UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the period ended June 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-12396
THE BEARD COMPANY
(Exact name of registrant as specified in its charter)
Oklahoma 73-0970298
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, Oklahoma 73112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 842-2333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of June 30, 1996.
Common Stock $.001 par value - 2,740,730
<PAGE>
THE BEARD COMPANY
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheets - June 30, 1996 (Unaudited) and
December 31, 1995
Statements of Operations - Three Months and Six Months
ended June 30, 1996 and 1995 (Unaudited)
Statements of Shareholders' Equity, Year ended
December 31, 1995 and Six Months ended
June 30, 1996 (Unaudited)
Statements of Cash Flows - Six Months ended
June 30, 1996 and 1995 (Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
THE BEARD COMPANY AND SUBSIDIARIES
Financial Statements
June 30, 1996 (Unaudited) and December 31, 1995 and for the
Three Months and Six Months Ended June 30, 1996, and 1995 (Unaudited)
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
THE BEARD COMPANY AND SUBSIDIARIES
Balance Sheets
June 30, 1996 (Unaudited) and December 31, 1995
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $290,000 $220,000
Accounts receivable, less allowance for doubtful
receivables of $50,000 in 1996 and $43,000
in 1995 2,342,000 2,259,000
Inventories 2,891,000 2,282,000
Prepaid expense and other current assets 541,000 401,000
------------ ------------
Total current assets 6,064,000 5,162,000
------------ ------------
Investments and other assets 1,831,000 1,935,000
Property, plant and equipment, at cost 15,840,000 14,291,000
Less accumulated depreciation, depletion
and amortization 7,571,000 7,133,000
------------ ------------
Net property, plant and equipment 8,269,000 7,158,000
------------ ------------
Intangible assets, at cost 4,272,000 3,795,000
Less accumulated amortization 3,486,000 3,435,000
------------ ------------
Net intangible assets 786,000 360,000
------------ ------------
$16,950,000 $14,615,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable $1,862,000 $1,354,000
Accrued expense and other liabilities 536,000 342,000
Short-term debt 1,220,000 957,000
Current maturities of long-term debt 692,000 520,000
------------ ------------
Total current liabilities 4,310,000 3,173,000
------------ ------------
Long-term debt less current maturities 2,520,000 1,454,000
Redeemable preferred stock of $100 stated
value; 5,000,000 shares authorized;
90,156 shares issued and outstanding (note 2) 1,200,000 1,200,000
Minority interest in consolidated subsidiaries 167,000 0
Commitments and contingencies (note 2) 0 0
Common shareholders' equity:
Common stock of $.001 par value per share;
10,000,000 shares authorized; 2,740,430
and 2,730,830 shares issued and outstanding
in 1996 and 1995, respectively 3,000 3,000
Capital in excess of par value 41,471,000 41,446,000
Accumulated deficit (32,721,000) (32,661,000)
------------ ------------
Total common shareholders' equity 8,753,000 8,788,000
------------ ------------
$16,950,000 $14,615,000
============ ============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Operations
(Unaudited)
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Carbon dioxide $3,553,000 $2,868,000 $6,332,000 $5,118,000
Environmental/resource recovery 708,000 659,000 1,058,000 1,308,000
Real estate development 0 726,000 0 1,350,000
Other 13,000 17,000 30,000 31,000
---------- ---------- ---------- ----------
4,274,000 4,270,000 7,420,000 7,807,000
Expenses:
Carbon dioxide 2,419,000 2,004,000 4,483,000 3,606,000
Environmental/resource recovery 603,000 521,000 1,130,000 1,068,000
Real estate development 0 687,000 0 1,277,000
Selling, general and administrative 1,093,000 938,000 2,047,000 1,809,000
Depreciation, depletion and
amortization 322,000 289,000 625,000 567,000
Other 8,000 20,000 22,000 41,000
---------- ---------- ---------- ----------
4,445,000 4,459,000 8,307,000 8,368,000
Operating profit (loss):
Carbon dioxide 246,000 139,000 160,000 110,000
Environmental/resource recovery (139,000) (81,000) (492,000) (193,000)
Real estate development (8,000) 26,000 (16,000) 52,000
Other (270,000) (273,000) (539,000) (530,000)
---------- ---------- ---------- ----------
(171,000) (189,000) (887,000) (561,000)
Other income (expense):
Interest income 4,000 13,000 6,000 16,000
Interest expense (52,000) (44,000) (98,000) (88,000)
Gain on sale of assets 74,000 136,000 86,000 188,000
Settlement of take-or-pay contract
(note 4) 0 0 939,000 0
Minority interest in operations of
consolidated subsidiaries (3,000) 0 (3,000) 0
Other, including unconsolidated
affiliates (7,000) 5,000 (103,000) (5,000)
---------- ---------- ---------- ----------
Loss before income taxes (155,000) (79,000) (60,000) (450,000)
Income taxes (note 5) 0 0 0 0
---------- ---------- ---------- ----------
Net loss ($155,000) ($79,000) ($60,000) ($450,000)
========== ========== ========== ==========
Net loss applicable to common
shareholders ($155,000) ($79,000) ($60,000) ($450,000)
========== ========== ========== ==========
Loss per common share and common
equivalent share (primary EPS) ($0.06) ($0.03) ($0.02) ($0.17)
========== ========== ========== ==========
Loss per common share assuming
maximum dilution (fully diluted EPS) ($0.06) ($0.03) ($0.02) ($0.17)
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Shareholders' Equity
<CAPTION>
Total
Capital in Common
Common Excess of Accumulated Shareholders'
Stock Par Value Deficit Equity
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance December 31, 1994 $ 3,000 $ 41,321,000 $(32,258,000) $ 9,066,000
Net loss, year ended December 31, 1995 0 0 (403,000) (403,000)
Accretion of discount on preferred
stock 0 (51,000) 0 (51,000)
Issuance of 78,700 shares of common
stock 0 176,000 0 176,000
------------ ------------ ------------ ------------
Balance December 31, 1995 $ 3,000 $ 41,446,000 $(32,661,000) $ 8,788,000
Net loss, six months ended June 30, 1996 0 0 (60,000) (60,000)
Issuance of 9,600 shares of common stock 0 25,000 0 25,000
------------ ------------ ------------ ------------
Balance June 30, 1996 (Unaudited) $ 3,000 $ 41,471,000 $(32,721,000) $ 8,753,000
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
<CAPTION>
For the Six Months Ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Operating activities:
Cash received from customers $8,040,000 $7,551,000
Cash paid to suppliers and employees (7,805,000) (8,134,000)
Interest received 4,000 15,000
Interest paid (140,000) (145,000)
------------- -------------
Net cash provided by (used in) operating
activities 99,000 (713,000)
------------- -------------
Investing activities:
Acquisition of property, plant and equipment (813,000) (447,000)
Proceeds from sale of assets 241,000 286,000
Other investments 33,000 (202,000)
------------- -------------
Net cash used in investing activities (539,000) (363,000)
------------- -------------
Financing activities:
Proceeds from line of credit and term notes 2,263,000 1,926,000
Payments on line of credit and term notes (1,778,000) (1,190,000)
Proceeds from issuance of stock 25,000 (58,000)
------------- -------------
Net cash provided by financing activities 510,000 678,000
------------- -------------
Net increase (decrease) in cash and cash equivalents 70,000 (398,000)
Cash and cash equivalents at beginning of period 220,000 566,000
------------- -------------
Cash and cash equivalents at end of period $290,000 $168,000
============= =============
Reconciliation of Net loss to Net Cash Provided by
(used in) Operating Activities
Net loss ($60,000) ($450,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 625,000 567,000
Gain on sale of assets (86,000) (188,000)
Net interest capitalized on real estate project (66,000) 63,000
Receipt of property, plant, and equipment as part of
settlement of take-or-pay contract (400,000) 0
Other, including minority interest in consolidated
subsidiaries 110,000 12,000
------------- -------------
Net cash provided by operations before changes
in current assets and liabilities 123,000 4,000
Increase in accounts receivable, prepaids and other
current assets from operating activities (53,000) (295,000)
Increase in inventories from operating activities (543,000) (109,000)
Increase (decrease) in accounts payable and accrued
expenses from operating activities 572,000 (313,000)
------------- -------------
Net cash provided by (used in) operating activities $99,000 ($713,000)
============= =============
Supplemental Schedule of Noncash Investing and Financing Activities
Purchase of property, plant and equipment and
intangible assets through issuance of debt
obligations $1,013,027 $472,000
============= =============
Receipt of property, plant, and equipment as part of
settlement of take-or-pay contract $400,000 $0
============= =============
Sale of property for a note receivable $0 $104,000
============= =============
</TABLE>
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1996 and 1995
(Unaudited)
(1) The accompanying consolidated financial statements include the accounts
of The Beard Company and its wholly and majority-owned subsidiaries.
All significant intercompany transactions have been eliminated.
The financial information included herein is unaudited; however, such
information reflects all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the
interim periods presented.
The results of operations for the three and six month periods ended
June 30, 1996 are not necessarily indicative of the results to be
expected for the full year.
The Company operates within three major industry segments: (1) the
carbon dioxide ("CO2") segment, comprised of (a) the manufacture and
distribution of dry ice (solid CO2) and (b) the production of CO2;
(2) the environmental/resource recovery ("E/RR") segment, consisting of
environmental services and resource recovery activities; and (3) the
real estate ("R/E") segment, consisting of real estate construction
and development. The Company also has other operations, including a
minority-owned investment in a joint venture for the extraction,
production and sale of crude iodine.
(2) The Company's preferred stock is mandatorily redeemable through
December 31, 2002 from one-third of Beard's "consolidated net income"
as defined. Accordingly, one-third of future "consolidated net income"
will accrete directly to preferred stockholders and reduce earnings per
common share. The Company's operations through June 30, 1996, were
not sufficient to begin the sharing of the consolidated net income.
To the extent that the preferred stock is not redeemed by December 31,
2002, the shares of preferred stock can be converted into shares of
the Company's common stock.
(3) Loss per common share for the three and six-month periods ending June
30, 1996 and 1995, has been computed by dividing the loss by the
weighted average number of common shares outstanding during each
period. Common share equivalents and any potentially dilutive securities
outstanding were not considered in the calculations, as the effects
would have been antidilutive.
