UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ________________
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
Securities registered pursuant to Section 12(b) of the Act:
(Name of each
exchange on
(Title of each class) which registered)
Common Stock, $.001 par value American Stock Exchange
Redeemable Preferred Stock, $1.00 par value None
Securities registered pursuant to Section 12(g) of the Act: None
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 requirement for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form l0-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting common stock held by non-
affiliates of the registrant, computed by using the closing price of
registrant's common stock on the American Stock Exchange as of the close of
business on February 28, 1997 was $6,739,000.
The number of shares outstanding of each of the registrant's classes of
common stock as of February 28, 1997 was
Common Stock $.001 par value - 2,799,074
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>
THE BEARD COMPANY
FORM 10-K
For the Fiscal Year Ended December 31, 1996
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors, Executive Officers and Significant Employees of the
Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
<PAGE>
THE BEARD COMPANY
FORM 10-K
FORWARD LOOKING STATEMENTS
This document contains "forward looking statements" as defined by the
Securities Litigation Reform Act of 1995. These statements should be read in
conjunction with the cautionary statements included in this document, including
those found under "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PART I
Item 1. Business.
(a) General development of business.
General. The name of a wholly-owned subsidiary formed in Oklahoma by Beard
Oil Company ("Beard Oil") in 1974 was changed to Beard Investment Company in
November of 1989 and to The Beard Company ("Beard" or the "Company") in
August of 1993. Beard conducts various non-oil and gas operations which may be
categorized into two industry segments: (1) the carbon dioxide segment (the "CO2
Segment"), comprised of (a) the manufacture and distribution of dry ice (solid
CO2) and (b) the production of CO2; and (2) the environmental/resource recovery
segment (the "E/RR" Segment"), consisting of environmental services and resource
recovery. Beard also holds a minority interest in a joint venture involved in
the extraction, production and sale of crude iodine.
As a result of the 1993 Reorganization (the "Reorganization" - see below)
Beard has more than $66.9 million of unused net operating losses ("NOL's")
available for carryforward. Unless the context otherwise requires, references
to Beard and the Company herein include Beard and its consolidated subsidiaries,
including Beard Oil.
THE 1993 REORGANIZATION
The 1993 Reorganization. As a result of a reorganization (the
"Reorganization"), effective in October 1993, and a settlement agreement in
April 1995 (the "Settlement") with four institutional lenders (the "Lenders"):
(a) Beard divested substantially all of its oil and gas assets; (b) $101,498,000
of long-term debt and other obligations were effectively eliminated; and (c) the
Lenders received 25% of Beard's then outstanding common stock and $9,125,000
stated value (91,250 shares, or 100%) of Beard's then outstanding preferred
stock.
Subsequent Sale of Stock by Certain Lenders; Current Stock Ownership by the
Lenders. On January 2, 1997 three of the four Lenders sold their common and
preferred shares to five parties, one of whom owns more than 5% of the Company's
outstanding common and preferred stock. As a result of the Reorganization, and
after giving effect to (i) the redemption of 1,094.14 preferred shares in April
of 1995; (ii) the sale by three of the Lenders of 351,044 common shares and
47,728.76 preferred shares in January of 1997; and (iii) the 2,799,074 common
shares outstanding as of February 28, 1997, the other Lender holds 9.57% of the
voting power of Beard through its ownership of common stock and an additional
6.67% through its holdings of preferred stock, for a total of 16.24% of the
total outstanding voting stock of the Company. The preferred holders have
elected a director to serve on Beard's six-member Board of Directors.
Mandatory Redemptions on Beard Preferred Stock. 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.
Conversion of Beard Preferred Stock. Each share of Beard preferred stock
which has not previously been redeemed may be converted into 5.129421 shares of
Beard common stock after December 31, 2002. Fractional shares will not be
issued, and cash will be paid in redemption thereof.
Preservation of NOL's. The Company estimates that at year-end 1996, Beard
and its consolidated subsidiaries had NOL's of approximately $66.9 million.
Beard considers such NOL's, which expire between 2001 and 2010, to be one of its
most valuable assets and that loss of the NOL's would have a severe negative
impact on the Company's future value. Beard is currently considering action to
protect the assets and prevent the triggering of an "ownership change" as
defined in Section 382 of the Code (which would severely limit the use of
the NOL's) by re-imposing restrictions (to replace those restrictions which
expired October 26, 1996) on all of its shares to prevent transfer without
the Board of Directors' consent to any person if that person was, or would
thereby become, a holder of 5% or more of the fair market value of Beard's
outstanding capital stock.
Indemnification Obligations. As a result of the Reorganization, the Company
has indemnified Sensor and the Lenders for certain losses (i) arising out of
the ownership and/or operation of Beard Oil's former oil and gas assets,
including environmental liabilities; (ii) arising under any employee benefit or
severance plan; or (iii) relating to any misrepresentation or inaccuracy in any
representation made by the Company or Beard Oil in connection with the
Reorganization (collectively, the "Obligations"). Neither Beard nor Beard Oil
is presently aware of any material liabilities existing as a result of such
Obligations.
Discontinued Operations. In January of 1997 the Company made the decision to
discontinue its real estate construction and development activities. As a
result, Beard's continuing operations consist primarily of the CO2 Segment and
other activities which include the E/RR Segment and other unrelated activities.
Accordingly, the net operating results of the Company's real estate segment have
been presented as discontinued operations in 1996 and for all periods presented
in the consolidated statements of operations. As of March 13, 1997, the Company
had sold all of the real estate construction and development assets with the
exception of three speculative homes. One of these is under contract for
closing on March 21, 1997, and another is under contract for closing on May 30,
1997, leaving one home remaining for sale.
CONTINUING OPERATIONS
Carbon Dioxide Operations. The Company's carbon dioxide ("CO2") operations
are now concentrated on the manufacturing and distribution of dry ice (solid
CO2) which are conducted by an 85%-owned subsidiary, Carbonic Reserves ("Car-
bonics"), and the production of CO2 gas which is conducted through Beard. The
Company owns working interests in two producing CO2 gas units in Colorado and
New Mexico.
As the result of two significant acquisitions in 1990 and subsequent expan-
sion in 1991 and 1995, the Company's dry ice manufacturing and distribution
activities now consist of six plants and 13 distribution centers as compared
with one plant and three distribution centers at year-end 1989. As a result
of this growth, the size and scope of its dry ice manufacturing and distribu-
tion operations have expanded to the point where management believes it is
one of the largest producers of dry ice in the continental United States.
