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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 30,1997
(Date Tender Offer First Published, Sent or Given to Security Holders)
CALCULATION OF FILING FEE
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Transaction Valuation: 637,994 Units of Amount of Filing Fee
Limited Partnership Interest at $ 5.21 per Unit $665.00
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[ ] Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration
statement number, or the form or Schedule and the date of its filing.
Amount Previously Paid: _______________ Not Applicable
Form of Registration No.: _____________ Not Applicable
Filing Party: ________________________ Not Applicable
Date Filed: _______________________________ Not Applicable
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Item 1. Security and Issuer.
- -----------------------------
(a) The issuer of the securities to which this statement
relates is Everflow Eastern Partners, L.P., a Delaware limited partnership (the
"Company"). The Company's principal executive offices are located at 585 West
Main Street, Canfield, Ohio 44406.
(b) The securities being sought are up to 637,994 units of
limited partnership interest (the "Units"), at a price of $5.21 per Unit, net to
the Sellers in cash (the "Purchase Price"). In its Offer to Purchase dated April
30, 1997 (the "Offer"), the Company has reserved the right to purchase more than
637,994 Units, but has no current intention of doing so. Reference is hereby
made to the Introduction of the Company's Offer to Purchase, which Introduction
is incorporated herein by reference.
(c) There is currently no established trading market for the
Units. Reference is hereby made to Section 7, "Price Range of Units; Cash
Distribution Policy," which Section is incorporated herein by reference.
(d) Not applicable.
Item 2. Source and Amount of Funds or Other Consideration.
- -----------------------------------------------------------
(a) The total amount of funds required by the Company to
consummate the transaction and purchase 637,994 Units, pursuant to the Offer,
and to pay related fees and expenses, is estimated to be $3,300,000. Reference
is hereby made to Section 9, "Source and Amount of Funds," which Section is
incorporated herein by reference.
(b) The Company intends to borrow from its existing credit
facility the funds required to purchase any Units tendered pursuant to the
Offer.
(1) The funds required to purchase tendered Units are
expected to be available from the Company's existing loan
agreement. The amount of availability under the Company's
credit facility is sufficient to fund the purchase of 637,994
Units. The existing credit facility, entered into in January
1995, provides for a line of credit not to exceed $7,000,000
with current availability of up to $7,000,000. The facility
provides for interest payable monthly at prime plus 1/8% and
the principal due at maturity, November 1, 1998. Borrowings
under the facility are unsecured. The loan agreement contains
restrictive covenants requiring the Company to maintain: loan
balance not to exceed the borrowing base of the lesser of
$7,000,000 or 50% of the present value of the Company's future
net production income from oil and gas interests (oil and gas
reserves); tangible net worth of at least $30,000,000; a total
debt to tangible net worth ratio of not more than 0.7 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.
(2) The Company has no current plans to repay any
such borrowings from any outside sources. The Company will
repay bank debt out of available cash flows generated from
normal operating activities.
Reference is hereby made to Section 9, "Source and Amount of
Funds," and Section 10, "Certain Information About the Company; Historical and
Pro Forma Financial Information," which Sections are incorporated herein by
reference.
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Item 3. Purpose of the Tender Offer and Plans or Proposals of Issuer or
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Affiliate.
- ----------
Reference is hereby made to the Introduction, Section 1,
"Background and Purposes of the Offer," Section 5, "Purchase of Units; Payment
of Purchase Price," Section 6, "Certain Conditions of the Offer," and Section
10, "Certain Information About the Company; Historical and Pro Forma Financial
Information," of the Offer to Purchase, which Introduction and Sections are
incorporated herein by reference.
(a) None.
(b) None.
(c) None.
(d) None.
(e) Reference is hereby made to Section 7, "Price Range of
Units; Cash Distribution Policy," Section 8, "Effects of the Offer," Section 9,
"Source and Amount of Funds," and Section 10, "Certain Information About the
Company; Historical and Pro Forma Financial Information," of the Offer to
Purchase, which Sections are incorporated herein by reference.
(f) None.
(g) None.
(h) None.
(i) None.
(j) Not applicable.
Item 4. Interest in Securities of the Issuer.
- ---------------------------------------------
Reference is hereby made to Section 12, "Transactions and
Arrangements Concerning Units," of the Offer to Purchase, which Section is
incorporated herein by reference.
Item 5. Contracts, Arrangements, Understandings or Relationships with Respect
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to the Issuer's Securities.
- ---------------------------
Reference is hereby made to the Introduction, Section 1,
"Background and Purposes of the Offer," and Section 12, "Transactions and
Arrangements Concerning Units," of the Offer to Purchase, which Introduction and
Sections are incorporated herein by reference.
Item 6. Persons Retained, Employed or to be Compensated.
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Not applicable.
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Item 7. Financial Information.
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(a) Reference is hereby made to Section 10, "Certain
Information about the Company; Historical and Pro Forma Financial Information,"
of the Offer to Purchase, which Section is incorporated herein by reference.
(b) Reference is hereby made to Section 10, "Certain
Information About the Company; Historical and Pro Forma Financial Information,"
of the Offer to Purchase, which Section is incorporated herein by reference.
Item 8. Additional Information.
- --------------------------------
(a) Reference is hereby made to Section 10, "Certain
Information About the Company; Historical and Pro Forma Financial Information,"
Section 12, "Transactions and Arrangements Concerning Units," of the Offer to
Purchase, which Sections are incorporated herein by reference.
(b) None.
(c) Not applicable.
(d) Not applicable.
(e) Reference is hereby made to the Offer to Purchase and the
related Letter of Transmittal, forms of which are attached hereto as Exhibits
(a)(1) and (a)(2), respectively, and are incorporated in their entirety herein
by reference.
Item 9. Material to be Filed as Exhibits.
- ----------------------------------------
(a)(1) Form of Offer to Purchase, dated April 30, 1997
(a)(2) Form of Letter of Transmittal
(a)(3) Form of 1996 Annual Report Newsletter to Unitholders,
dated April 30, 1997
(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 Robert A. Crissinger, Inc.