(4) During February 1996, the Company settled a take-or-pay agreement under
which a customer was obligated to purchase certain volumes of liquid CO2.
The Company received $539,000 of cash and assets valued at $400,000 and
recognized a gain of approximately $939,000.
(5) In accordance with the provisions of the Statement of Financial Accounting
Standard No. 109, Accounting for Income Taxes ("SFAS No. 109"), the
Company's deferred tax asset is carried at zero book value, reflecting
the uncertainties of the Company's utilization of the net deductible
timing differences. There is no provision for income taxes in 1996 or
1995 due to the availability of net operating losses and other carry-
forwards.
At June 30, 1996, the Company estimates that it had the following income
tax carryforwards available for both income tax and financial reporting
purposes (in thousands):
Expiration
Date Amount
-------------------------
Federal regular tax operating
loss carryforwards 2001-2010 $ 76,600
Investment tax credit carryforward 1996-2000 1,200
Tax depletion carryforward Indefinite 5,500
--------
Total $ 83,300
========
(6) In the normal course of business various actions and claims have been
brought or asserted against the Company. Management does not consider
them to be material to the Company's financial position, liquidity or
results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion focuses on material changes in the Company's
financial condition since December 31, 1995 and results of operations for
the quarter ended June 30, 1996 compared to the prior year second quarter
and the six months ended June 30, 1996 compared to the prior year six months.
Such discussion should be read in conjunction with the Company's financial
statements including the related footnotes.
In preparing the discussion and analysis, the Company has presumed
readers have read or have access to the discussion and analysis of the
prior year's results of operations, liquidity and capital resources as
contained in the Company's 1995 Form 10-K.
The Company operates within three major industry Segments: (1) the
carbon dioxide ("CO2") Segment, comprised of (a) the manufacture and
distribution of dry ice (solid CO2) and (b) the production of CO2; (2)
the environmental/resource recovery ("E/RR") Segment, consisting of
environmental services and resource recovery activities, and (3) the real
estate ("R/E") Segment, consisting of real estate construction and
development.
Material changes in financial condition - June 30, 1996 as compared
with December 31, 1995.
The following table reflects some of the changes in the Company's financial
condition during the periods indicated:
<TABLE>
<CAPTION>
June 30, December 31, Increase
1996 1995 (Decrease)
----------- ------------ ----------
<S> <C> <C> <C>
Cash and cash equivalents $ 290,000 $ 220,000 $70,000
Working capital $ 1,754,000 $1,989,000 $(235,000)
Current ratio 1.41 to 1 1.63 to 1
</TABLE>
The Company's ability to generate working capital from operations during
the first six months of 1996 was adversely affected by seasonality during the
first three months of the year. The first quarter is normally a poor one for
the dry ice business, and cold and/or rainy weather also normally causes
a slowdown of sales in the R/E Segment and the environmental services portion
of the E/RR Segment. Due to a seasonal decline in these Segments in the
first quarter, operations for the first six months of 1996 utilized working
capital of $416,000 before the impact of the $539,000 cash portion of the
settlement of the take-or-pay agreement.
The settlement of the take-or-pay agreement by the Company's dry ice
subsidiary, Carbonic Reserves ("Carbonics"), in February 1996 infused $539,000
of cash into Carbonics. The infusion of this cash plus $400,000 of equipment
resulted in the addition of $939,000 of pre-tax income. The settlement
enabled Carbonics to pay down bank debt and trade payables. Offsetting this
improvement in working capital was the increase in debt resulting from the
acquisition in May 1996 of Horizontal Drilling Technologies, Inc. ("HDT"), an
environmental services subsidiary.
In addition to the proceeds from the take-or-pay settlement, the Company
has been able to satisfy its liquidity needs through its working capital and
borrowing arrangements. Future cash flows and availability of credit are
subject to a number of variables, including the price and demand for dry
ice, a continuing source of economical CO2, continuing private and governmental
demand for environmental services and continuing demand for residential real
estate. Despite these uncertainties, the Company anticipates that its cash
flow from operations and continued availability of credit on a basis similar
to that experienced to date will be sufficient to meet its planned
operating costs and capital spending requirements.
Additional capital expenditures of $1,836,000 were made by the following
Segments in property, plant and equipment during the first six months of 1996,
as reflected in the table on the following page:
Carbon dioxide $1,156,000
Environmental/resource recovery 680,000
----------
$1,836,000
==========
Included in the above are $570,000 of additions financed through the
issuance of seller-financed notes.
The Company's working capital, the CO2 Segment's line of credit, and
equipment financing arrangements currently being negotiated are expected to be
sufficient to fund the current and presently foreseeable capital expenditure
requirements, including the $660,000 projected for the last six months of 1996.
Through the period ending December 31, 2002, the Company's liquidity will
be reduced to the extent it is required to redeem any of the Beard preferred
stock pursuant to the mandatory redemption provisions. See Note 2 to the
accompanying financial statements.
Material changes in results of operations - Quarter ended June 30, 1996 as
compared with the Quarter ended June 30, 1995.
The loss for the quarter ended June 30, 1996 was $155,000, compared to
a loss of $79,000 for the second quarter of the prior year. An improvement
in operating margins for the 1996 quarter was more than offset by a decrease
in the positive net effect of other income and expenses generated in the
current quarter as compared to the prior year's second quarter.
The current quarter resulted in an $18,000 improvement over the operating
loss recorded in the year earlier quarter. Although there were revenue gains
in the CO2 and E/RR Segments, this increase was offset by a decrease in revenue
from the R/E Segment.
Operating results of the Company's three Segments are reflected below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Operating profit (loss):
Carbon dioxide $246,000 $139,000
Environmental/resource recovery (139,000) (81,000)
Real estate (8,000) 26,000
-------- --------
Subtotal 99,000 84,000
Other (270,000) (273,000)
-------- --------
Total (171,000) (189,000)
======== ========
</TABLE>
The "Other" in the above table reflects primarily general and corporate
activities, as well as other activities and investments of the Company.
Carbon dioxide
Second quarter 1996 operations reflected an operating gain of $246,000
compared to a $139,000 gain for the 1995 second quarter. The primary component
of revenues for this Segment is dry ice sales which are seasonal with the
downturn occurring from December through February, while the brisk sales
period occurs from June through August and then again in October. The
dry ice component of this Segment generated an operating profit of $198,000
in the 1996 second quarter versus an operating profit of $116,000 in 1995.
Revenues from this Segment totaled $3,553,000 for the 1996 second quarter,
a 24% increase over last year's first quarter. The factors contributing to
this improvement included increases in the volume of dry ice sales, in
the sales of equipment, and in the Company's allocated share of sales from
its working interest in a producing CO2 unit. This improvement in revenues
was somewhat offset by increases in expenses associated with advertising and
sales, insurance, and an incentive-sales arrangement for employees.
Environmental/resource recovery
The E/RR Segment generated a larger operating loss in the second quarter
of 1996 as compared with the same period in 1995. The Segment reflected a 7%
increase in revenues, which resulted primarily from the increased activity
of the environmental services companies, as well as by the acquisition of
HDT during the quarter. This increase was offset somewhat, however, by a
decline in the revenues generated by resource recovery activities due to
the completion in February 1996 of a contract with U. S. Department of Energy
involving activities related to the Company's patented Mulled Coal technology.
Management has been pursuing and will continue to pursue the commercial
development of this technology during the remainder of 1996. The costs of
pursuing this development, as well as increased operating expenses related
to the Company's environmental services activities, offset the increased
revenues and resulted in the decline in operating margins.
Real estate construction and development
The results from the sale of zero lot-line homes were hampered by a
decline in sales, as no homes were sold in the second quarter of 1996, as
compared to two homes sold in the second quarter of 1995. The decline
in sales can be attributed to a variety of factors, including market
hesitation following a change in ownership in late 1994 of the two country
clubs adjacent and in close proximity to the Company's development.
Additional inventory of custom homes has been financed primarily from
the Segment's credit line. Any remaining cash requirement will be funded
from the proceeds of home sales. It is anticipated that only a small
portion of the cash flow from the development will continue to be reinvested
in custom homes during the remaining life of the project, and no more
speculative homes are planned. The Company expects to sell three homes during
the third quarter. As of June 30, 1996, 19 of the original 62 lots remain to
be developed. The majority of the cash flow generated by the real estate
development will be used to repay debt, redeployed as working capital by
the Company or used for general corporate purposes.
Other activities
Other operations, consisting mostly of general and corporate activities,
generated a slightly smaller operating loss for the second quarter of 1995
than the same period of last year.
Selling, general and administrative expenses
The Company's selling, general and administrative expenses ("SG&A") in
the current quarter increased to $1,093,000 from $938,000 in the 1995 second
quarter. SG&A expenses incurred by the CO2 Segment during the second quarter
of 1996, which represent 58% of the total SG&A costs, increased by $146,000
over the same period last year. This increase was associated with an
increase in expenses related to Carbonics' advertising and sales expenses,
insurance, and an incentive sales arrangement for employees.
Depreciation, depletion and amortization expenses
The second quarter of 1996 had an increase in DD&A expense of $33,000,
reflecting additions to property, plant and equipment made during the past
year.
Other income and expenses
Other income and expenses totaled $16,000 for the second quarter of 1996,
down sharply from the $110,000 recorded for such items in the same period of
1995. The decrease was due primarily to a decrease in the gain on sale of
assets of $62,000, as well as a $30,000 impairment provision recorded
against the carrying value of the Company's interest in certain investments,
during the current quarter.
Material changes in results of operations - Six months ended June 30, 1996
as compared with the Six months ended June 30, 1995.
The loss for the six months ended June 30, 1996 was $60,000, compared
to a loss of $450,000 for the first six months of the prior year. The first
half of 1996 benefited from a settlement of the take-or-pay agreement in
the CO2 Segment. The $939,000 recorded from the settlement more than offset
the overall decline in operating margins which resulted primarily from a
$299,000 decrease in the operating margin of the E/RR Segment.
Operating results of the Company's three Segments are reflected below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Operating profit (loss):
Carbon dioxide $ 160,000 $ 110,000
Environmental/resource recovery (492,000) (193,000)
Real estate (16,000) 52,000
----------- -----------
Subtotal (348,000) (31,000)
Other (539,000) (530,000)
----------- -----------
Total $ (887,000) $ (561,000)
=========== ===========
</TABLE>
The "Other" in the above table reflects primarily general and corporate
activities, as well as other activities and investments of the Company.