Environmental/Resource Recovery Activities. When Beard divested itself of
Beard Oil's oil and gas assets in 1993, it redirected the focus of its oilfield
services subsidiaries to environmental services activities. The Company and its
management have considerable expertise in the environmental field stemming from
previous experience as the founder, as officers and directors, and as the
principal shareholder of USPCI, Inc. (NYSE) from 1968 until its acquisition by
Union Pacific Corporation in 1987-88.
In 1993 Whitetail Services, Inc. ("Whitetail") terminated its oilfield
construction activities and converted its operations to focus upon environmental
services, including soil and groundwater treatment system installations, site
remediation, bioremediation, waste stabilization and solidification, underground
storage tank removal, heavy equipment operations and emergency spill response.
Whitetail's environmental service capabilities were expanded in 1995 by the
addition of environmental drilling, wastewater storage tank rentals, waste
transportation and storage, and CO2 blaster cleaning services, all of which had
previously been conducted by separate subsidiaries.
In 1990 the Company acquired more than 80% of Energy International Corpora-
tion ("EI"), a research and development firm specializing in coal-related
technologies. During the four years that Beard owned EI, EI developed a new
patented technology know as Mulled Coal Technology (the "M/C Technology"). In
May of 1994 Beard sold EI to a subsidiary of The Williams Companies, Inc. for
$2,199,000, but retained the M/C Technology which was contributed to a wholly-
owned subsidiary, Beard Technologies, Inc. ("BTI"). BTI has continued to pursue
the commercial development of the M/C Technology. In 1995 BTI served as the
principal subcontractor to EI on a contract which EI had entered into with the
United States Department of Energy (the "DOE") to demonstrate the storage,
handling and transportation characteristics of Mulled Coal under commercial
conditions. The final report on this project was delivered to the DOE in March
of 1996, with the results and conclusions far surpassing BTI's original
expectations. (See "Resource Recovery Activities - Department of Energy
Contract").
In May of 1996 the Company acquired 80% of Horizontal Drilling Technologies,
Inc. ("HDT"), a company specializing in trenchless technology. As part of the
purchase consideration the seller received 20% of the common stock of
Whitetail. HDT specializes in directional drilling and has completed various
aspects of utility and environmental remediation projects in 12 states. It
has focused much of its attention since the acquisition on cable and fiber
optics installations.
Collectively, the E/RR Segment can provide environmental related services to
industry and government on a nationwide scale utilizing the newest emerging
technologies and state of the art assessment-to-remediation techniques. Now
that BTI has successfully demonstrated the commercial feasibility of its M/C
Technology, it is focusing its current efforts on marketing such technology in
the coal producing states, where it hopes to set up several coal recovery
projects for the larger coal companies operating there.
Other Activities. In addition to the above, Beard's other activities include
(i) a minority-owned investment in a joint venture for the extraction, produc-
tion and sale of crude iodine; and (ii) various assets and investments which the
Company intends to liquidate as opportunities materialize. Such assets consist
primarily of the residue of its discontinued real estate operations (see
"Discontinued Operations" above); drilling rigs, yards and equipment; real
estate limited partnerships; and miscellaneous other investments. See
"Business -- Other Activities." As excess funds become available from such
liquidations they will be utilized for working capital, reinvested in Beard's
ongoing business activities or re-deployed into newly targeted opportunities.
Oil and Gas Assets and Related Liabilities Retained by Beard Oil. Pursuant
to the Reorganization, Beard Oil retained 18 oil and gas leases on which near
term sale or plugging and remediation work was contemplated. Any liabilities
incurred by Beard Oil will be considered as a redemption of an equivalent amount
of the mandatorily redeemable preferred stock by Beard, subject to specified
limitations. As of December 31, 1996, plugging had been completed on 15 leases,
at a cost of approximately $81,000. It is possible that further remediation work
may be required, but no material liability is anticipated.
(b) Financial information about industry segments.
Financial information about industry segments is contained in the Statements
of Operations and Note (16) of Notes to the Company's Financial Statements. See
Part II, Item 8---Financial Statements and Supplementary Data.
(c) Narrative description of business segments.
The Company operates within two major industry segments: CO2 and E/RR. All
of such activities, with the exception of Beard's CO2 production activities, are
conducted through subsidiaries. Beard, through its corporate staff, performs
management, financial, consultative, administrative and other services for its
subsidiaries.
CARBON DIOXIDE OPERATIONS
General. The Company's CO2 operations are conducted directly and through a
subsidiary. Such activities include the operations of (1) the Company's 85%-
owned subsidiary, Carbonic Reserves ("Carbonics"), which operates six dry ice
(solid CO2) producing plants and 13 sales and distribution centers, and (2)
Beard's directly owned working interests in (i) two carbon dioxide producing
units and (ii) a shut-in CO2 gas well in south central Utah.
Carbonic Reserves
History. Carbonics was founded in 1987 by Beard Oil and Clifford H. Collen,
Jr. ("Collen"), its President, to enter the liquid CO2 business. It is
headquartered in San Antonio, Texas. The original concept was to build a
liquids business based upon Collen's expertise involving many years of
experience in the CO2 industry and Beard Oil's large CO2 gas reserves which were
subsequently transferred to Beard. The common stock of Carbonics is presently
owned 85% by Beard and 15% by Collen. In addition Beard owns $14,358,000 of
Carbonics preferred stock which is mandatorily redeemable out of one-third of
Carbonics' consolidated pre-tax net income.
Evolution of Current Strategy. In 1987, Carbonics built a liquid CO2 plant
at Clayton, New Mexico (the "Bravo Plant") and entered the liquid CO2 business
by distributing its product in New Mexico, Texas, Kansas and Oklahoma. This
proved to be a very commodity-oriented business which generated unacceptably low
margins. In 1989, Carbonics changed its basic strategy, virtually withdrawing
from the sale of liquid CO2 and CO2 gas, in order to concentrate its efforts on
the manufacturing and distribution of dry ice.
1990-1991 Expansion Activities. At year-end 1989, Carbonics owned one dry
ice plant at Clayton, New Mexico and operated three sales and distribution
centers located in Amarillo and Lubbock, Texas and Denver, Colorado. In 1990,
it acquired three dry ice manufacturing plants and a distribution center from a
major competitor and also acquired a dry ice manufacturing plant and eight
distribution centers from two affiliated parties in Denver. Carbonics opened
two additional distribution centers in late 1990 and added three additional
distribution centers in 1991.