(b)(1) Credit Agreement dated January 19, 1995 between
Everflow Eastern, Inc. and Everflow Eastern Partners,
L.P. and Bank One, Texas, National Association(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-K filing for the
year ended December 31, 1994. Item not mailed to Unitholders.
(3) Incorporated herein by reference to the Company's Form 10-K filing for the
year ended December 31, 1996. Items mailed to Unitholders.
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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: April 29, 1997 EVERFLOW EASTERN PARTNERS, L.P.
By: EVERFLOW MANAGEMENT COMPANY,
General Partner
By: EVERFLOW MANAGEMENT CORPORATION,
Managing General Partner
By: /s/ William A. Siskovic
------------------------------------------
William A. Siskovic
Vice President and Secretary-Treasurer
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EXHIBITS
Exhibit
Number Description
- ------ -----------
(a)(1) Form of Offer to Purchase, dated April 30, 1997
(a)(2) Form of Letter of Transmittal
(a)(3) Form of 1996 Annual Report Newsletter to Unitholders,
dated April 30, 1997
(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 Robert A. Crissinger, Inc.
(b)(1) Credit Agreement dated January 19, 1995 between
Everflow Eastern, Inc. and Everflow Eastern Partners, L.P.
and Bank One, Texas, National Association(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-K filing for the
year ended December 31, 1994. Item not mailed to Unitholders.
(3) Incorporated herein by reference to the Company's Form 10-K filing for the
year ended December 31, 1996. Items mailed to Unitholders.
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Exhibit (a)(1)
Offer to Purchase for Cash
by
EVERFLOW EASTERN PARTNERS, L.P.
of Up to
637,994 Units of Limited Partnership Interest
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THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, EASTERN DAYLIGHT TIME, ON MONDAY,
JUNE 30, 1997, UNLESS EXTENDED.
------------------------------------------------------------
Everflow Eastern Partners, L.P., a Delaware limited partnership (the
"Company"), is offering to purchase up to 637,994 of its Units of limited
partnership interests (the "Units") at a price of $5.21 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 637,994 Units pursuant to the Offer, but has no current intention to
do so.
Acceptance of the Offer by a Unitholder is subject to cernin risks,
including:
- The purchase price of $5.21 per Unit is (a) less than the book
value per Unit ($7.28) as of December 31, 1996, (b) less than
certain of the prices at which the Units have recently traded
($5.00 to $5.75) in private transactions and (c) may be less than
fair market value.
- 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."
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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."
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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.
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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 30,1997.
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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
Section Page
- ------- ----
Introduction ......................................................... 3
Section l. Background and Purposes of the Offer .................... 5
Section 2. Amount of Units; Extension of the Offer; Proration ...... 6
Section 3. Procedure for Tendering Units ........................... 6
Section 4. WithdraWal Rights ....................................... 7
Section 5. Purchase of Units; Payment of Purchase Price ............ 7
Section 6. Certain Conditions of the Offer ......................... 8
Section 7. Price Range of Units; Cash Distribution Policy .......... 10
Section 8. Effects of the Offer .................................... 10
Section 9. Source and Amount of Funds .............................. 11
Section 10. Certain Information About the Company; Historical
and Pro Forma Financial Information ..................... 11
Section 11. Certain Federal Income Tax Consequences ................. 16
Section 12. Transactions and Arrangements Concerning Units .......... 17
Section 13. Extensions of Tender Period; Terminations; Amendments ... 17
Section 14. Fees and Expenses ....................................... 17
Section 15. Miscellaneous ........................................... 17
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 637,994 of its
units of limited partnership interest (the "Units"), at a price of $5.21 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 637,994 Units pursuant to the Offer, but has no
current intention to do so.
The Purchase Price calculation is included in the 1996 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, 1997, divided
by 6,379,941, the total number of Units then outstanding, as adjusted for cash
distributions of $.125 per Unit made on January 2 and April 1, 1997, 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, 1996. 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, 1996,
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,
1996. 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 Robert A. Crissinger, an independent petroleum engineer,
as of January 1, 1997. 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 value was attributed to any of the
Company's undeveloped lease acreage or properties. Other than the report
prepared by Robert A. Crissinger, 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 are slightly higher than
the Purchase Price.
The Company will purchase up to 637,994 Units. If more than
637,994 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 637,994 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.
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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 General
Partner 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, 1997. 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, 1997 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, 1997, Everflow Management Company, the general
partner of the Company, owned 1.03% of the Company and all Directors and
executive officers of Everflow Management Corporation ("EMC"), the managing
general partner of the Company, beneficially owned an aggregate of 1,318,365
Units, in addition to their beneficial ownership of Everflow Management
Company's interest, collectively representing approximately 21% of the
outstanding Units. The Company has been advised that neither Everflow Management
Company, 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 23% 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 January 1, 1997, as adjusted for cash distributions of $0.125 per Unit on
each of January 2, 1997 and April 1, 1997. There is currently no established
trading market for the Units. The Company is aware that some Units have been
sold at prices ranging from $5.00 to $5.75 between September 1, 1996 and April
25, 1997. However, the Company is not aware of all of the prices at which Units
have recently traded. The Purchase Price of $5.21 is less than certain of the
prices at which the Units have recently traded in the private market. However,
the Company is not aware of any person or persons which would be interested in
purchasing up to 637,994 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
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the Repurchase Right included a special premium, primarily as a result of the
Company's increased revenues. This special premium does not exist for the 1997
Repurchase Right. There can be no assurance that any special premium will be
included in future Repurchase Rights.
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 $5.21, 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.
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, 1997, all Directors and executive officers of the
managing general partner of the Company beneficially own an aggregate of
1,318,365 Units, representing approximately 21% 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 23% 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 $3,300,000. 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. As in prior
years, the Company engaged Robert A. Crissinger, Inc., a Petroleum Engineering
Consultant, 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 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.
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<PAGE> 6
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 637,994 Units at a price of $5.21 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 637,994 Units, but has no
current intention to do so. The term "Expiration Date" shall mean 12:00
midnight, Eastern Daylight Time, on Monday, June 30, 1997, 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 637,994 Units. If more than
637,994 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 637,994 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.
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.
6
<PAGE> 7
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, 1997. No tendering
Unitholder will be entitled to interest on such funds. See Section 5. Tenders
made pursuant to the Offer will otherwise be irrevocable.