Carbon dioxide
Operations for the first six months of 1996 resulted in an operating
profit of $160,000 compared to a $110,000 operating profit for the 1995
first half. The primary component of revenues for this Segment is dry ice
sales which are seasonal with the downturn occurring from December through
February, while the brisk sales period occurs from June through August and
then again in October. The six months operating results of both 1996 and 1995
reflect the normal downturn in the sales cycle at the first of the year.
The dry ice component of this Segment generated an operating profit of $58,000
in the 1996 first half versus an operating profit of $84,000 in the
comparable 1995 period.
Revenues from this Segment totaled $6,332,000 for the first six months
of 1996, a 24% increase over the same period last year. The factors
contributing to this improvement included increases in the volume of dry
ice sales, in the sales of equipment, and in the Company's allocated share of
sales from its working interest in a producing CO2 unit. This improvement
in revenues was somewhat offset by increases in expenses associated with
advertising and sales, insurance, and an incentive-sales arrangement for
employees.
Environmental/resource recovery
A significant decline in revenues generated by the E/RR Segment led
to a decline in operating margins in the first six months of 1996 as compared
to the same period in 1995. This decline in revenues was primarily caused
by a slow down in the environmental services industry in the first three
months of the year, as governmental demand for environmental services declined
pending resolution of administrative problems relating to the Oklahoma
Corporation Commission Indemnity Fund. Also contributing to the decline in
revenue was the completion in February 1996 of a contract involving the
resource recovery activities related to the Company's patented Mulled Coal
technology. Management intends to pursue the commercial development of this
technology during the remainder of 1996.
Real estate construction and development
The results from the sale of zero lot-line homes were hampered by a
decline in sales, as no homes were sold in the first six months of 1996, as
compared to four homes sold in the same period in 1995. The decline in
sales can be attributed to a variety of factors, including market hesitation
following a change in ownership in late 1994 of the two country clubs adjacent
and in close proximity to the Company's development.
Additional inventory of custom homes has been financed primarily from
the Segment's credit line. Any remaining cash requirement will be funded
from the proceeds of home sales. It is anticipated that only a small
portion of the cash flow from the development will continue to be reinvested
in custom homes during the remaining life of the project, and no more
speculative homes are planned. The Company expects to sell three homes during
the third quarter. As of June 30, 1996, 19 of the original 62 lots remain
to be developed. The majority of the cash flow generated by the real
estate development will be used to repay debt, redeployed as working capital
by the Company or used for general corporate purposes.
Other activities
Other operations, consisting mostly of general and corporate activities,
generated a slightly greater operating loss for the first half of 1996 as
compared to the same period last year.
Selling, general and administrative expenses
The Company's selling, general and administrative expenses ("SG&A") in
the first half of 1996 increased to $2,047,000 from $1,809,000 in the 1995
six months. SG&A expenses incurred by the CO2 Segment during the first half
of 1996, which represent 58% of the total SG&A costs, increased by
$252,000 over the same period last year. This increase was associated with
increases in expenses related to advertising and sales, insurance, and an
incentive-sales arrangement for employees.
Depreciation, depletion and amortization expenses
The first half of 1996 had an increase in DD&A expense of $58,000,
reflecting additions to property, plant and equipment made during the past
year.
Other income and expenses
The positive net effect of other income and expenses for the first six
months of 1996 increased significantly compared to the same period in 1995.
As previously mentioned, the Company benefited in the first six months of
1996 from the settlement of a take-or-pay agreement in the CO2 Segment.
This settlement resulted in a gain of $939,000. This gain was partially
offset by a decrease in the gain on sale of assets of $102,000, as well as
a $120,000 impairment provision recorded against the carrying value of the
Company's interest in certain investments.
PART II. OTHER INFORMATION.
Item 2. Changes in Securities.
The Company's preferred stock is mandatorily redeemable through December
31, 2002 from one-third of Beard's "consolidated net income" as defined in
the instrument governing the rights of the preferred stockholders. Accordingly,
one-third of future "consolidated net income" will accrete directly to
preferred stockholders and reduce earnings per common share. As a result
of these redemption requirements, the payment of any dividends to the common
stockholders in the near future is very unlikely. See Note 2 to the accom-
panying financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
Commencing on May 3, 1996, proxies were solicited on behalf of the Board
of Directors of the Company in connection with the Company's Annual Meeting
of Stockholders.
(a) This annual meeting was held on June 3, 1996.
(b) The business of the meeting included the election of W. M. Beard
and W. R. Plugge to serve as directors for three year terms or
until their successors have been elected and qualified.
In addition, the following persons continue to serve as directors for
terms expiring on the dates indicated or until their successors have been
elected and qualified:
Allan R. Hallock (1997) Ford C. Price (1997)
Herb Mee, Jr. (1998)
In addition to the above, Michael E. Carr, elected in 1994 to serve as
a director by the preferred stockholders, will continue to serve until his
successor has been elected and qualified.
The table below sets forth the voting for election of directors:
<TABLE>
<CAPTION>
Votes Votes Votes Broker
Name of Nominee For Against Withheld Abstentions Non-Votes
--------------- --- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
W. M. Beard 3,041,175 -0- 3,080 -0- -0-
W. R. Plugge 3,041,160 -0- 3,095 -0- -0-
</TABLE>
(c) The business of the meeting also included a proposal to approve
The Beard Company Deferred Stock Compensation Plan which was adopted
by the Board of Directors in October 1995 subject to stockholder
approval. The table below sets forth the voting for such proposal:
<TABLE>
<CAPTION>
Votes Votes Broker
For Against Abstentions Non-Votes
--- ------- ----------- ---------
<S> <C> <C> <C>
3,014,975 22,300 6,980 -0-
</TABLE>
(d) At the meeting the stockholders also voted to approve the
appointment of KPMG Peat Marwick LLP as independent
certified public accountants for fiscal 1996.
<TABLE>
<CAPTION>
Votes Votes Votes Broker
For Against Withheld Abstentions Non-Votes
--- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
3,024,986 15,142 -0- 4,127 -0-
</TABLE>
________
(1) 3,044,255 votes (95.20% of those eligible) were cast at the meeting,
including 2,581,810 votes (94.39%) by the common stockholders and 462,445 votes
(100,00%) by the preferred stockholders.
Item 6. Exhibits and Reports on Form 8-K:
(a) The following exhibits are filed with this Form 10-Q and are identified
by the numbers indicated:
4.1 Third Amendment to Loan Agreement by and among Registrant,
Carbonic Reserves ("Carbonics") and Liberty Bank and Trust
Company of Oklahoma City, N.A. ("Liberty"), dated effective
April 30, 1996.
4.2 Renewal Promissory Note from Registrant to Liberty, dated
April 30, 1996.
10.1 Subscription Agreement by and between Cibola Corporation
("Cibola") and Registrant, dated April 10, 1996.
10.2 Nonrecourse Secured Promissory Note from Registrant to Cibola,
dated April 10, 1996.
10.3 Security Agreement by and between Cibola and Registrant, dated
April 10, 1996.
10.4 Tax Sharing Agreement by and among Registrant, Cibola and the
Cibola shareholders, dated April 10, 1996.
10.5 Call Option Agreement by and among Registrant and the Cibola
shareholders, dated April 10, 1996.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the period covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
(Registrant) THE BEARD COMPANY
HERB MEE, JR.
Date: August 9, 1996
Herb Mee, Jr.
President and Chief Financial Officer
CINDY JANKA
Date: August 9, 1996
Cindy Janka
Controller and
Chief Accounting Officer
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No.
<S> <C> <C>
4.1 Third Amendment to Loan Agreement Filed herewith electronically
by and among Registrant, Carbonic
Reserves ("Carbonics") and Liberty
Bank and Trust Company of Oklahoma
City, N.A. ("Liberty"), dated
effective April 30, 1996
4.2 Renewal Promissory Note from Filed herewith electronically
Registrant to Liberty, dated
April 30, 1996
10.1 Subscription Agreement by and Filed herewith electronically
between Cibola Corporation ("Cibola")
and Registrant, dated April 10,
1996
10.2 Nonrecourse Secured Promissory Note Filed herewith electronically
from Registrant to Cibola, dated
April 10, 1996
10.3 Security Agreement by and between Filed herewith electronically
Cibola and Registrant, dated April
10, 1996
10.4 Tax Sharing Agreement by and among Filed herewith electronically
Registrant, Cibola and the Cibola
shareholders, dated April 10, 1996
10.5 Call Option Agreement by and among Filed herewith electronically
Registrant and the Cibola share-
holders, dated April 10, 1996
27 Financial Data Schedule Filed herewith electronically
</TABLE>
LIBERTY
April 30, 1996
Mr. Herb Mee, Jr.
Carbonic Reserves
10110 Huebner Road
San Antonio, Texas 78240
Dear Mr. Mee:
This writing will serve as the Third Amendment to that certain
Loan Agreement (Agreement) dated May 19, 1995 between Carbonic
Reserves, a Nevada corporation (Borrower), The Beard Company
(Guarantor) and Liberty Bank and Trust Company of Oklahoma City,
N.A. (Bank) amended November 13, 1995 (First Amendment) and March
12, 1996 (Second Amendment). All defined terms shall have the
meanings ascribed to them in the Agreement. In consideration of
the mutual promises herein contained, Borrower, Guarantor and
Bank hereby agree as follows:
o Maturity Date as set forth on page six (6) of the Agreement
is hereby deleted in its entirety and the following
substituted in lieu thereof:
The date when all principal of and interest on the
Indebtedness (including the Note) shall become fully due and
payable to the Bank which date shall occur upon the
happening of the earlier of (i) October 31, 1997; or (ii) an
Event of Default.
o Prime Rate as set forth on page six (6) of the Agreement is
hereby deleted in its entirety and the following substituted
in lieu thereof.