Dry Ice Manufacturing and Distribution. Carbonics is a dry ice manufacturer
and distributor with its principal offices located in San Antonio, Texas.
Following its 1990 and 1991 expansion activities, Carbonics had five
manufacturing plants located in Cortez, Colorado; the Bravo Plant at Clayton,
New Mexico; Enid, Oklahoma; Corpus Christi, Texas; and Cheyenne, Wyoming. In
1995 it began operating a sixth manufacturing plant under contract in Dallas,
Texas. These six plants supply Carbonics' sales and distribution warehouses
located in Denver and Longmont, Colorado; Wichita, Kansas; Albuquerque,
New Mexico; Tulsa, Oklahoma and Amarillo, Austin, Corpus Christi, Dallas,
Harlingen, Houston, Lubbock and San Antonio, Texas. The Bravo plant has a
90 ton/day capacity, the Cortez plant has a 60 ton/day capacity and the other
four plants have a 50 ton/day capacity. All of Carbonics' facilities are in
leased premises except (i) the Wichita warehouse; (ii) the Denver warehouse
where Carbonics owns a building on leased land; and (iii) the Dallas and
Amarillo warehouse which are under lease/purchase options.
Bravo Plant. The Bravo plant is a 240 ton/day CO2 liquification and
purification plant and a 90 ton/day dry ice plant. The liquification and
purification portion of the Bravo plant is currently being upgraded to produce
a higher quality CO2 and to increase the efficiency of the plant. Liquid CO2
from this leased facility is used as a raw material at Carbonics' adjoining dry
ice plant, and is also available for sale to third parties.
Take-or-Pay Contract. Until February of 1996, Carbonics was selling liquid
CO2 exclusively to a customer on a take-or-pay basis under a 10-year contract
expiring in 1999. Pursuant to a settlement agreement executed in February of
1996, the customer terminated its obligation at such time by the payment of
$539,000 in cash and the transfer of liquid CO2 processing equipment valued at
$400,000 to Carbonics. The settlement added $939,000 of pre-tax income to the
Company's financial results for 1996 and for the first quarter thereof.
Principal Products. The principal product produced through Beard's CO2
operations is dry ice which accounted for the following percentage of the
Company's consolidated revenues from continuing operations and Segment revenues
for each of the last three years:
<TABLE>
<CAPTION>
Percent of
Fiscal Year Consolidated Revenues Percent of
Ended from Continuing Operations Segment Revenues
----------- -------------------------- ----------------
<C> <C> <C>
12/31/96 73.2% 89.7%
12/31/95 69.3% 87.3%
12/31/94 68.7% 89.9%
</TABLE>
Market Demand and Competition. Dry ice is marketed directly to meat packing
plants, food processing plants and wholesale grocery companies. Health science
centers are an emerging market for the product. It is used extensively by
commercial airlines to keep their food and drinks cold prior to and during
service to passengers. Additionally, Carbonics is focusing its efforts on
developing sales of dry ice to retail customers through grocery and convenience
store outlets. The principal retail use is for keeping foods and beverages cold
in containers for hunters, fishermen, travelers, etc.
The dry ice business is highly competitive in that portion of the continental
United States outside of Carbonics' present market area, which may limit
Carbonics' ability for further expansion.
Availability of Raw Materials. Carbonics believes that it has adequate CO2
available to handle its present and foreseeable manufacturing requirements. In
addition, by virtue of Beard's ownership of CO2 reserves in the McElmo Dome and
Bravo Dome fields, it has the ability to trade a portion of such reserves for
needed product at its various supply points.
Trademarks. Carbonics is the sole manufacturer of Penguin BrandTM dry ice.
Carbonics has developed a program to market its dry ice in individual plastic
bags bearing the Penguin BrandTM trademark to the general public. By placing
one of Penguin's dry ice dispensers--an insulated chest freezer requiring no
electrical hookup--in a retail store next to a wet ice dispenser, the public is
given the choice of either wet or dry ice.
Carbonics' marketing efforts have been focused on sales through corporate
chains of grocery stores such as Kroger, Randalls, Albertsons and King Soopers.
As a result, Penguin BrandTM dry ice is currently being marketed through more
than 1,800 grocery stores in Arizona, Arkansas, Colorado, Kansas, Missouri,
Nevada, New Mexico, Oklahoma, Texas, Utah and Wyoming.
In 1993 Carbonics decided to concentrate its marketing efforts on increasing
sales of Penguin BrandTM dry ice, which has resulted in steady improvement in
the ratio of Penguin ice sales to total dry ice sales, to consolidated
revenues from continuing operations and to CO2 Segment revenues, as illustra-
ted by the following table:
<TABLE>
<CAPTION>
Percent of
Percent Consolidated Revenues Percent of Total
Fiscal Year Penguin of Dry from Continuing Segment Dry Ice
Ended Ice Sales Sales Operations Revenues Sales
- ----------- --------- ------- --------------------- ---------- -------
<C> <C> <C> <C> <C> <C>
12/31/96 $2,598,000 21.3% 15.6% 19.1% $12,206,000
12/31/95 $2,038,000 19.6% 13.6% 17.1% $10,407,000
12/31/94 $1,674,000 17.3% 11.9% 15.5% $ 9,697,000
</TABLE>
Equipment and Process Technology Development; Patents. Carbonics has
developed and continues to develop dry ice freezing equipment for the food
processing industry. Such developments include tunnel freezers, cabinet
freezers and dry ice handling equipment. The primary markets for this
equipment are mid-sized food processing or meat packing facilities.
In March of 1992, Carbonics filed a patent application with the U.S. Patent
Office for the patent rights to a "Fluidized Bed Air Cooling System." This
patent was issued in June, 1993. A patent was issued to Carbonics in March of
1993 for an "Apparatus for Cutting Blocks of Ice." Carbonics currently has a
patent application pending for an "Enhanced Method of Producing Dry Ice
Pellets."
It is possible that some of the other equipment and process technology being
developed by Carbonics may be patentable; if so, patent protection will be
sought and pursued.
ECO2 Solutions. Through its ECO2 Solutions Division, Carbonics is a licensed
distributor of a dry ice pellet blaster which is a substitute for sand blast
cleaning in the foundry and food processing industries. In 1996 Whitetail took
over the CO2 blaster cleaning service operations previously conducted by
Carbonics. (See "Environmental Services Activities---Whitetail Services,
Inc.").
ECO2 Solutions is also the sole licensee in Texas for the patented AQUA FREED
process, which offers an environmentally safe, chemical-free alternative to
water well stimulation and new well stimulation operations. The process
utilizes liquid CO2 injected under pressure to fracture and energize the
target formation and increase production capacity.