For a withdrawal to be effective, a written, telegraphic, or
facsimile transmission of a notice of withdrawal must be received in a timely
manner by the Company. Any notice of withdrawal must specify the name of the
tendering Unitholder, the number of Units tendered and the number of Units to be
withdrawn. Withdrawals may not be rescinded, and any Units withdrawn thereafter
will not be deemed to be properly tendered for purposes of the Offer. However,
properly withdrawn Units may be re-tendered in any subsequent year. A tender
which is withdrawn may be re-submitted if it is received by the Company on or
prior to the Expiration Date. The Company will not accept or refuse any tenders
prior to 12:00 midnight on the Expiration Date, which is currently scheduled to
be June 30, 1997.
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 $5.21
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
business days after the Expiration Date.
7
<PAGE> 8
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 determined by the Company, in its sole judgment, to have occurred, which
determination shall be made prior to the Expiration Date):
(a) there is a reasonable likelihood that consummation of the
Offer would result in the termination of the Company (as a partnership)
under Section 708 of the Code; or
(b) there is a reasonable likelihood that consummation of the
Offer would result in termination of the Company's status as a
partnership for federal income tax purposes under Section 7704 of the
Code; or
(c) there shall have been instituted or threatened or shall be
pending any action or proceeding before or by any court or
governmental, regulatory or administrative agency or instrumentality,
or by any other person, which (i) challenges the making of the Offer or
the acquisition by the Company of Units pursuant to the Offer or
otherwise directly or indirectly relates to the Offer or (ii) in the
Company's sole judgment (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, in the Company's
sole judgment, 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
8
<PAGE> 9
(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;
(v) (A) any significant increase, in the Company's sole
judgment, 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) in the sole judgment of 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, in the Company's sole
judgment, a material acceleration or worsening thereof; or
(f) any change shall occur or be threatened in the business,
condition (financial or other), income, operations, Unit ownership or
prospects of the Company and its subsidiaries, taken as a whole, which,
in the Company's sole judgment, 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, 1997 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;
9
<PAGE> 10
which, in the sole judgment of 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 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, 1997. 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 $.125 per
Unit every quarter since July 1991. The aggregate amount of each quarterly
distribution has been approximately $837,000 for distributions paid through
April 1992, $831,000 for distributions paid from July 1992 through April 1993,
$826,000 for distributions paid from July 1993 through April 1994, $823,000 for
distributions paid from July 1994 through July 1995, $813,000 for distributions
paid from October 1995 through April 1996 and $806,000 for distribution paid
from July 1996 through April 1997. The Purchase Price has been adjusted for cash
distributions made in January 1997 and April 1997, which amount to an aggregate
of $.25 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 1997.
Unitholders who tender the Units pursuant to the Offer will not be entitled to
any cash distributions after April 1, 1997 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 637,994 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 6,379,941 to 5,741,947.
10
<PAGE> 11
CASH FLOW. The purchase of 637,994 Units by the Company will
decrease the amount paid when the Company declares a distribution pursuant to
the Cash Distribution Policy. Assuming the Offer is fully subscribed, the amount
of distributions which the Company would have made will be reduced by $318,997
on an annualized basis through April 1998, 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
1997. 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 637,994 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, 1996 is an
increase of 3% from $7.28 to $7.51 per Unit assuming all 637,994 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 637,994
Units pursuant to the Offer, and to pay related fees and expenses, is estimated
to be approximately $3,300,000. 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 $1,700,000
outstanding as of April 20, 1997. The current unused availability under the
existing line of credit is $5,300,000.
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 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
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
11
<PAGE> 12
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,
as 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 Company 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 possible 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.
Everflow Nominee, Inc. ("Everflow Nominee") was organized as
an Ohio corporation in May 1987 and is a wholly-owed subsidiary of EEI and is
indirectly controlled by the Company. Everflow Nominee's sole business is to
serve as a nominee and agent to hold legal or record title to working interests
in drillsites developed by the Programs since 1987. Everflow Nominee, as nominee
of and agent for various Programs, holds the legal or record title to the
working interests in drillsites and wells beneficially owned by certain of the
Programs.
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.
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 84% 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 174 (net) wells. The Company serves as
the operator of approximately 60% of the gross wells and 75% of the net wells
which comprise the Company's properties.
12
<PAGE> 13
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. In addition, if market conditions are deemed favorable, the
Company may continue EEI's practice of sponsoring oil and gas drilling and
development programs to finance jointly the costs of such drilling and
development operations; however, under current market and economic conditions,
the Company has no plans to sponsor such programs. Based on the current costs of
drilling and development activities, the current prices of oil and gas, and
EEI's historical experience with regard to finding oil and gas in commercially
productive quantities as well as estimates for such costs, prices and success
rates in the immediate future, the Company estimates it will need to acquire and
drill approximately 25 to 35 (net) wells each year to maintain and possibly
expand its reserve base.
ACQUISITION OF PROPERTIES. The Company, through its
wholly-owned subsidiary, EEI, maintains a leasehold inventory from which
Everflow Management Company 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.
The Company expects EEI's ability to generate drilling prospects internally to
continue in order to further the Company's activities. EEI's current leasehold
inventory consists of approximately 164 prospects in various states of maturity
representing approximately 2,800 net acres under lease.
In choosing oil and gas prospects for the Company, Everflow
Management Company 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.
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. To date, the Company has acquired only a very 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 and undeveloped leasehold acquisition activities through cash
generated from operations and the proceeds of borrowings. In the past, 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.
13
<PAGE> 14
The Company and EEI entered into a revolving credit facility
with Bank One, Texas, National Association as of January 19, 1995 (the "New
Credit Facility") which provides the Company with a revolving line of credit not
to exceed $7,000,000, subject to certain limitations. Amounts borrowed under the
New Credit Facility bear interest at the lending bank's prime rate (8.5% at
April 20, 1997) plus 1/8%. The Credit Facility matures on November 1, 1998 and
is unsecured. The Credit Facility contains restrictive covenants requiring the
Company to maintain: loan balance not to exceed the borrowing base of
$7,000,000; tangible net worth of at least $30,000,000; a total debt to
tangible net worth ratio of not more than 0.7 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
present intention to have the Company borrow in excess of this amount. The
Company has estimated Proved Developed Reserves, determined as of December 31,
1996, which aggregate $50,507,000 (Standardized Measure of Discounted Future Net
Cash Flows) with $4,000,000 of bank debt under its revolving credit facility
(as of such date).