That fluctuating annual rate of interest formally designated
by the Bank, from time to time (whether or not published),
as its "National Prime Rate". As of the date hereof, the
Prime Rate is 8.25% per annum. The Bank may, from time to
time, extend credit to anyone at rates of interest varying
from, and having no relationship to, the Prime Rate.
o The last sentence of Section 3 as set forth on page seven
(7) of the Agreement is deleted in its entirety and the
following substituted in lieu thereof:
The Bank's commitment hereunder shall expire on October 31,
1997.
o The third sentence of Section 3.3 as set forth on page seven
(7) of the Agreement is deleted in its entirety and the
following substituted in lieu thereof:
Prior to an Event of Default, interest on the Note shall be
payable monthly beginning on the 31st day of May, 1996, and
continuing on the last day of each month thereafter until
the Maturity Date.
o Section 3.9 as set forth on page nine (9) of the Agreement
is deleted in its entirety.
o The last sentence of Section 6.2.5.1 as set forth on page 13
of the Agreement is deleted in its entirety and the
following substituted in lieu thereof:
Current Ratio is defined generally as current assets divided
by current liabilities less redeemable preferred dividends
payable.
o Section 6.2.5.3 as set forth on page 13 of the Agreement is
deleted in its entirety and the following substituted in
lieu thereof:
Borrower will maintain Tangible Net Worth of not less than
$5,000,000.00; and
o Section 6.2.5.4 as set forth on page 14 of the Agreement is
deleted in its entirety and the following substituted in
lieu thereof:
Without the Bank's written consent, the Borrower shall not
incur, create or suffer any "Capital Expenditure" during
Borrower's fiscal year 1996 in excess of "Excess Cash Flow."
"Excess Cash Flow" shall be defined as net income of the
Borrower for the prior four (4) quarters (excluding inter-
company and Affiliate interest expense) plus depreciation
and amortization for the prior four (4) quarters MINUS
current maturities of long term debt and capitalized leases
and redeemable preferred dividends payable, all calculated
in accordance with GAAP. "Capital Expenditures" shall
include any investment that would be capitalized and
depreciated in accordance with GAAP.
Please indicate your agreement to this Third Amendment by
executing and returning to Bank the original of this writing.
Thank you.
Sincerely,
JUDY BARRETT FELDER
Judy Barrett Felder
Vice President
AGREED AND ACCEPTED this 24th day of May, 1996 effective April
30, 1996.
"BORROWER"
CARBONIC RESERVES, a Nevada corporation
By: HERB MEE, JR.
Herb Mee, Jr., Vice President
"GUARANTOR"
THE BEARD COMPANY, an Oklahoma corporation
By: HERB MEE, JR.
Herb Mee, Jr., President
PROMISSORY NOTE
Principal - $750,000
Loan Date - 04-30-1996
Maturity - 10-31-1997
Borrower: CARBONIC RESERVES Lender: Liberty Bank and
10110 Huebner Road Trust Company of
San Antonio, TX 78240 Oklahoma City, N.A.
Metropolitan Lending
Department/Commercial
Loans
P.O. Box 25848
Oklahoma City, OK
73125
=================================================================
Principal Amount: $750,000.00
Initial Rate: 9.750%
Date of Note: April 30, 1996
PROMISE TO PAY. CARBONIC RESERVES ("Borrower") promises to pay
to Liberty Bank and Trust Company of Oklahoma City, N.A.
("Lender"), or order, in lawful money of the United States of
America, the principal amount of Seven Hundred Fifty Thousand &
00/100 Dollars ($750,000.00) or so much as may be outstanding,
together with interest on the unpaid outstanding principal
balance of each advance. Interest shall be calculated from the
date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all
outstanding principal plus all accrued unpaid interest on October
31, 1997. In addition, Borrower will pay regular monthly
payments of accrued unpaid interest beginning May 30, 1996, and
all subsequent interest payments are due on the same day of each
month after that. Interest on this Note is computed on a 365/360
simple interest basis; that is, by applying the ratio of the
annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of
days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as
Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to
accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is
subject to change from time to time based on changes in an index
which is the Lender's National Prime Rate (the "Index").
Lender's National Prime Rate is the reference rate of interest
designated by Lender from time to time as the "National Prime
Rate" for the guidance of loan officers. The Index is set from
time to time by Lender in its sole discretion. The Index is not
necessarily the lowest reference rate used by Lender in
calculating interest due on its loans. Lender will tell Borrower
the current index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as
well. The interest rate change will not occur more often than
each day. The Index currently is 8.250% per annum. The interest
rate to be applied to the unpaid principal balance of this Note
will be at a rate of 1,500 percentage points over the Index,
resulting in an initial rate of 9.750% per annum. NOTICE: Under
no circumstances will the interest rate on this Note be more than
the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of
the amount owed earlier than it is due. Early payments will not,
unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued
unpaid interest. Rather, they will reduce the principal balance
due.
DEFAULT. Borrower will be in default if any of the following
happens: (a) Borrower fails to make any payment when due. (b)
Borrower breaks any promise Borrower has made to Lender, or
Borrower fails to comply with or to perform when due any other
term, obligation, covenant, or condition contained in this Note
or any agreement related to this Note, or in any other agreement
or loan Borrower has with Lender. (c) Any representation or
statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect
either now or at the time made or furnished. (d) Borrower
becomes insolvent, a receiver is appointed for any part of
Borrower's property, Borrower makes an assignment for the benefit
of creditors, or any proceeding is commenced either by Borrower
or against Borrower under any bankruptcy or insolvency laws. (e)
Any creditor tries to take any of Borrower's property on or in
which Lender has a lien or security interest. This includes a
garnishment of any of Borrower's accounts with Lender. (f) Any
of the events described in this default section occurs with
respect to any guarantor of this Note or any guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such
guarantor's guarantee of this Note. (g) A material adverse
change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the
indebtedness is impaired. (h) Lender in good faith deems itself
insecure.
If any default, other than a default in payment, is curable and
if Borrower has not been given a notice of a breach of the same
provision of this Note within the preceding twelve (12) months,
it may be cured (and no event of default will have occurred) if
Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days,
immediately initiates steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter
continues and contemplates all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire
unpaid principal balance on this Note and all accrued unpaid
interest immediately due, without notice, and then Borrower will
pay that amount. Upon default, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted
under applicable law, increase the variable interest rate on this
Note to 6.500 percentage points over the Index. The interest
rate will not exceed the maximum rate permitted by applicable
law. Lender may hire or pay someone else to help collect this
Note if Borrower does not pay. Borrower also will pay Lender
that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services.
If not prohibited by applicable law, Borrower also will pay any
court costs, in addition to all other sums provided by law. This
Note has been delivered to Lender and accepted by Lender in the
State of Oklahoma. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of
Oklahoma County, the State of Oklahoma. Lender and Borrower
hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either Lender or Borrower
against the other. This Note shall be governed by and construed
in accordance with the laws of the State of Oklahoma.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00
if Borrower makes a payment on Borrower's loan and the check or
other payment order including any preauthorized charge with which
Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, conveys,
delivers, pledges, and transfers to Lender all Borrower's right,
title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else
and all accounts Borrower may open in the future, excluding
however all IRA, Keogh, and trust accounts. Borrower authorizes
Lender, to the extent permitted by applicable law, to charge or
setoff all sums owing on this Note against any and all such
accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit.
Advances under this Note, as well as directions for payment from
Borrower's accounts, may be requested orally or in writing by
Borrower or by an authorized person. Lender may, but need not,
require that all oral requests be confirmed in writing. The
following party or parties are authorized to request advances
under the line of credit until Lender receives from Borrower at
Lender's address shown above written notice of revocation of
their authority: Clifford H. Collen, Jr., President; Herb Mee,
Jr., Vice President; and Randy Thacker, Chief Financial Officer.
Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b)
credited to any of Borrower's accounts with Lender. The unpaid
principal balance owing on this Note at any time may be evidenced
by endorsements on this Note or by Lender's internal records,
including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or
any guarantor is in default under the terms of this Note or any
agreement that Borrower or any guarantor has with Lender,
including any agreement made in connection with the signing of
this Note; (b) Borrower or any guarantor cease doing business or
is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of
this Note or any other loan with Lender; (d) Borrower has applied
funds provided pursuant to this Note for purposes other than
those authorized by Lender; or (e) Lender in good faith deems
itself insecure under this Note or any other agreement between
Lender and Borrower.
SPECIAL PROVISIONS/REVOLVING LINE OF CREDIT. The total of all
the advances made to Borrower during the term of this Note may
exceed the principal amount of this Note. Further, there may be
times when no amounts are outstanding under this Note, but this
shall not impair or in any way affect either the validity or
enforceability of this Note or any lien or security interest
securing payment of this Note.
PAYMENTS. If any stated principal or interest payment date,
including the stated maturity date is a Saturday, Sunday or other
legal holiday for national banks, the payment due date shall be
extended to the next following business day and interest shall
continue to accrue during such extension.
NON-USE FEE. A non-use fee of .50% will be payable quarterly in
arrears as described in the Loan Agreement dated May 19, 1995.
LOAN AGREEMENT. This Promissory Note is referred to in that
certain Loan Agreement dated May 19, 1995 and the amendment dated
April 30, 1996, to which reference is hereby made for additional
terms described therein.
PRIOR NOTE. The Promissory Note from Carbonic Reserves to Lender
dated November 13, 1995 in the amount of $750,000.00.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of
its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses
this Note, to the extent allowed by law, waive presentment,
demand for payment, protest and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly
stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be
released from liability. All such parties agree that Lender may
renew or extend (repeatedly and for any length of time) this
loan, or release any party or guarantor or collateral; or impair,
fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties
also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the
modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE
PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND
ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
CARBONIC RESERVES
By: HERB MEE, JR.
Herb Mee, Jr., Vice-President
Cibola Corporation
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT has been made and entered
into this 10th day of April, 1996, by and between CIBOLA CORPORATION
("Cibola"), a Wyoming corporation, and THE BEARD COMPANY ("Beard"),
an Oklahoma corporation, with reference to the following
circumstances:
A. Beard has been engaged in exploration, development,
operating and marketing natural resources, including oil, gas,
carbon dioxide and other minerals. Cibola is engaged in natural
gas marketing and Beard desires to acquire control of Cibola to
further its expertise in the natural resources industry.
B. Beard has agreed to purchase 144,000 shares of
Cibola's voting common stock (the "Shares") and Cibola has agreed
to sell Beard the Shares subject to the provisions of this
Agreement.
ACCORDINGLY, for the purpose of prescribing the basis
upon which Beard will purchase and Cibola will sell the Shares, the
parties have entered into this Agreement.