Seasonality. To the extent dry ice is sold at the retail level for
recreational purposes, the product is considered highly seasonal to the summer
months and the month of October.
Carbon Dioxide (CO2) Properties
McElmo Dome. During 1983, the McElmo Dome Field in Montezuma and Dolores
Counties of Western Colorado was formed into a field-wide unit (the "Unit")
covering a 240,000-acre area which is producing CO2 gas. Beard owns a 0.545610%
working interest (0.471926% net revenue interest) and an overriding royalty
interest equivalent to a 0.092190% net revenue interest in the Unit, giving it
a total 0.564116% net revenue interest in the Unit.
Deliveries of CO2 gas from the Unit are transported through a 502-mile
pipeline (the Cortez pipeline) to the Permian Basin oilfields in West Texas
where such gas is utilized primarily for tertiary oil recovery. Shell Western
E&P, Inc. ("SWEPI") is the operator of the Unit. There are 41 producing wells
in the Unit, ranging from 7,634 feet to 8,026 feet in depth. McElmo Dome and
Bravo Dome (see below) are believed to be the two largest producing CO2 fields
in the world. The gas from McElmo is estimated to be approximately 97% pure
CO2.
In 1996 Beard sold 1,695,000 Mcf (thousand cubic feet) attributable to its
working and overriding royalty interest at an average price of $.17 per Mcf. In
1995, Beard sold 1,095,000 Mcf attributable to its working and overriding
royalty interest at an average price of $.20 per Mcf. In 1994 the Company
sold 701,000 Mcf attributable to its working and overriding royalty interest
at an average price of $.19 per Mcf. Beard was underproduced by 604,000 Mcf
on the sale of its share of McElmo Dome gas at year-end 1996.
In July of 1996 SWEPI advised the working interest owners that current demand
for McElmo Dome CO2 had increased from less than 600 million cubic feet per day
in 1995 to over 700 million cubic feet per day, and is expected to increase to
one billion cubic feet per day beginning in July of 1997. In order to meet such
demand SWEPI commenced a $29.7 million development program in July of 1996 which
is targeted for completion in July of 1997. Beard's share of the estimated
development cost amounts to approximately $162,000, of which $69,000 was
incurred in 1996.
Bravo Dome. In addition to its reserves in the McElmo Dome Unit, Beard also
owns a very small working interest in the 1,000,000-acre Bravo Dome CO2 Gas Unit
which is situated in Union, Harding and Quay Counties of northeastern
New Mexico. Beard acquired a 0.05863% working interest in this unit in 1987.
Beard takes its share of the unit CO2 production in kind and sells it to
Carbonics. Beard is currently underproduced by 47,000 Mcf on the sale of its
share of Bravo Dome gas. The CO2 gas purchased by Carbonics from Beard,
which amounted to $9,000 in 1996, $9,000 in 1995, and $8,000 in 1994, is
used in the manufacturing of dry ice at its Bravo plant.
Amoco Production Company operates a CO2 production plant in the middle of the
Bravo Dome Unit which was formed in 1979. There are 265 producing wells in the
Bravo Dome Unit, each being approximately 2,500 feet in depth. The gas is
extremely pure, being approximately 98% CO2.
Net CO2 Production. The following table sets forth Beard's net CO2 produc-
tion for each of the last three fiscal years:
<TABLE>
<CAPTION>
Net CO2
Fiscal Year Production
Ended (Mcf)
----------- ----------
<C> <C>
12/31/96 1,723,000
12/31/95 1,123,000
12/31/94 726,000
</TABLE>
Average Sales Price and Production Cost. The following table sets forth
Beard's average sales price per unit of CO2 produced and the average lifting
cost, lease operating expenses and production taxes, per unit of production for
the last three fiscal years:
<TABLE>
<CAPTION>
Average Sales Average Lifting
Fiscal Year Price Per Mcf Cost Per Mcf
Ended of CO2 of CO2
------------ ------------- ----------------
<C> <C> <C>
12/31/96 $0.18 $0.06
12/31/95 $0.20 $0.09
12/31/94 $0.19 $0.14
</TABLE>
Productive Wells and Acreage. Beard's principal CO2 properties are held
through its ownership of working interests in oil and gas leases which produce
CO2 gas. As of December 31, 1996, Beard held a working interest in a total of
307 gross (1.25 net) CO2 wells located in the continental United States. The
table below is a summary of such developed properties by state:
<TABLE>
<CAPTION>
Number of Wells
---------------
State Gross Net
----- ----- ---
<C> <C> <C>
Colorado................ 41 0.224
New Mexico.............. 265 0.029
Utah (a)................ 1 1.000
---- -----
307 1.253
==== =====
________
(a) Includes the Tanner #1-27 shut-in CO2 well in Wayne County, Utah.
</TABLE>
Employees. As of December 31, 1996 the CO2 Segment employed 110 full time
and eight part time employees. All such employees were employed by Carbonics.
Financial Information. Financial information about the Company's CO2
operations is contained in the Company's Financial Statements. See Part II,
Item 8---Financial Statements and Supplementary Data.
ENVIRONMENTAL/RESOURCE RECOVERY ACTIVITIES
General. Following the 1993 Reorganization, the operations of several of
Beard Oil's oilfield services subsidiaries were redirected to focus upon
environmental services activities, and another subsidiary was formed to assist
in the marketing effort for such activities. Following the sale of the Company's
research and development company in 1994 another subsidiary has continued to
pursue the commercial development of the patented coal technology developed by
its R&D predecessor. In 1996 a company was acquired which utilizes trenchless
technology for its environmental remediation projects. In January of 1997
another subsidiary became the exclusive U.S. licensee for the use of a chemical
process for the remediation of creosote and PAH contamination.
The Company and its management have considerable expertise in the
environmental area stemming from previous experience as the founder, as officers
and directors, and as the principal shareholder of USPCI, Inc. (NYSE) from 1968
until its takeover by Union Pacific Corporation in 1987-88.
Environmental Services Activities
Whitetail Services, Inc. In 1990 Beard Oil took over the operations of a
small oilfield construction business operating in central Oklahoma. Beard Oil
operated the business through a wholly-owned subsidiary named Whitetail
Services, Inc. ("Whitetail") which started to expand the business. With
the deterioration in oil and gas drilling activities in early 1991,
Whitetail's services were broadened to include environmental cleanup of non-
hazardous material.