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<PAGE> 15
Historical Financial Information
- --------------------------------
A copy of the Company's audited financial statements as of
December 31, 1996 and Management's Discussion and Analysis of Financial
Condition and Results of Operations are included with the 1996 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, 1995 and
1996.
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------------------
1996 1995
-----------------------------------
<S> <C> <C>
Revenue ................................................... $14,557,405 $14,478,954
Net Income ................................................ 4,227,854 5,247,086
Net Income Per Unit ....................................... .65 .80
Total Assets .............................................. 53,188,337 52,756,474
Long-Term Debt ............................................ 4,405,834 4,718,207
Cash Distribution Per Unit ................................ .50 .50
</TABLE>
Following is the summarized audited balance sheet for the
Company as of December 31, 1996.
<TABLE>
<CAPTION>
<S> <C>
Assets
------
Current Assets $ 4,487,028
Property and Equipment (net) 48,295,466
Other Assets 405,843
-----------
Total Assets $53,188,337
===========
Liabilities and Partners' Equity
--------------------------------
Current Liabilities $ 1,564,630
Long-Term Debt 4,386,234
Deferred Income Taxes 278,000
Partners' Equity 46,959,473
-----------
Total Liabilities and Partners' Equity $53,188,337
===========
Book Value per Unit $ 7.28
===========
</TABLE>
15
<PAGE> 16
Pro Forma Financial Information
- -------------------------------
Following is a summarized unaudited pro forma balance sheet
for the Company as of December 31, 1996 disclosing the effect of the Offer,
assuming all 637,994 Units are tendered and purchased.
<TABLE>
<CAPTION>
<S> <C>
Assets
------
Current Assets $ 4,487,028
Property and Equipment (net) 48,295,466
Other Assets 405,843
-----------
Total Assets $53,188,337
===========
Liabilities and Partners' Equity
--------------------------------
Current Liabilities $ 1,564,630
Long-Term Debt 7,710,183
Deferred Income Taxes 278,000
Partners' Equity 43,635,524
-----------
Total Liabilities and Partners' Equity $53,188,337
===========
Book Value per Unit $ 7.51
===========
</TABLE>
The Company's income statement for the year ended December 31,
1996 would not be affected by the Offer. Net income per Unit would have
increased by 12%, from $.65 to $.73, had the effect of the Offer, assuming all
637,994 Units were tendered and purchased, been reflected in such calculation
for the entire year.
SECTION 11. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The following is a very brief summary of certain of the
material federal income tax consequences of a Unitholder's acceptance of this
Offer. The summary is not intended to be exhaustive or to serve as a substitute
for careful personal tax planning and certain tax consequences may depend upon
specific personal tax circumstances for each Unitholder. THEREFORE, EACH
UNITHOLDER SHOULD SATISFY HIMSELF AS TO THE INCOME AND OTHER TAX CONSEQUENCES
AND THE PROPOSED SALE OF HIS UNITS BY OBTAINING TAX ADVICE FROM HIS PERSONAL TAX
COUNSEL.
The acceptance of this Offer and subsequent sale of Units to
the Company generally will be a taxable event for federal and most state tax
purposes. The amount of gain realized on the sale of a Unit will be, in general,
the excess of the sale price (in this case the Purchase Price), plus the
Unitholder's allocable share of liabilities of the Company which have resulted
in a basis increase, over the Unitholder's adjusted tax basis of the Units which
are sold to the Company. The sale of Units held by a Unitholder for more than
one year would result in long-term capital gain or loss, except to the extent of
unrealized receivables (including deductions for intangible drilling and
development costs, cost recovery deductions and to any depletion deductions
which are subject to recapture) and substantially appreciated inventory, which
would be treated as ordinary income. The deduction of net capital losses is
limited to $3,000 per year.
Deductions for intangible drilling and development costs, cost
recovery deductions and all depletion deductions (except for percentage
depletion deductions in excess of the basis of a property) will be subject to
recapture on the disposition of a Unit. Any such recaptured deductions will be
treated as ordinary income, with the amount recaptured limited to the amount of
taxable gain on the sale of the Unit.
16
<PAGE> 17
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
Company, 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 30 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, 1997. 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 637,994
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 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, 1997
17
<PAGE> 18
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
18
<PAGE> 1
Exhibit (a)(2)
LETTER OF TRANSMITTAL
To Tender Units
of
EVERFLOW EASTERN PARTNERS, L.P.
Pursuant to the Offer to Purchase
of
EVERFLOW EASTERN PARTNERS, L.P.
April 30, 1997
- --------------------------------------------------------------------------------
THE EXPIRATION DATE, WITHDRAWAL DEADLINE AND PROPRATION DEADLINE IS MONDAY,
JUNE 30, 1997, AT 12:00 MIDNIGHT, EASTERN DAYLIGHT TIME, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
To: Everflow Eastern Partners, L.P.
By Mail: By Hand or Overnight Mail/Express:
P.O. Box 629 585 West Main Street
Canfield, Ohio 44406 Canfield, Ohio 44406
By Facsimile:
(330)533-9133
For Information:
(330)533-2692
Delivery of this instrument to an address other than as set forth above does not
constitute a valid delivery.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
DESCRIPTION OF UNITS TENDERED
- -----------------------------------------------------------------------------------------------------------
Print Name and Address of Registered Holder(s) Book Entry Transfer* Certificate(s) Enclosed*
(Please fill in) (Attach signed list if necessary)
- -----------------------------------------------------------------------------------------------------------
Amount of Amount of Amount of Unit Amount of Units
Units Owned Units Represented by Tendered**
Tendered** Certificate(s)***
------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Total Units
- -----------------------------------------------------------------------------------------------------------
<FN>
* Most Units are listed in the names of the Unitholders on the record books of the Company. Certificates
representing Units are not generally issued. See Instruction 1.