1. Subscription of Shares. Subject to the terms and
conditions of this Agreement, Beard hereby subscribes to the Shares
of the voting common stock of Cibola at a price of $10.00 per
share, payable as provided in Section 2 below.
2. Payment and Issuance of Shares. Contemporaneously with
the execution and delivery of this Agreement, (i) Beard shall pay
Cibola $1,440 in cash (representing the capital amount of the
Shares) and execute and deliver to Cibola a promissory note in the
principal amount of $1,438,560 and bearing interest at the rate of
8.25% per annum and (ii) Cibola shall issue to Beard a stock
certificate registered in Beard's name evidencing the Shares.
3. Cibola Representations and Warranties. Cibola hereby
represents and warrants to Beard as follows:
3.1 Organization, Good Standing and Qualification.
Cibola is a corporation duly organized, validly existing and in
good standing under the laws of the State of Wyoming. Cibola has
all requisite corporate power and authority to own and operate its
properties and assets, to execute and deliver this Agreement, to
issue the Shares and to carry on its business as presently
conducted and as presently proposed to be conducted. Cibola is
duly qualified and is authorized to do business and is in good
standing as a foreign corporation in all jurisdictions in which the
nature of its activities and of its properties makes such
qualification necessary. Cibola has no subsidiaries.
3.2 Capitalization. The authorized capital stock of
Cibola consists of 180,000 shares of common stock, 36,000 shares of
which are issued and outstanding, and 16,200 shares of preferred
stock, all of which are issued and outstanding. All issued and
outstanding Shares of Cibola common stock and preferred stock (a)
have been duly authorized and validly issued to, and are currently
owned beneficially and of record, subject to no mortgage, pledge,
lien, encumbrance or charge, by Richard R. Dunning, Larry D.
Hartzog, and Michael C. Black, (b) are fully paid and nonassessable
and (c) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities. Except as set
forth in this Agreement, there are no outstanding options,
warrants, rights (including conversion or preemptive rights and
rights of first refusal), proxy or stockholder agreements, or
agreements of any kind for the purchase or acquisition from Cibola
or its stockholders of any of Cibola's securities. When issued
hereunder, the Shares will have been duly authorized and will be
fully paid, non-assessable shares of common stock of Cibola.
3.3 Authorization. All corporate action on the part of
Cibola, its officers, directors and stockholders necessary for the
authorization of this Agreement, and the performance of all
obligations of Cibola hereunder have been taken. This Agreement is
a valid and binding obligation of Cibola, enforceable in accordance
with its terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights and (b) as
limited by general principles of equity that restrict the
availability of equitable remedies.
3.4 Financial Statement. Cibola has delivered to Beard
the unaudited balance sheet as at December 31, 1995 (the "Statement
Date") and unaudited income statement for the year then ending
(collectively the "Financial Statements") of Mainline Emertech
Corporation (of which Cibola is the successor by merger). The
Financial Statements are complete and correct in all material
respects, have been prepared in accordance with accounting
principles applied on a consistent basis throughout the periods
indicated and present fairly the financial condition and position
and results of operations of Cibola as of the Statement Date and
for the year then ended. In addition, Cibola has delivered to
Beard its pro forma balance sheet as of the date first above
written which, taking into account the footnotes thereto and the
limitations therein expressed, fairly represents the financial
condition of Cibola at that date.
3.5 Liabilities. Cibola has no material liabilities,
including contingent liabilities, not disclosed in the Financial
Statements, except liabilities incurred in the ordinary course of
business subsequent to the Statement Date that have not been, in
any case or in the aggregate, material.
3.6 Agreements and Contracts. Cibola has no material
contracts or agreements other than those certain agreements
described on Schedule 3.6, attached hereto.
3.7 Compliance with Laws. To the best of Cibola's
knowledge, it is not in violation of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign
government or any instrumentality or agency thereof in respect of
the conduct of its business or the ownership of its properties,
which violation would have a material adverse effect upon Cibola's
financial condition. Cibola has all franchises, permits, licenses
and any similar authority necessary for the conduct of its business
as now being conducted by it.
4. Beard Representations and Warranties. Beard hereby
represents and warrants to Cibola as follows:
4.1 Authorization Binding Obligations. All corporate
action on the part of Beard and its officers, directors and
stockholders necessary for the authorization of this Agreement and
the performance of all obligations of Beard hereunder have been
taken. This Agreement is a valid and binding obligation of Beard,
enforceable in accordance with its terms except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of
creditors' rights, and (b) as limited by general principles of
equity that restrict the availability of equitable remedies.
4.2 Investment Representation. Beard is an accredited
investor within the meaning of Regulation D under the Securities
Act of 1933, as amended, and is acquiring the Shares for its own
account for investment only and not with a view toward their
distribution.
5. Notices. Any notice or other communication required or
permitted to be delivered to any party under this Agreement will be
in writing and will be deemed properly delivered, given and
received when delivered (by hand, by certified mail with return
receipt requested, a courier or express delivery service or by
telecopier) to the address or telecopier number set forth beneath
the name of such party below (or to such other address or
telecopier number as such party shall have specified in a written
notice given to the other party hereto):
(a) If to Beard:
The Beard Company
Enterprise Plaza, Suite 320
5600 N. May Avenue
Oklahoma City, OK 73112
Attention: Mr. Herb Mee, Jr., President
Telephone No.: (405) 842-2333
Facsimile No.: (405) 842-9901
(b) Cibola Corporation:
c/o CT Corporation System
1720 Carey Avenue, Cheyenne, Wyoming 82001
Telephone No.: (307) 632-0541
Facsimile No.: (307) 632-4999
6. Entire Agreement. This Agreement constitutes the full
entire understanding and agreement among the parties with respect to
the subject hereof.
7. Governing Law. This Agreement shall be governed in all
respects by the law of the State of Wyoming.
8. Amendment. This Agreement may be amended only by writing
executed by the parties hereto.
Executed by Cibola Corporation in Cheyenne Wyoming as of the day
and year first above written.
THE BEARD COMPANY
By: HERB MEE, JR.
Herb Mee, Jr., President
CIBOLA CORPORATION
By: MICHAEL C. BLACK
Michael C. Black, President
NONRECOURSE SECURED
PROMISSORY NOTE
$1,438,560.00 April 10, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of CIBOLA
CORPORATION, a Wyoming corporation, at its office in Cheyenne, Wyoming, or at
such other place as may be designated in writing by the holder of this note,
the principal sum of ONE MILLION, FOUR HUNDRED AND THIRTY-EIGHT THOUSAND,
FIVE HUNDRED AND SIXTY DOLLARS ($1,438,560.00), together with accrued but
unpaid interest on the outstanding principal balance at the rate of eight
and one-quarter percent (8 1/4%) per annum, on June 30, 2006 (the "Maturity
Date").
Payments of accrued interest shall be due and payable on the first
business day of each April and October, commencing on October 1, 1996.
The undersigned has no in personam liability for the payment of this Note.
Payment of this Note is secured by a security agreement (the "Security
Agreement") of even date herewith whereby the undersigned has granted the
holder of this Note a security interest in all of its common stock of Cibola
Corporation, a Wyoming corporation, (the "Collateral"). In the event of a
default under this Note, the holder hereof shall only have recourse to the
Collateral.
While any default exists hereunder, all sums herein promised to be paid
shall bear interest at the rate of thirteen and one-quarter percent (13 1/4%),
accrued from the date of default to the date on which such default is cured to
the satisfaction of the holder hereof. All past due sums will be paid at the
time of and as a condition precedent to the curing of any default hereunder.
During the existence of any such default, the holder of this Note may apply
payments received on any amount due hereunder or under the terms of any
instrument now or hereafter evidencing or securing any of said indebtedness as
said holder may determine.
Upon default in any of the monetary terms or conditions of this Note and
failure of the undersigned to cure such default within five (5) business days
after written notice from the holder of this Note, or upon the occurrence of
any other event of default not cured within any applicable cure period, at
the option of the holder hereof the entire indebtedness hereby evidenced
shall become due, payable, and collectible then or thereafter as the
holder may elect.
The undersigned agrees that if, and as often as, this Note is placed in
the hands of an attorney for collection or to defend or enforce any of the
holder's rights hereunder or under the Security Agreement, the undersigned
will pay to the holder hereof its reasonable attorney's fees, together with
all court costs and other expenses paid by such holder.
For the purpose of computing interest under this Note, payments of all
or any portion of the principal sum owing under this Note will not be deemed
to have been made until such payments are received by the holder of this Note
in collected funds.
All agreements between the undersigned and the holder of this Note are
expressly limited so that in no event whatsoever, whether by reason of
disbursement of the proceeds hereof or otherwise, shall the amount of
interest or finance charge (as defined by the laws of the State of Wyoming)
paid or agreed to be paid by the undersigned to the holder hereof exceed
the highest lawful contractual rate of interest or the maximum finance charge
permissible under the law which a court of competent jurisdiction, by final
non-appealable order, determines to be applicable hereto. If fulfillment of
any agreement between the undersigned and the holder hereof, at the time the
performance of such agreement becomes due, involves exceeding such highest
lawful contractual rate or such maximum permissible finance charge, then
the obligation to fulfill the same shall be reduced so that such
obligation does not exceed such highest lawful contractual rate or maximum
permissible finance charge. If by any circumstance the holder shall ever
receive as interest or finance charge an amount which would exceed the amount
allowed by applicable law, the amount which may be deemed excessive shall
be deemed applied to the principal of the indebtedness evidenced hereby
and not to interest. All interest and finance charges paid or agreed to
be paid to the holder hereof shall be prorated, allocated and spread
throughout the full period of this Note. The terms and provisions of this
paragraph shall control all other terms and provisions contained herein and
in any of the other documents executed in connection herewith. If any
provision of this Note or the application thereof to any party or
encumbrance is held invalid or unenforceable, the remainder of this Note and
the application of such provision to other parties or circumstances shall
not be affected thereby, the provisions of this Note being severable in any
such instance.
The undersigned and any endorsers, sureties, guarantors, and all other
persons, if any, who may become liable for all or any part of this obligation
severally waive presentment for payment and protest. Said parties consent
to any extension of time (whether one or more) of payment hereof, any renewal
(whether one or more) hereof, and any release of any party liable for, or any
property securing, payment of this obligation. Any such extension, renewal,
or release may be made without notice to any such party and without dis-
charging said party's liability hereunder.