In 1993 Beard Oil made the decision to discontinue Whitetail's oilfield
construction activities and Whitetail's outstanding construction contracts were
concluded. The employees involved with such contracts were terminated. Beard
Oil transferred the corporate shell of Whitetail and part of its equipment to
Beard. Whitetail retained 12 employees who were involved in its environmental
cleanup activities.
Whitetail handles a wide range of environmental services, including soil and
groundwater treatment system installations, site remediation, bioremediation,
waste stabilization and solidification, underground storage tank ("UST")
removal, heavy equipment operations and emergency spill response. Recently
Whitetail has diversified its capabilities to include the replacement of old
water lines with new lines in order to upgrade municipal water distribution
systems.
In early 1993 Beard changed the name of a wholly-owned, inactive subsidiary
to SQG Services, Inc. ("SQG"), which commenced operations on April 1. In 1995
SQG was merged into Whitetail and became the SQG Services Division of Whitetail
("SQG Services"). SQG Services provides consulting services to generators of
small quantities of hazardous and non-hazardous industrial waste and handles the
removal and disposal of same. SQG Services also provides services for removal
and disposal of waste products, and handles all related documentation, ensuring
compliance with government regulations and reducing future liability. One of
SQG Services' unique features is its characterization services which sample and
identify the customer's waste, ensuring that it is properly analyzed and safely
handled from that point forward.
All of SQG Services' personnel must undergo rigorous training, including OSHA
required 40 Hour Hazardous Waste Operations and Emergency Response training
("HAZWOPER"), CPR/First Aid, Confined Space and other specialized training
certifications that apply to their work.
In 1995 Whitetail also took over most of the wastewater storage tank rental
operations of another Beard's environmental service companies, Incorporated Tank
Systems. As a result, Whitetail has 36 wastewater storage tanks available for
rental. As of March 24, 1997, two tanks were rented.
In addition, Whitetail has taken over the CO2 blaster cleaning service
operations previously conducted by Carbonic Reserves. Dry ice pellet blasting
is a substitute for sand blast cleaning in the foundry and food processing
industries. In this environmentally safe cleaning system, extremely dense dry
ice pellets shatter, blasting away contaminants from most all surfaces, and
instantaneously returning to gas upon impact with a surface. The system
eliminates the use of chemical solvents, and is non-hazardous and non-toxic.
In late 1996 Whitetail shifted its marketing focus, placing increased
emphasis on the development of private sector accounts while continuing to
service current governmental, public sector clients. While it has handled
jobs in several other states, Whitetail has operated primarily to date in
Oklahoma, Texas, Kansas, Arkansas, and Missouri. As a result of the HDT
acquisition (see below), Beard's ownership in Whitetail was reduced to 80%.
Since the takeover of Whitetail's operations by Beard the number of
Whitetail's employees has increased from 12 to 32 (29 full time and three part
time) as of December 31, 1996.
Horizontal Drilling Technologies, Inc. In May of 1996 the Company acquired
80% of the common stock of Horizontal Drilling Technologies, Inc. ("HDT"). The
seller received 20% of the common stock of Whitetail as part of the considera-
tion for the purchase of HDT. HDT specializes in directional horizontal
drilling and in the installation of horizontal wells for soil and ground-
water remediation. HDT has completed a broad range of projects for utili-
ies, municipalities, pipeline companies, environmental service companies and
others in 12 states. Because of the tremendous growth currently being
enjoyed by the telecommunications industry, HDT is concentrating much of its
present marketing efforts on cable and fiber optic installations.
Currently HDT and Whitetail, in a joint marketing effort, are diversifying
into several phases of utility construction utilizing directional drilling
capabilities and other trenchless technologies.
BSK, Inc. In 1994 Beard organized BSK, Inc. ("BSK") which is 90%-owned by
Beard and 10%-owned by BSK management. BSK was formed to provide marketing
assistance for the other subsidiaries in the E/RR Segment.
Subsequent Event
ISITOP, Inc. In January of 1997 Beard changed the name of a wholly-owned,
inactive subsidiary to ISITOP, Inc. ("ISITOP"). ISITOP has obtained an exclusive
license for the United States from a company which has developed a chemical
(54GOTM 101) and has tested a process which utilizes such chemical for the
remediation of creosote and PAH contamination. A process and composition patent
has been applied for and issuance of the patent is expected in the near future.
ISITOP is 80%-owned by Beard and 20%-owned by two members of ISITOP's management
team, who are also the principals of the company from which the license was
obtained. Pursuant to employment agreements and other related agreements these
two parties also have options to acquire an additional 30% of ISITOP following
payout of all sums owed by ISITOP to Beard.
Creosote is a very complex mixture of hydrocarbons and hydrocarbon
derivatives. It revolutionized the use of wood and wood products in wet
environments by preventing rapid decomposition. Creosote compounds are still in
use today, primarily to treat telephone poles, railroad ties, bridge timbers and
similar construction materials and to a lesser extent as medicinal agents.
Creosote mixtures contain many compounds that are known to cause several
forms of cancer in animals and have been linked to several types of cancer
(skin, etc.) in humans. The specific chemical family of cancer producing agents
found in creosote are a group of molecules that are made up of several connected
ring structures known as polycyclic aromatic hydrocarbons ("PAH's"). These com-
pounds are in families of chemicals known by names like "anthracene", "fluorene"
and "benzo-pyrenes". These mixtures make up the preparations known as
"creosote" and are related by their poly ring structure. Because of this
biological structure, many are either known carcinogens or cancer suspect
agents.
Even though the use of creosote was "restricted" in the mid-1960's, it and
many of its sister mixtures are still in wide use both in the U.S. and through-
out the world. The U.S. alone has over 700 wood preserving plants which are
estimated to use or produce more than 495,000 tons of creosote and creosote
byproducts per year.
The very nature of creosote, as a preservation agent, works against the
environmental remediation of creosote materials that are or were spilled or
otherwise made their way into the soil at manufacturing and storage sites. Past
attempts to clean up such sites have been only about 90% effective. However,
a recent test utilizing the 54GOTM 101 chemical product in a bench test on an
age-hardened (more than 25 years old) sample of creosote indicated that the
creosote and PAH's had been remediated to near background levels, or a reduction
of nearly 100%.
In the three-step licensed process used by ISITOP, the contaminated soils are
placed into on-site containers for processing using a proprietary chemical wash
(54GOTM 101---solvent specific) followed by bioremediation and perhaps some air
drying. The process can take place at the contaminated area, eliminating the
high costs and exposure of disposal and trucking.