** Unless otherwise indicated, it will be assumed that all Units described above are being tendered. See
Instruction 3.
*** Need not be completed by Unitholders who tender Units by book-entry transfer.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
This Letter of Transmittal is to be completed (a) if a Unitholder
desires to tender Units pursuant to the Offer to Purchase and (b) if any
certificates are to be forwarded herewith pursuant to the procedures set forth
in Section 3 of the Offer to Purchase, dated April 30, 1997 (the "Offer to
Purchase").
<PAGE> 2
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
Ladies and Gentlemen:
The undersigned hereby tenders to Everflow Eastern Partners, L.P., a
Delaware limited partnership (the "Company"), a portion of the Company's units
of limited partnership interest (the "Units"), at a price of $5.21 per Unit (the
"Purchase Price"), net to the seller in cash, upon the terms and conditions set
forth in the Offer to Purchase dated April 30, 1997 (the "Offer to Purchase"),
receipt of which is hereby acknowledged, and in this Letter of Transmittal
(which together constitute the "Offer").
Subject to and effective upon acceptance for payment of the Units
tendered herewith in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to the Units tendered hereby that are accepted
for payment pursuant to the Offer.
The undersigned hereby warrants that the undersigned owns the Units
tendered within the meaning of Rule 14e-4 under the Securities Exchange Act of
1934, as amended, as described in Section 3 of the Offer to Purchase, and has
full authority to sell, assign and transfer such Units and that the Company will
acquire good title thereto, free and clear of all liens, charges, encumbrances,
conditional sales agreements or other obligations relating to the sale or
transfer thereof and not subject to any adverse claim when and to the extent the
same are purchased by it.
Upon request, the undersigned will execute and deliver any additional
documents necessary or desirable to complete the assignment, transfer and
purchase of Units tendered hereby.
The undersigned understands that tenders of Units pursuant to the
procedures described in Section 3 of the Offer to Purchase or in the
Instructions hereto will constitute an agreement between the undersigned and the
Company upon the terms and subject to the conditions of the Offer.
The undersigned recognizes that, under certain circumstances set forth
in the Offer to Purchase, the Company may terminate or amend the Offer or may
not be required to purchase any of the Units tendered hereby. The undersigned
also recognizes that, under certain conditions set forth in the Offer to
Purchase the Company may purchase, pro rata with Units tendered by other
Unitholders, fewer than all of the Units tendered hereby. In such event, the
undersigned understands that the certificate(s), if any, for any Units not
purchased will be returned to the undersigned at the address indicated above
unless otherwise indicated under the "Special Payment Instructions" or "Special
Delivery Instructions" below.
The check for the Purchase Price for tendered Units that are purchased
pursuant to the Offer should be issued to the order of the undersigned and
mailed to the address above unless otherwise indicated under the "Special
Payment Instructions" or the "Special Delivery Instructions" below.
In the event that both the "Special Payment Instructions" and the
"Special Delivery Instructions" are completed, please issue the check for the
Purchase Price and/or return the certificates, if any, for Units not so tendered
or accepted for payment in the name of and deliver said check and/or return such
certificates, if any, for Units to the person or persons so indicated.
The undersigned recognizes that the Company has no obligation pursuant
to the "Special Payment Instructions" to transfer any Units from the name of the
registered holder thereof if the Company does not accept for payment any of the
Units so tendered.
2
<PAGE> 3
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and any obligations of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Except as stated in the Offer to
Purchase, this tender is irrevocable.
IMPORTANT
SIGN HERE
- --------------------------------------------------------------------------------
Signature of Unitholder
- --------------------------------------------------------------------------------
Signature of Unitholder
Dated ______________________________ , 1997 (Must be signed by the registered
holder(s) exactly as name(s) appear(s) on Units. If signature is by trustees,
executors, administrators, guardians, attorneys-in-fact, agents, officers of
corporations or others acting in a fiduciary or representative capacity, please
provide the following information. See Instruction 4.)
Name(s)
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Capacity (full title):
----------------------------------------------------------
(See Instruction 4)
Area Code and Telephone Numbers
Home:
--------------------------------------------------------------------------
Business:
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(DO NOT WRITE IN SPACES BELOW)
Date Received ________ Accepted By _________ Checked By ___________
- --------------------------------------------------------------------------------
Units Units Check Amount Units
Tendered Accepted Number of Check Returned
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3
<PAGE> 4
- --------------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(See Instruction 1, 3, 4 and 7)
To be completed ONLY if the check for the Purchase Price of Units is to be
issued in the name of someone other than the undersigned and/or certificates,
if any, for Units not tendered or not purchased are to be issued in the name of
someone other than the undersigned.
Issue: [ ] check [ ] certificates to
Name
------------------------------------------------------------------------
(Please Print)
Address
--------------------------------------------------------------------
- ----------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 3, 4 and 7)
To be completed ONLY if certificates, if any, for Units not tendered or not
purchased and/or the check for the Purchase Price of Units purchased is to be
sent to someone other than the undersigned, or to the undersigned at an address
other than that shown above.
Mail: [ ] check [ ] certificates to
Name
------------------------------------------------------------------------
(Please Print)
Address
---------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Include Zip Code)
[ ]Permanent Change of Address
- --------------------------------------------------------------------------------
4
<PAGE> 5
INSTRUCTIONS
FORMING PART OF THE TERMS
AND CONDITIONS OF THE OFFER
l. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. 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.
Certificates representing Units are isued only in certain circumstances. See
Section 3 of the Offer to Purchase. Except as hereinafter provided, certificates
for the tendered Units, if any, together with a properly completed and duly
executed Letter of Transmittal or facsimile thereof, and any other documents
required by this Letter of Transmittal, should be mailed or delivered by hand to
the Company at the appropriate address set forth herein. In order for a
tendering Unitholder to be entitled to proration of tendered Units, such
Unitholder must tender Units in accordance with the procedures set forth herein
and in the Offer to Purchase on or prior to the Expiration Date (as defined in
the Offer to Purchase).
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES, IF
ANY, FOR UNITS, IS AT THE ELECTION AND RISK OF THE TENDERING UNITHOLDER. IF
DELIVERY IS BY MAIL, INSURED REGISTERED MAIL, RETURN RECEIPT REQUESTED, IS
RECOMMENDED.