The failure of the holder hereof to exercise any of the remedies or options
set forth in this Note, or any agreement relating to this Note, upon the occur-
rence of one or more of the events of default, shall not constitute a waiver
of the right to exercise the same or any other remedy at any subsequent time
in respect to the same or any other event of default. The acceptance by the
holder hereof of any payment that is less than the total of all amounts
due and payable at the time of such payment shall not constitute a waiver of
the right to exercise any of the foregoing remedies or options at that time or
any subsequent time, or nullify any prior exercise of any such remedy or option,
without the express written consent of the holder hereof, except as and to the
extent otherwise provided by law.
This Note may not be assigned or transferred by the undersigned without
the express written consent of the holder of this Note.
The written records of the holder of this Note shall be prima facie
evidence of the amount owing on this Note.
This Note is to be construed according to the laws of the State of
Wyoming.
IN WITNESS WHEREOF, the undersigned has executed this instrument on the
date noted above.
THE BEARD COMPANY,
an Oklahoma corporation
By: HERB MEE, JR.
Herb Mee, Jr.
President
SECURITY AGREEMENT
This Security Agreement is made this 10th day of April, 1996 by and
between Cibola Corporation, a Wyoming corporation (the "Secured Party"),
and The Beard Company, an Oklahoma corporation (the "Debtor").
RECITALS:
WHEREAS, the Debtor is justly indebted to the Secured Party as evidenced
by that certain Nonrecourse Secured Promissory Note dated of even date herewith
in the principal amount of $1,438,560.00 (the "Note"), the proceeds of
which were used by the Debtor to acquire 144,000 shares of common stock, $0.01
par value, of the Secured Party (the "Pledged Shares");
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Debtor and the Secured Party
agree as follows:
1. Definitions. The following terms shall have the following meanings:
"Distributions" shall mean all stock dividends, liquidating dividends,
shares of stock resulting from stock splits, reclassifications, warrants,
options, noncash dividends, and other distributions on or with respect to the
Pledged Shares, whether similar or dissimilar to the foregoing, except that
Distributions shall not mean Dividends as that term is defined below.
"Dividends" shall mean cash dividends declared on or with respect to
the Pledged Shares; such term does not include any Distributions.
"Pledged Property" shall mean all the Pledged Shares and all other
instruments that are now being delivered by the Debtor to, or that may from
time to time hereafter be delivered by the Debtor to, the Secured Party or
any agent, custodian, or representative of the Secured Party pursuant to this
Security Agreement.
2. Security Interest. To secure the payment when due of principal and
interest under the Note and the performance of the Debtor's obligations under
this Security Agreement and any other agreement with the Secured Party, the
Debtor shall and hereby does, on and as of the date hereof, grant, convey,
assign, and transfer to the Secured Party a security interest in and to:
(a) the Pledged Property together with all Dividends, Distributions,
and any rights with respect thereto, and all proceeds of any of
the foregoing;
(b) all additional shares of stock of the Secured Party at any time
and from time to time acquired by the Debtor in any manner and
the certificates representing such additional shares, and also
cash, securities, dividends, rights, and other property at
any time and from time to time received, receivable, or
otherwise distributed with respect to or in exchange for any or
all of the additional shares subject to this Section 2 (b); and
(c) all other property hereafter delivered to the Secured Party in
substitution for or in addition to any of the foregoing, all
certificates and instruments representing or evidencing
such property, and all cash, securities, interest, Dividends,
Distributions, rights, and other property at any time and
from time to time received, receivable, or otherwise distributed
with respect to or in exchange for any or all thereof;
together with interest, profits, Dividends, and Distributions arising there-
from, and in the case of intangible property, all voting (provided, however,
that so long as no default exists hereunder or under the Note, the
Debtor shall have the right to vote all shares of stock that are held
as Collateral), surrender, borrowing, redemption, or similar rights, and
all accruals or increases thereof, or substitutions thereof (all such
Pledged Property, Dividends, Distributions, notes, instruments, cash,
securities, interests, rights, and other property being herein collec-
tively called the "Collateral").
3. Default.
3.1 Events of Default. Under the Note and this Security Agreement,
any one or more of the following shall constitute an "Event of Default":
(a) The Debtor shall fail to make a payment of interest or
principal on the Note when the same shall have become due;
(b) Default shall occur in the observance or performance of any
other material provision of the Note, this Security Agreement, or any other
agreement between the Debtor and the Secured Party; or
(c) The Debtor becomes insolvent or bankrupt, is generally
unable to pay debts as they become due, makes an assignment for the
benefit of creditors, causes or suffers an order for relief to be entered
against it under applicable federal bankruptcy law, or applies for or
consents to the appointment of a custodian, trustee, liquidator, or
receiver for the Debtor or for the major part of its property.
3.2 Remedies. Upon the occurrence of an Event of Default, the
Secured Party shall have all rights and remedies available to it under this
Security Agreement, the Note, and under the Uniform Commercial Code and
any other applicable law.
3.2.1 Whenever a default shall be existing, the Note,
notwithstanding any provisions thereof to the contrary, at the option
of the Secured Party and without demand or notice of any kind, be
declared, and thereupon immediately shall become, due and payable,
and the Secured Party may exercise from time to time any rights
and remedies available to it under this Security Agreement. The
Debtor hereby waives presentment, demand, protest, and any notice
(to the extent permitted by applicable law) of any kind in connection
with this Security Agreement.
3.2.2 The Secured Party shall be entitled to recover all of its
costs, including but not limited to attorneys' fees, incurred with
respect to the collection of the amounts due under the Note and under
the terms of this Security Agreement from the proceeds of the sale
of the Collateral.
3.2.3 Any proceeds of any disposition of the Collateral may be
applied by the Secured Party to the payment of expenses incurred in
connection with the Collateral, including without limitation reasonable
attorneys' fees and legal expenses, and any balance of such proceeds
may be applied by the Secured Party toward the payment of the amounts
due under the Note.
3.2.4 If any notification of intended disposition of any of
the Collateral is required by law, such notification, if mailed,
shall be deemed reasonably and properly given if mailed at least
five days before such disposition, postage prepaid, addressed to
the Debtor, either at the address of the Debtor as shown herein or at
any other address of the Debtor appearing on the records of the
Secured Party.
3.2.5 All of the Secured Party's rights and remedies expressed
hereunder are in addition to all other rights and remedies possessed
by the Secured Party, including those under any other agreement or
instrument relating to any of the liabilities or security therefor.
No delay on the Secured Party's part in the exercise of any right
or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Secured Party of any right or remedy shall preclude
other or further exercise thereof or the exercise of any right or remedy.
No action by the Secured Party permitted hereunder shall impair or affect
its rights in and to the collateral.
3.2.6 The Debtor agrees that in any sale of any of the Collateral
pursuant to a Default, the Secured Party is hereby authorized to comply
with any limitation or restriction in connection with such sale as it
may be advised by counsel as necessary in order to avoid any violation
of applicable law (including, without limitation, compliance with
such procedures as may restrict the number of prospective bidders and
purchasers, require that such prospective bidders and purchasers
have certain qualifications, and restrict such prospective bidders and
purchasers to persons who will represent and agree that they are pur-
chasing for their own account for investment and not with a view to
the distribution or resale of such Collateral), or in order to obtain
any required approval of the sale or of the purchaser by any
governmental regulatory authority or official, and the Debtor
further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable
manner, nor shall the Secured Party be liable nor accountable to the
Debtor for any discount allowed by reason of the fact that such Collateral
is sold in compliance with any such limitation or restriction.
3.2.7 No delay or omission of the Secured Party to exercise any
right, remedy or power shall impair the same or be construed to be a
waiver of any Event of Default or an acquiescence thereto. No waiver
of any Event of Default shall extend to or affect any subsequent Event
of Default or impair any rights, remedies, or powers available to
the Secured Party. The acceptance by the Secured Party at any time
and from time to time of partial payment of the Note shall not be deemed
to be a waiver of any default then existing. If any waiver is granted
by the Secured Party, it will be under no obligation to give notice to
the Debtor that future waivers will not be granted.
4. Representations and Warranties of The Debtor. To induce the Secured
Party to enter into the transactions provided for herein, the Debtor represents
and warrants to the Secured Party that:
4.1 The Debtor is duly authorized to execute and deliver this
Security Agreement and the Note and to perform all of its obligations
thereunder, including the execution, delivery, and performance of whatever
additional documents are necessary or required in connection with the
transactions that are contemplated herein.
4.2 The execution and delivery by the Debtor of this Security
Agreement and the Note and the performance by the Debtor of its obligations
under this Security Agreement and the Note do not and will not conflict with
any provision of law or of any other agreement affecting or binding upon the
Debtor.
4.3 This Security Agreement and the Note, when duly executed and
delivered, will be valid and binding obligations of the Debtor enforceable
in accordance with their respective terms, except as limited by bankruptcy,
insolvency, or other laws of general application relating to the enforcement of
creditors' rights.
5. Rights and Obligations of the Secured Party and the Debtor With
Respect to the Collateral.
5.1 Upon the occurrence of an Event of Default, the Secured Party
shall be entitled to exercise its remedies hereunder.
5.2 Upon payment in full of the Note, the security interest of
the Secured Party in the Collateral shall, without any further action on the
part of any person, thereafter terminate and be released. Further, the
Secured Party in that event agrees to execute such documents as are
requested by the Debtor to further evidence the release of this security
interest, including written releases and termination statements with respect
to the released security interest.
6. Set-off. As additional security for the payment of the Note, the
Secured Party is hereby given a pledge lien upon and a security interest
in any amounts that may be owing from time to time by the Secured Party to
the Debtor, which lien and security interest shall be independent of
and additional to the right of set-off that the Secured Party may have.
7. Notices. All notices required or permitted under this Security
Agreement must be in writing and shall be sufficient if delivered personally
or mailed by certified or registered mail, return receipt requested, to the
other party at the addresses set forth below:
Secured Party: Cibola Corporation
c/o CT Corporation System
1720 Carey Avenue
Cheyenne, Wyoming 82001
Debtor: The Beard Company
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, Oklahoma 73112
Attention: Herb Mee, Jr.