Currently ISITOP is conducting the first test of the chemical process in the
field. The site selected is the storage yard of an old narrow gauge railroad
near Durango, Colorado, where railroad ties have been stored for many years.
Preliminary indications are that the test is proceeding in accordance with
expectations, but it is too early to draw any final conclusions. Negotiations
are currently underway to determine the location for a larger, second test which
will be conducted upon completion of the test now in progress.
Resource Recovery Activities
History/Formation of Beard Technologies, Inc. In early 1990, the Company
acquired more than 80% of Energy International Corporation ("EI"), a research
and development firm specializing in coal-related technologies. During the
four years that Beard owned EI, EI developed a new technology known as Mulled
Coal Technology (the "M/C Technology").
In May 1994 Beard sold EI to a subsidiary of The Williams Companies, Inc. for
$2,199,000, retaining certain assets and the patent rights to the M/C Technology
which Beard contributed to a wholly-owned subsidiary which was renamed Beard
Technologies, Inc. ("BTI"). BTI has continued to pursue the commercial
development of the M/C Technology. BTI has one full time employee.
The M/C Technology. Underground coal mines have always produced a certain
amount of fine coal which is difficult to clean and to market due to handling
problems. Existing washing processes used to deal with this problem are all wet
processes, and the end product must be dewatered to make it acceptable in the
market place, which is difficult and usually expensive. The Mulled Coal process
is an innovative and inexpensive solution to fine coal handling problems. It is
a process which involves the addition of a low cost specifically formulated
reagent to wet fine coal in a simple mixing step to produce a material ("Mulled
Coal") that handles, stores and transports like dry coal. But, unlike thermally
dried fine coal, Mulled Coal is not dusty, will not rewet, will not freeze, and
causes no environmental or safety hazards related to fugitive coal dust.
Patent Protection. The U.S. patent for the M/C Technology was issued in
1993. Since then patents have been issued for Australia, Europe (enforceable in
Germany, Great Britain, Italy and Spain), Poland and South Africa. Patent
applications are pending in a number of other nations.
Department of Energy Contract. Prior to 1994 the M/C Technology had only
been successfully demonstrated in the laboratory. In March 1994 the
United States Department of Energy (the "DOE") awarded a contract to
EI under which the DOE agreed to fund a majority of the cost of demon-
strating the feasibility of the M/C Technology at a near commercial scale.
Since the M/C Technology was transferred to BTI within a month of the
contract award, BTI, EI and the DOE entered into agreements whereby
EI remained as the prime contractor with BTI providing technical and
on-site management for the project.
The project was located at a large coal preparation plant near Birmingham,
Alabama, which is owned and operated by a major coal producer. At the comple-
tion of the production phase of the project, the Mulled Coal was shipped to an
Alabama power company. The 23-month program was completed in February of 1996
and the final project reports were delivered to the DOE in March of 1996.
BTI is very encouraged by the results of the demonstration project. The
design of process equipment and controls worked very well. Excellent quality
Mulled Coal was produced on a continuous basis, in a commercial environment and
at a production rate which was 50 times higher than production rates for
previous pilot plant tests. Actual operating costs at the near commercial scale
were far lower than costs which had been projected from laboratory and pilot
plant tests. And, most importantly, the Mulled Coal caused no problems with
storage, handling and shipping.
Commercial Development Activities. As a result of the demonstration project,
BTI considers the M/C Technology to be fully ready for commercialization.
Efforts have been made to make producers in the U.S. and other coal producing
nations aware of the technology and its advantages. BTI has called and will
continue to call on selected coal producers, preparation plant builders and coal
preparation engineering firms to acquaint them with the technology and to ex-
plore licensing arrangements related to the M/C Technology. It also plans to
call on utilities that burn large quantities of coal.
Millions of tons of fine wet coal have been discarded to large coal slurry
impoundments throughout the eastern coal producing states, representing an
enormous potential source of low cost fuel. BTI will pursue entering into
selected slurry impoundment recovery projects as a venture partner with an
experienced coal producer, preparation plant operator or allied service
company.
Negotiations are currently in progress with a large coal producing company
headquartered in the midwest which owns several potential slurry pond recovery
sites. The initial site selected for evaluation by BTI contains two ponds which
collectively are estimated to contain 3.1 million tons of raw coal. If
negotiations are successfully concluded and financing is secured, it is
anticipated that construction of a recovery facility will commence prior to year
end.
Facilities. Whitetail, its SQG Services Division and HDT utilize an office
and related facilities owned by Whitetail in Oklahoma City. HDT also rents a
small office in Wichita. BTI leases an office and laboratory facilities from
the Applied Research Center at the University of Pittsburgh ("UPARC"). The
UPARC facilities give BTI access to a wide range of coal and mineral testing
capabilities. BSK occupies a portion of Beard's leased space at its Oklahoma
City office. ISITOP is furnished office space in Farmington, New Mexico as part
of its arrangement with the company from which it obtained its license.
Principal Products and Services. The principal services rendered by Beard's
E/RR Segment are: (1) Soil and groundwater treatment sysem installations; site
remediation; UST removal; construction; drilling and emergency response
services; and consulting and safety training services for the handling of
hazardous and non-hazardous materials and the removal and disposal of same.
Such services are furnished through Whitetail and its SQG Services Division.
(2) Through HDT the segment offers directional horizontal drilling services
which have numerous environmental applications and also provides a broad
range of services for utilities, municipalities, pipeline companies, environ-
mental service companies and telecommunication companies. (3) Through ISITOP
the segment believes it can demonstrate the capability to clean up manufac-
turing and storage sites which have been contaminated by creosote materials.
(4) Through BTI the segment offers proprietary consulting technology and has
the capability to undertake large reclamation projects and the cleanup of
slurry pond recovery sites.
The E/RR Segment accounted for the following percentages of the Company's
consolidated revenues for each of the last three years.
<TABLE>
<CAPTION>
Percent of
Fiscal Year Consolidated Revenues
Ended from Continuing Operations
----------- --------------------------
<C> <C>
12/31/96 18.0%
12/31/95 20.2%
12/31/94 22.7%
</TABLE>
Market demand and competition. The environmental services industry is highly
competitive, and in such activities the E/RR Segment must compete against major
services companies, as well as a number of small independent concerns.