Except as set forth in the Offer to Purchase, no alternative,
conditional or contingent tenders will be accepted and no fractional Units will
be purchased. All tendering Unitholders, by execution of this Letter of
Transmittal, waiver any right to receive any notice of the acceptance of their
Units for payment.
2. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Units Tendered-Certificate(s) Enclosed" is inadequate, the
amount of Units should be listed on a separate signed schedule attached hereto.
3. PARTIAL TENDER (Applicable only to Unitholders who tender by
submitting certificates for Units.) If fewer than all of the Units evidenced by
any certificate(s) are to be tendered, fill in the number of Units which are to
be tendered in the column entitled "Number of Units Tendered." In such case, if
some or all of the tendered Units are purchased, new certificate(s) for the
remainder of the Units evidenced by your old certificate(s) registered in your
name will be sent to you, unless otherwise specified in the "Special Payment
Instructions" or "Special Delivery Instructions" boxes on this Letter of
Transmittal, as soon as practicable after the Expiration Date of the Offer. All
Units represented by the certificate(s) listed will be deemed to have been
tendered unless otherwise indicated.
4. SIGNATURES ON LETTER OF TRANSMITTAL. STOCK POWERS AND ENDORSEMENTS.
(a) If this Letter of Transmittal is signed by the registered
holder(s) of the Units tendered hereby, the signature(s) must
correspond exactly with the name(s) as written on the address label of
the envelope transmitting the Offer to Purchase, or the face of the
certificate(s), if any, representing such Units, without alteration,
enlargement or any change whatsoever.
(b) If any Units tendered hereby are held of record by two or more
joint holders, all such holders must sign this Letter of Transmittal.
(c) If any tendered Units are registered in different names on
several certificates, if any, it will be necessary to complete, sign
and submit as many separate Letters of Transmittal as there are
different registrations of certificates.
(d) If this Letter of Transmittal is signed by the registered
holder(s) of the Units tendered hereby, no endorsements of
certificate(s) representing such Units or
5
<PAGE> 6
separate stock powers are required, unless payment is to be made or
certificate(s) for Units not tendered or purchased are to be issued to
a person other than the registered holder(s). In any of the latter
cases, the certificate(s) representing the Units transmitted hereby
must be endorsed or accompanied by appropriate stock powers, in either
case signed exactly as the name(s) of the registered holder(s)
appear(s) on the certificate(s).
(e) If this Letter of Transmittal or any certificate or stock
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate
when signing and must submit proper evidence satisfactory to the
Company of their authority so to act.
5. TRANSFER TAXES. Subject to the following, the Company will pay or
cause to be paid all transfer taxes, if any, payable on the transfer to it of
Units purchased pursuant to the Offer. If, however, payment of the Purchase
Price is to be made to or (in the circumstances permitted by the Offer) if Units
not tendered or purchased are to be registered in the name(s) of any person(s)
other than the registered holder(s), or if tendered certificates are registered
in the name(s) of any person(s) other than the person(s) signing this Letter of
Transmittal, the amount of any transfer taxes (whether imposed on the registered
holder or such other person) payable on account of the transfer to such person
will be deducted from the Purchase Price unless satisfactory evidence of the
payment of such taxes, or an exemption therefrom, is submitted.
Except as provided in this Instruction 5, it will not be necessary to
affix transfer tax stamps to the certificates representing Units tendered
hereby.
6. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If checks are to be
issued in the name of and/or certificates for Units not tendered or not
purchased are to be returned to a person other than the signer(s) of the Letter
of Transmittal or if checks and/or such certificates are to be sent to an
address other than that shown above in the box captioned "Description of Units
Tendered," then the boxes captioned "Special Payment Instructions" and/or
"Special Delivery Instructions" on this Letter of Transmittal should be
completed.
7. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of tenders of Units will be
determined by the Company (or by its representatives), which determinations
shall be final and binding. The Company reserves the absolute right to reject
any or all tenders determined by it not to be in appropriate form or the
acceptance of or payment for which would be unlawful. The Company also reserves
the absolute right to waive any of the conditions of the Offer or any defect in
any tender with respect to any particular Unitholder. Neither the Company nor
any other person will be under a duty to give notification of any defects,
irregularities or rejections in tenders, nor shall any of them incur any
liability for failure to give such notice.
8. LOST OR DESTROYED CERTIFICATES. If any certificate representing
Units has been lost or destroyed, the Unitholder should promptly notify the
Company of this fact in writing. This Letter of Transmittal and related
documents cannot be processed until procedures for replacing lost or destroyed
certificates have been followed.
9. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions and requests for assistance or requests for additional copies of the
Offer to Purchase and this Letter of Transmittal may be directed to William A.
Siskovic, Vice President and Secretary-Treasurer, (330)533-2692.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE
THEREOF (TOGETHER WITH CERTIFICATES, IF ANY, FOR UNITS TENDERED, AND ALL OTHER
REGISTERED DOCUMENTS) MUST BE RECEIVED BY THE COMPANY PRIOR TO THE EXPIRATION
DATE OF THE OFFER.
6
<PAGE> 1
Exhibit (a)(3)
1996 ANNUAL REPORT April 30, 1997
================================================================================
EVERFLOW EASTERN PARTNERS, L.P.
Newsletter
TO OUR EVERFLOW PARTNERS...
Everflow Eastern Partners, L.P. continues to achieve excellent
drilling results. The Company incurred development costs of $4.1 million in
adding 3.7 million MCF of natural gas and 119 thousand barrels of crude oil
reserves. The value of these additions amounted to $6.2 million using the
Standardized Measure of Discounted Future Net Cash Flows, which discounts
estimated future net cash flows by 10% annually. The Standardized Measure of
Discounted Future Net Cash Flows increased by $8.7 million between December
31, 1995 and 1996 due primarily to changes in natural gas prices. Total assets
of the Company amounted to $53.2 million with partners' equity accounting for
$47.0 million. We proceed into 1997 with an undeveloped acreage inventory that
we believe should continue to bring similar success that has been achieved
historically.