8. Governing Law; Interpretation. This Security Agreement shall be
construed, enforced, and governed in accordance with the laws of the State
of Wyoming. Wherever possible each provision of this Security Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Security Agreement shall be
prohibited by or invalid under such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Security
Agreement. This Security Agreement was negotiated and prepared by both
parties with advice of counsel to the extent deemed necessary by each
party, and was not prepared by one party to the exclusion of the other.
Accordingly, it should not be interpreted or construed against a party
by reason of that party's participation in its preparation.
9. Headings. The descriptive headings contained in this Security
Agreement are for reference purposes only and are not intended to interpret,
define, or limit the scope, extent, or intent of this Security Agreement
or any provision contained herein.
10. Amendment; Waiver. This Security Agreement may only be amended
by a written agreement signed by all of the parties hereto. A waiver of
a breach of any provision of this Security Agreement by any party shall
not operate or be construed as a waiver of any subsequent breach.
11. Assignment. This Security Agreement shall be binding upon all
parties, and their successors and assigns.
12. Severability. If any provision of this Security Agreement as
applied to any party or to any circumstances shall be adjudged by a court of
competent jurisdiction to be void or unenforceable, the same shall in no way
affect any other provision of this Security Agreement or the validity or
enforceability of this Security Agreement.
13. Counterparts. This Security Agreement may be executed in
counterparts, each of which will be deemed an original.
14. Rights Cumulative. All rights and remedies with respect to the
subject matter hereof, whether evidenced hereby or by any other agreement,
instrument, or paper, will be cumulative, and may be exercised separately or
concurrently.
15. Entire Agreement. The parties herein have not made any representa-
tions, warranties, or covenants not set forth with respect to this subject
matter hereof, and this Security Agreement constitutes the entire agreement
between them with respect to the subject matter hereof.
16. Further Instruments. The parties agree to execute any financing
statements and all such other and further instruments and documents and to take
any and all such further actions reasonably required to effectuate this
Security Agreement, and the intents and purposes hereof.
IN WITNESS WHEREOF, the parties have executed this Security Agreement
on the date first written above.
Secured Party: CIBOLA CORPORATION
By: MICHAEL C. BLACK
Michael C. Black, President
Debtor: THE BEARD COMPANY
By: HERB MEE, JR.
Herb Mee, Jr., President
The Beard Company
TAX SHARING AGREEMENT
THIS AGREEMENT has been entered into on this 10th day of
April, 1996, by and among THE BEARD COMPANY ("Beard"), an Oklahoma
corporation CIBOLA CORPORATION ("Cibola"), a Wyoming corporation,
each being hereinafter referred to collectively as the "Group," and
the Cibola Shareholders, who are Richard R. Dunning, Larry D.
Hartzog and Michael C. Black, with reference to the following
circumstances:
A. Beard owns 80% and the Cibola Shareholders own 20%
of all of the issued and outstanding common stock of Cibola.
B. Beard has a fiscal year ending December 31 and has
elected to file consolidated income tax returns for Federal income
tax purposes with respect to the Federal income tax liability of
Beard and its affiliates.
C. Cibola is an affiliate of Beard for Federal
consolidated income tax return purposes and accordingly their
income or loss must be included in the consolidated Federal income
tax return to be filed by Beard.
D. Beard is obligated to pay the consolidated Federal
income tax liability of the Beard Group (hereafter defined),
including Cibola.
E. Beard has net operating loss carryovers which may
reduce or eliminate the consolidated Federal and, in certain cases,
state income tax liability of the Beard Group, including Cibola.
F. The parties have agreed to allocate the Federal and
state income tax liability of each member of the Beard Group,
computed as if each filed separate income tax returns, according to
the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises, the
parties agree as follows:
1. Beard agrees (i) to continue to file consolidated
Federal income tax returns, together with applicable state income
tax returns, for all years during which or during any portion of
which Cibola is a member of a group of which Beard is the parent
(the "Beard Group") within the meaning of Internal Revenue Code
Section 1504, and (ii) to pay the Federal and state income tax
liability of Cibola, together with any interest and penalties
assessed with respect thereto, for each year or partial year during
which it is included as an "affiliate" in Federal consolidated
income tax returns filed by Beard to the extent Cibola has made
payments to Beard pursuant to this agreement.
2. Subject to paragraph 4 hereof, so long as Cibola is
considered an "affiliate" of Beard for purpose of filing
consolidated income tax returns, Cibola shall pay to Beard for each
taxable year that a consolidated income tax return is filed for the
Group, an amount equal to Cibola's total Federal and state income
tax liability (together with any interest and penalties assessed
with respect thereto) computed as if determined on a separate
return basis for each such taxable year, or, if it is an affiliate
for only a portion of the taxable year of the Group, as if
determined on a separate return basis for the portion of the
taxable year that it is included in the consolidated income tax
return. The amount of such payments shall be estimated and paid on
the 15th day after the end of each calendar quarter during the
fiscal year of the Group; such estimates to be adjusted and
accounted for between the parties as soon as practicable after each
March 15th but in no event later than each September 15th.
3. If, as a result of an Internal Revenue Service audit
of the consolidated income tax liability of the Beard Group, a
change is finally determined to be required for any year which
would have no effect on the consolidated income tax liability of
the Group but would increase or decrease the Federal income tax
liability of Cibola for any period for which a consolidated return
was in effect and for which Cibola was an affiliate of Beard,
computed on a separate return basis, then (i) Cibola shall pay to
Beard an amount equal to any increase in Cibola's tax liability, as
so computed for such period or (ii) Beard shall pay to Cibola an
amount equal to any decrease in Cibola's tax liability as so
computed; provided, however, that no such adjustment shall be made
if and to the extent that such adjustment would cause Cibola to
make aggregate payments of more than the amounts specified in
paragraph 4 hereof. If, as a result of an Internal Revenue Service
audit of the consolidated Federal income tax liability of the Beard
Group, it is finally determined that the portion of the
consolidated Federal income tax liability (together with any
interest and penalties assessed with respect thereto) allocable to
Cibola exceeds the payments previously made to Beard by Cibola with
respect to such tax year, then Cibola shall pay to Beard the amount
of such excess. Similar adjustments shall be made between Beard
and Cibola with respect to any state income tax adjustments made as
a result of any state audit or tax adjustment. Should it be
finally determined that Cibola is not an "affiliate" of Beard for
the purpose of filing consolidated income tax returns, Beard shall
refund all payments made by Cibola to it under this agreement for
any taxable year that Cibola was not a member of the Group to the
extent such payments were not paid to the Internal Revenue Service
in respect of Cibola's actual tax liabilities with respect to any
such year.
4. Notwithstanding anything else herein to the
contrary, payments made to Beard pursuant to this agreement shall
not exceed the greater of (i) the aggregate of consolidated Federal
and state income tax liabilities (together with any interest and
penalties assessed with respect thereto) of the Beard Group
applicable to Cibola for each taxable year, or portion thereof,
during which it was a member of the Beard Group or (ii) with
respect to each taxable year or portion thereof of the Beard Group,
the sum of (a) the Capital Accumulation Percentage times the
separate return Federal taxable income of Cibola plus (b) the
separate return state income tax liability of Cibola plus (c)
$118,681.20. The Capital Accumulation Percentage shall mean the
greater of (a) 4.83333% or (b) 41.6667% of the excess of the
highest Federal income tax rate on the taxable income on
individuals (currently, 39.6%) over the highest Federal income tax
rate on capital gains on individuals (currently, 28%) in effect
during a taxable year for which a calculation is made under this
agreement using the Capital Accumulation Percentage.
5. Promptly after acquiring knowledge of any Internal
Revenue Service or state taxing authority's audit of the Beard
Group, Beard shall provide written notice of the existence of such
audit to Cibola. Cibola shall, at its own expense, defend, contest
or otherwise protect against any assessment, deficiency, liability,
claim, or penalty which may be assessed or otherwise result from
such audit (to the extent it affects the Federal or state income
tax liability of Cibola computed as if determined on a separate
return basis) and Beard shall provide all necessary and reasonable
cooperation in connection with any such audit or proposed tax
assessment, including, but not limited to, the services of
employees of Beard who are familiar with the transactions out of
which any such proposed assessment, deficiency, liability, claim,
or penalty may have arisen. Cibola shall have the right to control
the defense of any tax proceedings described in the preceding
sentence unless it is relieved of its liability hereunder with
respect to such defense by Beard. Unless relieved from liability
by Beard, Cibola shall compromise or defend, at its own expense and
through its own counsel, any such matter involving the Beard
Group's asserted liability to a taxing authority to the extent the
asserted liability is attributable to Cibola.
6. The Cibola Shareholders hereby consent and agree to
the distributions to be made to Beard by Cibola pursuant to this
agreement.
7. This agreement may be executed in any number of
identical counterparts, each of which shall be considered an
original for all purposes.
EXECUTED as of the day and year first above written.
THE BEARD COMPANY
By: HERB MEE, JR.
President
CIBOLA CORPORATION
By: MICHAEL C. BLACK
President
RICHARD R. DUNNING
Richard R. Dunning
LARRY D. HARTZOG
Larry D. Hartzog
MICHAEL C. BLACK
Michael C. Black
CALL OPTION AGREEMENT
This Call Option Agreement (the "Agreement") is entered into
this 10th day of April, 1996, by and between THE BEARD COMPANY, an
Oklahoma corporation ("Beard"), and Richard R. Dunning, Larry D.
Hartzog, and Michael C. Black (with said individuals being
hereafter referred to collectively as the "Shareholders"). Beard
hereby grants to Shareholders an option (the "Option") to purchase
One Hundred Forty-Four Thousand (144,000) shares of the voting
common stock (the "Shares") of Cibola Corporation, a Wyoming
corporation ("Cibola"), which Shares are currently owned by Beard
and represent Eighty Percent (80%) of the issued and outstanding
voting common stock of Cibola, at the price and on the terms set
forth herein.
NOW, THEREFORE, in consideration of the mutual agreements
contained herein, the sum of One Thousand Dollars ($1,000) in cash
paid by the Shareholders (in the aggregate) to Beard, and other
good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Date of Grant; Term of Option. The Option is granted as
of April 10, 1996, and it may not be exercised later than June 29,
2006 unless extended by the mutual agreement of Beard and
Shareholders.
