGE> 18
Following is the summarized audited balance sheet for the
Company as of December 31, 1998.
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current Assets $ 6,313,018
Property and Equipment (net) 50,246,214
Other Assets 53,721
----------
Total Assets $ 56,612,953
Liabilities and Partners' Equity
--------------------------------
Current Liabilities, including Revolver $ 3,888,784
Long-Term Debt 425,093
Deferred Income Taxes 128,000
Partners' Equity 52,171,076
----------
Total Liabilities and Partners' Equity $ 56,612,953
==========
Book Value per Unit $ 8.36
======
</TABLE>
Pro Forma Financial Information
- -------------------------------
Following is a summarized unaudited pro forma balance sheet
for the Company as of December 31, 1998 disclosing the effect of the Offer,
assuming all 617,254 Units are tendered and purchased.
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current Assets $ 6,313,018
Property and Equipment (net) 50,246,214
Other Assets 53,721
-----------
Total Assets $ 56,612,953
==========
Liabilities and Partners' Equity
--------------------------------
Current Liabilities, including Revolver $ 7,462,684
Long-Term Debt 425,093
Deferred Income Taxes 128,000
Partners' Equity 48,597,176
Total Liabilities and Partners' Equity $ 56,612,953
==========
Book Value per Unit $ 8.64
=====
</TABLE>
The Company's income statement for the year ended December 31,
1998 will not be affected by the Offer. Net income per Unit would have increased
by 10%, from $1.10 to $1.23, had the effect of the Offer, assuming all 617,254
Units were tendered and purchased, been reflected in such calculation for the
entire year.
18
<PAGE> 19
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 40 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, 1999. 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 617,254
Units pursuant to the Offer, but has no current intention to do so.
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<PAGE> 20
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 holders of
Units.
EVERFLOW EASTERN PARTNERS, L.P.
April 30, 1999
20
<PAGE> 21
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 Treasurer
585 West Main Street
P.O. Box 629
Canfield, Ohio 44406
(330)533-2692
21