As you know, the Company entered into long-term "seasonal"
contracts with The East Ohio Gas Company beginning in September 1991. These
contracts cover the majority of our natural gas production and provide favorable
pricing. The fourth annual price adjustment under these contracts occurred in
November 1996. The amount of this adjustment was a $.47 per MCF increase in
natural gas pricing for wells subject to these contracts. This increase in gas
prices was responsible for the increase in the Standardized Measure of
Discounted Future Net Cash Flows as of December 31, 1996.
We continue to focus our attention for the future on maintaining
reserves through the development of oil and gas properties while distributing
cash to our partners. We anticipate that the distributions to partners will
remain the same for 1997.
FINANCIAL REPORT
Enclosed with this Newsletter is the following financial
information:
- Everflow Eastern Partners, L.P. audited financial statements for
the year ended December 31, 1996, including Notes to Consolidated Financial
Statements.
- "Management's Discussion and Analysis of Financial Condition and
Results of Operations" taken from the Company's Form 10-K Annual Report filed
with the Securities and Exchange Commission.
RESERVE REPORT
Enclosed is a copy of the letter prepared by Robert A.
Crissinger, Inc. Mr. Crissinger, a petroleum engineering consultant, has
prepared a report of the remaining 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 Company's reserve analysis as well as
additional oil and gas information can be found in the enclosed financial
statements (see Note 9).
REPURCHASE RIGHT
As you know, the Partnership Agreement for Everflow Eastern
Partners, L.P. provides that each year the Company will repurchase for cash up
to 10% of the then outstanding Units of the Partnership.
Between April 30, 1997 and June 30, 1997, you as a Unitholder of
the Company, may exercise your right to require the Company to purchase all or
any (whole) number of your Units at a price equal to 66% of the Adjusted Book
Value as of December 31, 1996, as adjusted for distributions since that date.
Management of the Company is aware of private trades of Units
between Unitholders which are slightly higher than the Purchase Price.
Based on the enclosed audited financial statements, the
repurchase price this year is $5.21 per Unit calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
Total partners' equity at December 31, 1996 $46,959,000
Add:
Standardized Measure of
Discounted Future Net Cash Flows 50,507,000
Tax effect adjustment 1,323,000
---------
51,830,000
Deduct:
Carrying value of oil and gas properties
(net of undeveloped lease costs and
prepaid well costs):
Historical cost 96,419,000
Accumulated depreciation,
depletion and amortization (50,948,000)
------------
45,471,000
------------
Adjusted Book Value 53,318,000
66% of Adjusted Book Value 35,190,000
98.96% Limited Partners' share 34,824,000
Unit price based on 6,379,941 units $ 5.46
Distribution - January 2, 1997 .125
Distribution-April 1,1997 .125
-----------
Calculated Purchase Price $ 5.21
===========
</TABLE>
Neither the Company nor its General Partner makes any
recommendation to any Unitholder as to whether to tender or refrain from
tendering any or all of his, her or its Units. You must make your own decision
whether to tender Units, and if so, what amount to tender.
The Offer is explained in detail in the enclosed Offer to
Purchase and Letter of Transmittal. In the event you as a Unitholder elect to
consider such right under the Partnership Agreement, instructions on how to do
so are also explained in detail in the enclosed materials.
- --------------------------------------------------------------------------------
585 WEST MAIN STREET, POST OFFICE BOX 629, CANFIELD, OHIO 44406 (330)533-2692
<PAGE> 1
Exhibit (a) (5)
Robert A. Crissinger, Inc. - Petroleum Engineering Consultant
- --------------------------------------------------------------------------------
10333 Pine Needle Trail - Cleveland, Ohio 44136 - 216-572-0069
Fax: 216-572-0169
March 14, 1997
Mr. William A. Siskovic
Vice President of Finance
Everflow Eastern, Inc.
585 West Main Street
Canfield, Ohio 44406
Re: Oil and Gas Reserves Evaluation and Appraisal
of EVERFLOW EASTERN, INC. PARTNERSHIPS (100 PERCENT
WORKING INTERESTS) as of January 01, 1997
Dear Mr. Siskovic:
In accordance with your request, we have evaluated and appraised certain
Partnership working interests supplied by Everflow Eastern, Inc. of oil and gas
properties located in various counties of Ohio. A total of forty-six
partnerships (1,452.75 Gross Well Cases) were evaluated as Proved Developed
Reserves. All of the producing wells are currently being operated by Everflow
Eastern, Inc. The individual partnerships made available for our appraisal are
listed as Exhibit Number 1.
The oil and gas reserves evaluation and appraisals of these properties
are based upon existing operating conditions. Oil and gas prices were held
constant (without escalation) throughout the term of the project. Operating
costs were held constant (without escalation) throughout the term of the
project. Field inspection of the present producing operations was not made.
Value of the net proved developed producing reserves are expressed in terms of
estimated future net revenue and present worth of future net revenue. The future
net revenue is calculated by deducting estimated operating expenses, including
severance and ad valorem taxes, from the future gross revenue. Present worth of
future net revenue is calculated by discounting the future net revenue at the
specified rate of 10 percent per year over the expected period of realization.
<PAGE> 2
As of January 1, 1997 we estimate the remaining recoverable oil and gas
reserves of the subject wells to be as follows:
<TABLE>
<CAPTION>
Proved Developed Reserves
-------------------------
Proved Developed Reserves Net
------------------------- --------------
<S> <C>
Gas Reserves 61,080,398 MCF
Oil Reserves 1,556,080 BO
</TABLE>
A summary projection of the estimated future net revenue and present
values thereof follows:
<TABLE>
<CAPTION>
Fiscal Proved Developed Reserves
Year End FNR PW
-------- ---------- ------------
<S> <C> <C>
*1997 $ 19,711,499 $18,786,295
1998 $ 15,521,346 $13,458,759
1999 $ 12,749,570 $10,050,312
Remaining $ 79,495,175 $35,898,546
-------- ---------- ------------
Total $127,477,590 $78,193,912
<FN>
* Date of Reserve Appraisal is January 1, 1997.
</TABLE>
FNR: Future Net Revenue
PW: Present Worth of Future Net Revenue Discounted
at 10 percent.