2. Option Exercise Price. Shareholders may exercise the
Option by paying to Beard the following amounts: (i) an amount
equal to the greater of (A) the then-outstanding balance of
principal and accrued interest on that certain Nonrecourse Secured
Promissory Note, dated April 10, 1996, and payable by Beard to
Cibola (the "Note") or (B) the then fair market value of the
Shares, determined with reference to the amount to which the holder
of the Shares would be entitled in the event Cibola was liquidated
on the effective date of the exercise of the Option, taking into
account all amounts necessary to pay all debts of Cibola and make
all required liquidating distributions to preferred shareholders of
Cibola; and (ii) all amounts owed by Cibola to Beard on any other
agreements between the parties hereto, to the extent such amounts
are due and payable within six months after the Option exercise
date.
3. Exercise of Option. The Option shall be exercisable
during its term only in accordance with the provisions of this
Agreement, as follows:
(a) Right to Exercise. Shareholders shall be entitled
to exercise the Option provided herein upon the occurrence of
any one or more of the following:
(i) If Beard ceases to file consolidated income tax
returns for federal income tax purposes, or if Beard
notifies Cibola of its intent to either cease filing such
consolidated returns or voluntarily take any action which
would preclude the filing of such consolidated returns;
notwithstanding any other provision of this Agreement, or
any other agreement between the parties hereto, Beard
hereby agrees to notify Cibola of its intent to cease
filing, or to take any action that would cause Beard to
cease qualifying to file, consolidated federal income tax
returns on or before that date which is six (6) months
prior to the last day of the final consolidated return
year of Beard that includes the results of Cibola's
operations;
(ii) If a Change of Control occurs with regard to
Beard; for this purpose, "Change of Control" shall mean
(A) the acquisition, in one or more transactions, by any
"person" (as that term is used for purposes of Sections
13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended) of the beneficial ownership of 50% or more of
the combined voting power of Beard's then-outstanding
voting securities, or (B) approval by shareholders of
Beard of a merger, reorganization or consolidation
involving Beard if the shareholders of Beard immediately
before such merger, reorganization or consolidation do
not or will not directly or indirectly, immediately
following such merger, reorganization or consolidation,
own more than 50% of the combined voting power of the
outstanding voting securities of Beard resulting from or
surviving such merger, reorganization or consolidation,
or (C) approval by shareholders of Beard of a complete
liquidation or dissolution of Beard, or (D) approval by
shareholders of Beard of an agreement for the sale or
other disposition of all or substantially all of the
assets of Beard, or (E) acceptance by shareholders of
Beard of shares in a reorganization or share exchange
pursuant to which shareholders of Beard immediately
before such transaction do not or will not, directly or
indirectly, immediately following such transaction own
more than 50% of the combined voting power of the
outstanding voting securities of Beard resulting from or
surviving such transaction; or
(iii) If, regardless of whether any of the above-
described events have occurred or circumstances exist,
Shareholders provide Beard five (5) business days' notice
of their intent to exercise the Option provided for
herein.
(b) Method of Exercise. The Option shall be exercisable
by written notice, given at least five (5) business days prior
to the effective date of exercise, which shall recite
Shareholders' election to exercise the Option for all of the
Shares covered hereby, and shall provide a representation and
agreement by Shareholders as to their investment intent with
respect to the Shares to be purchased pursuant to this
Agreement. Such written notice shall be signed by all of the
Shareholders, or by persons authorized to act on their behalf,
and shall be given to Beard in the manner provided for herein.
The written notice shall be accompanied by payment, or
arrangements for payment satisfactory to Beard, of the
purchase price provided for herein. The certificates for the
Shares as to which the Option is exercised shall be registered
in the name of the Shareholders in accordance with their
respective ownership thereof and shall be legended if and as
required under applicable law.
(c) Restrictions on Exercise. The Option may not be
exercised if the transfer of the Shares upon such exercise
would constitute a violation of any applicable federal or
state securities laws or other laws or regulations. As a
condition to the exercise of the Option, Beard may require
Shareholders to make any reasonable representation and
warranty which is required by applicable law.
4. Investment Representations. Unless the Shares have been
registered under the Securities Act of 1933, in connection with the
acquisition of the Option, Shareholders represent and warrant as
follows:
(a) Shareholders are acquiring the Option, and upon
exercise of the Option, they will be acquiring the Shares, for
investment for their own account, not as a nominee or agent,
and not with a view toward, or for resale in connection with,
any redistribution thereof.
(b) Shareholders have preexisting business relationships
and sufficient business experience to allow Shareholders to be
reasonably assumed to have the capacity to protect their
interests in connection with the acquisition of the Option and
the Shares.
5. Assignment of Option. The Option may be assigned by
Shareholders without the prior consent or knowledge of Beard.
6. Rights as a Shareholder. Shareholders shall have no
rights as owners of the Shares, and shall not have the right to
vote or receive dividends or other remuneration with regard to the
Shares subject to the Option, until the Option has been exercised.
7. No Obligation to Exercise Option. The granting of the
Option shall impose no obligation upon Shareholders to exercise
such Option. No failure of Shareholders to exercise the Option
upon the occurrence of any event described in Section 3(a) shall be
deemed to constitute a waiver of Shareholders' right to exercise
the Option at any time thereafter during the term of this
Agreement.
8. Indemnification. In the event Shareholders exercise the
Option, they shall either (i) jointly and severally guarantee the
prompt and full payment of all obligations of Cibola under that
certain Tax Sharing Agreement among Beard, Cibola and Shareholders
of even date herewith or (ii) provide collateral security
reasonably acceptable to Beard.
9. Notices. Any notice given to a party hereto shall be
addressed to such party at the address or facsimile number below,
or at such other address as such party may hereafter designate in
writing to the other party hereto. Such notices may be given
personally, by first-class or certified mail (postage prepaid), or
via facsimile transmission. Notice given personally shall be
effective upon delivery to the party to whom addressed; notice
given via facsimile shall be deemed effective upon confirmation of
receipt by the transmitting facsimile machine; notice given by
first-class mail shall be deemed effective three (3) business days
after the date of postmark; and notice given by certified mail
shall be effective on the date of receipt. The current notice
addresses and facsimile numbers of the parties are as follows:
(a) If to Beard: The Beard Company
Attn: Herb Mee, Jr., President
and W. M. Beard, Chairman
Enterprise Plaza, Suite 320
5600 N. May Avenue
Oklahoma City, Oklahoma 73112
Telephone No. (405) 842-2333
Facsimile No. (405) 842-9901
with a copy to: Gary F. Fuller, Esq.
McAfee & Taft
10th Floor
Two Leadership Square
Oklahoma City, Oklahoma 73102
Telephone No. (405) 235-9621
Facsimile No. (405) 235-0439
(b) If to Shareholders: Cibola Corporation
Attn: Richard R. Dunning and
Roger D. Graham
1720 Carey Avenue
Cheyenne, Wyoming 82001
Telephone No.
Facsimile No.
with a copy to: Steven C. Davis
Hartzog Conger & Cason
1600 Bank of Oklahoma Plaza
201 Robert S. Kerr Avenue
Oklahoma City, Oklahoma 73102
Telephone No. (405) 235-7000
Facsimile No. (405) 235-7329
Notice of any change in the above addresses shall be given in
the manner set forth above. Whenever the provision of notice is
required or contemplated under this Agreement, such notice may be
waived by the party entitled to receive such notice.
10. Entire Agreement, Etc. This Agreement represents the
entire agreement between the parties hereto with regard to the
subject matter hereof. This Agreement was negotiated and prepared
by both parties with advice of counsel to the extent deemed
necessary by each party, and was not prepared by one party to the
exclusion of the other. Accordingly, the Agreement should not be
interpreted or construed against a party by reason of that party's
participation in its preparation.
11. Governing Law, Successors, Etc. This Agreement shall be
construed and enforced in accordance with the laws of the State of
Wyoming, and shall be binding upon the heirs, successors, personal
representatives and permitted assigns of the parties hereto.
12. Amendment. This Agreement may only be amended by a
writing signed by each of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Call Option
Agreement this 10th day of April, 1996.
"Beard": THE BEARD COMPANY,
an Oklahoma corporation
BY: HERB MEE, JR.
Herb Mee, Jr., President
"Shareholders": RICHARD R. DUNNING
Richard R. Dunning
LARRY D. HARTZOG
Larry D. Hartzog
MICHAEL C. BLACK
Michael C. Black
<PAGE>
Beard/Cibola
Loan Commitment
In consideration for and as an inducement to The Beard
Company ("Beard") entering into (i) that certain Subscription
Agreement and (ii) that certain Tax Sharing Agreement, both with
Cibola Corporation ("Cibola") of even date herewith, Cibola agrees
that in the event Beard is required to make any payment to the
Internal Revenue Service pursuant to paragraph 3 of the Tax Sharing
Agreement (the "Deficiency Payment"), Cibola will lend Beard an
amount equal to the Deficiency Payment, less the amount Cibola is
required to pay Beard under the Tax Sharing Agreement with respect
to the Deficiency Payment, for a period of two years from the date
of the loan with interest at 10% per annum payable each December 31
and at maturity. The principal and all accrued interest on any
such loan shall be paid at maturity.
Executed by Cibola Corporation in Cheyenne, Wyoming, in
multiple counterparts this 10th day of April, 1996.
CIBOLA CORPORATION
By: MICHAEL C. BLACK
President
THE BEARD COMPANY
By: HERB MEE, JR.
President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000909992
<NAME> THE BEARD COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 290
<SECURITIES> 0
<RECEIVABLES> 2,392
<ALLOWANCES> 50
<INVENTORY> 2,891
<CURRENT-ASSETS> 6,064
<PP&E> 15,840
<DEPRECIATION> 7,571
<TOTAL-ASSETS> 16,950
<CURRENT-LIABILITIES> 4,310
<BONDS> 0
1,200
0
<COMMON> 3
<OTHER-SE> 8,750
<TOTAL-LIABILITY-AND-EQUITY> 16,950
<SALES> 6,332
<TOTAL-REVENUES> 7,420
<CGS> 4,483
<TOTAL-COSTS> 8,307
<OTHER-EXPENSES> (932)
<LOSS-PROVISION> 7
<INTEREST-EXPENSE> 98
<INCOME-PRETAX> (60)
<INCOME-TAX> 0
<INCOME-CONTINUING> (60)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (60)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