Competition is largely on the basis of customer service. Beard's approach has
been to seek out niches of opportunity where it perceives that customers are not
being adequately served, and then to provide services using well-trained
personnel at reasonable rates. The regulatory environment is rapidly changing,
at times creating new markets which the larger companies in the industry do not
recognize or have no desire to pursue, and thus creating opportunities for
smaller, aggressive entities such as Beard.
The environmental services entities provided their services to 179 customers
in 1996. Environmental services activities performed under subcontracts for 32
customers who were working for the State of Oklahoma Indemnity Fund (the
"Fund"), primarily for UST removal, accounted for 72% of the E/RR Segment's
1996 revenues. However, the Company does not feel that the loss of any
single customer would have a material adverse effect on the Company and
its subsidiaries as a whole. The Fund normally pays for such work in 90
to 120 days, and the primary contractors normally pay the subcontractors
in 120 to 150 days for such billings, resulting in extended payment terms
for this type of activity.
The resource recovery business is also highly competitive and the E/RR Seg-
ment is competing against much larger and better financed companies. Beard's
approach has been to develop lower cost technology that will create a market
opportunity.
Availability of raw materials. Materials used in the E/RR Segment, as well
as products purchased for resale, are available from a number of competitive
manufacturers.
Seasonality. The environmental services and resource recovery businesses are
both seasonal, as there is a tendency for field operations to be reduced in bad
weather. Seasonality normally affects the first quarter of the year, and this
tendency is compounded by the public sector's propensity to delay the startup of
environmental services contracts during such period.
Employees. As of December 31, 1996 the E/RR Segment employed 42 full time
and three part time employees.
Financial information. Financial information about the E/RR Segment is set
forth in the Company's Financial Statements. See Part II, Item 8---Financial
Statements and Supplementary Data.
OTHER ACTIVITIES
Iodine. Beard is involved in the extraction, production and sale of crude
iodine through its 40% ownership of North American Brine Resources ("NABR"), a
joint venture with two Japanese partners. Beard is the managing partner. In
Kingfisher County, Oklahoma, the Company collects waste brine from wells opera-
ted by third parties (the "Berkenbile Plant"). The Company receives a payment
for furnishing the brine to NABR for iodine extraction at the Berkenbile Plant
and for the subsequent disposal of the brine.
In Woodward County, Oklahoma, NABR operates a second iodine extraction plant
(the "Woodward Plant") which has roughly six times the production capacity of
the Berkenbile Plant. Brine is produced from wells owned by NABR and iodine is
extracted using the blowing-out process. The waste brine is then reinjected
into NABR-owned wells. The Woodward Plant is located in the Woodward Trench,
a narrow geologic formation found 6,000 to 10,000 feet below the surface,
which contains the world's highest concentration of iodine-bearing brine water.
Iodine is used in animal feed supplements, catalysts, inks and colorants,
pharmaceuticals, photographic equipment, sanitary and industrial disinfectants,
stabilizers and radiopaque media.
From 1990 to 1994 the worldwide price received for iodine decreased more than
50% from its peak of approximately $18 per kilogram as a result of increased
production capacity in the United States and Chile. The price bottomed out in
mid-1994 at $7 per kilogram and is currently expected to be in the $17 to $18
per kilogram range for the coming months.
Because of the severely depressed industry pricing conditions, NABR
determined to shut down the operations of the Woodward Plant for an indefinite
period of time until the oversupply situation was rectified. Accordingly, the
Woodward Plant shut down in June of 1993. By the third quarter of 1996 the
oversupply situation appeared to have corrected itself and the decision was made
to reactivate the Woodward Plant, which came back on stream in October of 1996.
In January of 1997 NABR shipped the first 8,000 kilograms produced at the plant
since its reactivation. The total cost of reactivating the plant, including the
cost of drilling a new production well plus the additional working capital
required, was approximately $1.1 million. Such funds were loaned to NABR by our
Japanese partners. No capital distributions will be made from the joint venture
until the loan by the Japanese partners has been fully repaid with interest.
Other Assets. Beard also has a number of other assets and investments which
it intends to liquidate as opportunities materialize. Such assets consist
primarily of drilling rigs and equipment, land and improvements, real estate
limited partnerships in which the Company is a limited partner and miscellaneous
other investments. As excess funds become available from such liquidations they
will be utilized for working capital, reinvested in Beard's ongoing business
activities or redeployed into newly targeted opportunities.
Office and Other Leases. Beard leases office space in Oklahoma City,
Oklahoma, aggregating 5,817 square feet under a lease expiring September 30,
2000, at a current annual rental of $53,807. In addition, Beard's subsidiaries
lease space at a number of locations as required to serve their respective
needs.
Employees. As of December 31, 1996, Beard employed 161 full time and 11 part
time employees in all of its operations, including nine full time employees on
the corporate staff.
(d) Financial information about foreign and domestic operations and export
sales.
See Item 1(c) for a description of foreign and domestic operations and export
sales.
Item 2. Properties.
See Item 1(c) for a description of properties.
Item 3. Legal Proceedings.
Neither Beard nor any of its subsidiaries are engaged in any litigation or
governmental proceedings which Beard believes will have a material adverse
effect upon the results of operations or financial condition of any of such
companies.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicita-
tion of proxies or otherwise.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
(a) Market information.
The Company's common stock trades on the American Stock Exchange ("ASE")
under the ticker symbol BOC. The following table sets forth the high and
low sales price for the Company's common stock, as reflected in the ASE
monthly detail reports, for each full quarterly period within the two most
recent fiscal years.
<TABLE>
<CAPTION>
1996 High Low
---- ---- ---
<C> <C> <C>
Fourth quarter $2-7/8 $2-1/2
Third quarter 3-1/4 2-3/4
Second quarter 3-1/4 2-1/4
First quarter 2-3/8 2-1/8
1995 High Low
---- ---- ---
<C> <C> <C>
Fourth quarter $2-1/2 $2
Third quarter 2-3/4 2-1/4
Second quarter 2-1/2 2-1/8
First quarter 2-3/16 1-5/8
</TABLE>
(b) Holders.
As of February 28, 1997 the Company had 555 record holders of common stock.
(c) Dividends.
To date, the Company has not paid any cash dividends. The payment of cash
dividends in the future will be subject to the financial condition, capital
requirements and earnings of the Company. The Company intends to employ its
earnings, if any, in its CO2 and E/RR activities and does not expect to pay cash
dividends for the foreseeable future. The redemption provisions of the Beard
preferred stock limit the Company's ability to pay cash dividends. (See
"Business-General development of business").
Item 6. Selected Financial Data.