Future net revenue HAS NOT BEEN REDUCED TO REFLECT ANY CAPITAL
EXPENDITURES OF WORKOVERS, ADDITIONAL PRODUCTION EQUIPMENT, COMPRESSION, ETC.
The revenue sharing of this appraisal has been provided by Everflow Eastern,
Inc.
Fair Market Value
- -----------------
The Fair Market Value (FMV) of the revenue interests of the Proved
Developed Reserves is detailed on the following page. The value includes only
the proved developed oil and gas reserves, with no salvage consideration for the
existing wells. The FMV is the current estimated market price at which a
property would be sold by a willing seller to a willing buyer, neither being
under compulsion to buy or to sell, and both being competent and having
reasonable knowledge of the facts.
The FMV of the oil and gas reserves determined as of January 1, 1995, is as
follows.
<PAGE> 3
<TABLE>
<CAPTION>
FAIR MARKET APPRAISAL METHOD
----------------------------
<C> <C>
36 Month Cash Flow .......................................... $47,982,415
65 Percent of Present Worth at 10 Percent ................... $50,826,043
100 Percent of Present Worth at 25 Percent .................. $51,904,844
-----------
Average FMV of Proved Developed ............................. $50,237,767
Producing Reserves
</TABLE>
The evaluation concluded that the salvage value of the tangible and production
equipment for each well would be equal to the cost to plug and abandon each
individual well. This may or not be a factual conclusion.
Reserve Classification
- ----------------------
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs, under existing economic and operating conditions (prices and
costs as of the date the estimate is made). Prices include consideration of
changes in existing prices provided by fixed contractual arrangements, but not
escalations based upon future conditions (i.e. inflation). Reservoirs are
considered proved if economic producibility is supported by either actual
production or conclusive formation test. Reserves which can be produced
economically through application of improved recovery techniques are included in
the proved classification when successful testing by a pilot project provides
support for the engineering analysis on which the project or program was based.
Depending on the status of development, these proved reserves are further
subdivided into:
DEVELOPED RESERVES - which are reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery should be included in this category
only after testing by a pilot project or after the operation of an installed
program has confirmed through production response that increased recovery will
be achieved.
UNDEVELOPED RESERVES - which are those proved reserves that are expected
to be recovered from new wells on undrilled acreage or from existing wells where
a relatively
<PAGE> 4
major expenditure is required for recompletion. Reserves on undrilled acreage
shall be limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled. Proved reserves for other
undrilled units can be claimed only where it can be demonstrated with certainty
that there is continuity of production from the existing productive formation.
Reserve Determination
- ---------------------
For the properties that have been producing for a sufficient length of
time to establish a definite decline trend, reserves have been determined by
Decline Curve Analysis; which is the extrapolation of the production decline
trend to the estimated economic limit of profitable operations. We reserve the
right to revise all estimates when additional performance history becomes
available.
Economic Analysis
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The initial product prices, operating costs, additional capital
expenditures and any escalation criteria were supplied by Everflow Eastern, Inc.
without independent verification. These parameters were applied in the following
manner in calculating the future net cash flow:
1. OIL PRICE; a price of $22.67 per barrel of crude oil, effective January 01,
1997 was used as the initial price (Ohio base price).
2. GAS PRICE; an average price of $2.700 per thousand cubic foot (MCF) of
natural gas, effective January 01, 1997 was concluded. Transportation fees
were reported to have been subtracted from the wellhead gas price where
appropriate.
3. OPERATING COSTS; operating costs were concluded on a well by well basis
using applicable historical operating expense information. The operating
fee included the cost of operations, administration and estimated third
party expenses.
4. ESCALATION CRITERIA; escalation parameters were not used for the purpose of
this report.
5. ECONOMIC LIMIT; economic limit was determined to be that point in time when
total partnership operating revenues equaled total partnership operating
expenses. The operating expenses include normal operating costs, severance
taxes and ad valorem taxes where applicable.
<PAGE> 5
Conclusions
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The oil and gas reserves evaluation and appraisal documents the existing
production operations at the time of this report. Additional drilling and/or
reworking of the producing wells may be economically beneficial. The resulting
appraisal values are estimates of the remaining Proven Developed Oil and Gas
Reserves only and as such should not be considered as a fair market value of the
producing properties. Revenues derived from natural gas sales will account for
an estimated 82.4 percent of the net operating revenues and revenues derived
from the sale of crude oil will account for the remaining 17.6 percent of net
operating revenues.
Titles to the appraised properties have not been examined by Robert A.
Crissinger, Inc. nor has the actual degree or type of interest owned been
independently confirmed. The data used in this evaluation was obtained from
Everflow Eastern, Inc., published industry information sources, and/or the
nonconfidential files of Robert A. Crissinger, Inc. that were considered
accurate. A field inspection of the properties or production operations was not
made for the purpose of this report.
The reliability of any reserve estimate is a function of the quality of
available information and of engineering and geological interpretation and
judgment. In evaluating the information at our disposal concerning this
appraisal, we have excluded from our consideration all matters as to which legal
or accounting, rather than engineering and geological, interpretation may be
controlling. In our opinion, the reserve estimates presented herein, in
accordance with generally accepted engineering and evaluation principles
consistently applied, are believed to be reasonable. These oil and gas reserves
should be accepted with the understanding that drilling activity or additional
information subsequent to the date of this report might require their revision.
After federal income tax analysis was beyond the scope of this
evaluation and appraisal. The salvage value of all tangible equipment was
assumed to equal the cost to properly plug and abandon each well including
complete site restoration.
Finally, in assessing the conclusions herein expressed, as in all
aspects of oil and gas evaluation, there are uncertainties inherent in the
interpretation of engineering data and such conclusions necessarily represent
only informed professional judgments.
<PAGE> 6
This report has been prepared for the exclusive use of Everflow Eastern,
Inc. It shall not be reproduced, distributed, or made available to any other
company or person without the knowledge and written consent of Robert A.
Crissinger, Inc.
We appreciate this opportunity to be of service to you. If you have any
questions or comments, please advise at your convenience.
Respectfully submitted,
Robert A. Crissinger, Inc.
/s/ Robert A. Crissinger, Inc.
Robert A. Crissinger
President
RAC