The following financial data are an integral part of, and should be read in
conjunction with, the financial statements and notes thereto. Information
concerning significant trends in the financial condition and results of
operations is contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages 19 through 25 of this report.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Operating revenues from
continuing operations $ 16,683 $ 15,012 $ 14,123 $ 13,281 $ 10,849
Interest income 18 25 20 21 110
Interest expense (259) (166) (116) (92) (210)
Earnings (loss) from
continuing operations (140) (478) 508 (893) (6,622)
Earnings (loss) from
discontinued operations (175) 75 214 (11,183) (25,871)
Gain on debt restructuring - - - 46,928 -
Net earnings (loss) (315) (403) 717 34,852 (32,493)
Net earnings (loss) from continuing
operations per share:
(primary EPS) (0.05) (0.20) 0.17 (0.42) (3.33)
(fully diluted EPS) (0.05) (0.20) 0.14 (0.41) (3.33)
Net earnings (loss) per share:
(primary EPS) (0.11) (0.17) 0.25 16.51 (16.34)
(fully diluted EPS) (0.11) (0.17) 0.21 15.86 (16.34)
Balance sheet data:
Working capital $ 1,745 $ 1,989 $ 2,427 $ 1,765 $ 1,830
Total assets 16,473 14,615 13,856 14,966 15,441
Long-term debt (excluding
current maturities) 2,911 1,454 982 1,137 947
Redeemable preferred stock 1,200 1,200 1,200 1,200 -
Total common shareholders'
equity (deficit) $ 8,656 $ 8,788 $ 9,066 $ 8,407 $(27,743)
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion addresses the significant factors affecting the
results of operations, financial condition, liquidity and capital resources of
the Company. Such discussion should be read in conjunction with the Company's
financial statements including the related footnotes and the Company's selected
financial information.
Overview
General. The Company operates within two major industry segments: (1) the
carbon dioxide segment (the "CO2 Segment"), comprised of (a) the manufacture and
distribution of dry ice (solid CO2) and (b) the production of CO2; and (2) the
environmental/resource recovery segment (the "E/RR Segment"), consisting of
environmental services and resource recovery activities. The Company also has
other operations, including (i) a minority-owned investment in a joint venture
for the extraction, production and sale of crude iodine and (ii) various assets
and investments which the Company has been liquidating as opportunities have
materialized.
The Company's continuing operations reflect a loss of $140,000 in 1996, a
loss of $478,000 in 1995 and earnings of $503,000 in 1994. The Company made the
decision to discontinue its real estate construction and development activities
in January of 1997 in order to focus its attention on the CO2 and E/RR Segments
which are considered to have greater potential for growth and profitability. The
results from continuing operations exclude a loss of $175,000 in 1996 and
profits of $75,000 and $214,000, respectively in 1995 and 1994 from such
discontinued operations.
1996 results of operations reflected continuing improvement in the operating
margins of the CO2 Segment, which is the Company's largest segment. This
improvement was largely offset by disappointing results in the E/RR Segment
where a significant decline in revenues in the first half of the year resulted
in a sharp decline in operating margins for 1996 compared to 1995. The
acquisition of Horizontal Drilling Technologies, Inc. ("HDT") in May of 1996
partially ameliorated the revenue decline but was of little assistance in making
up the decline in margins. 1996 benefited from the settlement of a take-or-pay
contract (the "1996 Settlement") by the Company's dry ice subsidiary, Carbonic
Reserves ("Carbonics"), which resulted in the addition of $939,000 of pre-tax
income.
1995 results of operations reflected significant improvement in the operating
margins of the CO2 Segment. This improvement was partially offset by dis-
appointing results in the E/RR Segment where an increase in overhead costs due
to business expansion contributed to a higher operating loss in 1995 than in
the previous year. 1995 benefited from a $423,000 gain on the sales of various
assets, principally drilling rigs and related equipment, and from the sale of a
branch operation by the dry ice company.
1994 results benefited from the sale of Energy International Corporation
("EI"), which resulted in a gain of $1.94 million. This gain was partially
offset by $441,000 of impairment provisions on certain long-term investments.
The Company's continuing operations generated an operating loss of $916,000,
despite significant operating improvement in the CO2 Segment. These gains were
offset in part by administrative overhead formerly shared with oil and gas
operations discontinued in 1993.
Liquidity and capital resources
Capital investments. The Company's capital investment programs have
required more cash than has been generated from operations during the past three
years. Cash flows provided by (used by) operations during 1996, 1995 and 1994
were $924,000, $(414,000) and $(185,000), respectively, while capital additions
were $3,131,000, $1,626,000, and $1,650,000, respectively, as indicated in the
table on the following page:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Carbon dioxide $1,978,000 $1,265,000 $1,252,000
Environmental/resource recovery 1,138,000 339,000 352,000
Other 15,000 22,000 46,000
---------- ---------- ----------
Total $3,131,000 $1,626,000 $1,650,000
========== ========== ==========
</TABLE>
Seller-provided financing and other debt obligations provided $889,000, $487,000
and $435,000 of the funds for such capital investments in 1996, 1995, and 1994,
respectively.
Capital investments over the three year period totaled $6,475,000 of which
$4,495,000 was invested in the CO2 Segment where it was utilized in the dry ice
operations of Carbonics. Investments made in this segment replaced equipment
acquired during the expansion of activities in the early 1990's. This equipment
was partially depreciated at the time of acquisition and had reached a fully-
depreciated status. Additional investments were made to upgrade Carbonics'
production capacity and quality specifications, and increase production
efficiencies and revenue capabilities in order to facilitate its strategy of
increasing its market share.
The Company's 1997 capital expenditure budget has preliminarily been set at
$5,568,000. Presently anticipated capital expenditures include (i) $885,000 for
dry ice operations, (ii) $4,663,000 for the E/RR Segment, and (iii) $20,000 of
additional investment for other activities. $4,195,000 of the estimated total
is speculative since it is targeted for expenditure on a mulled coal recovery
plant on which negotiations are currently in progress.
Liquidity. To date the Company has been able to satisfy its liquidity needs
through its working capital, borrowing arrangements and cash flows. 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 and
continuing private and governmental demand for environmental services. Despite
these uncertainties, the Company anticipates that its cash flows 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.
Working capital for 1996 decreased from 1995. All categories of current
assets, except inventories, increased over the prior year with a total net
increase of $136,000. The increase in current assets was offset by a larger
increase in accrued expenses and other liabilities which was attributable to the
Company's increased level of business.
Liquidity should improve in 1997 as a result of the reduction in debt as
sales occur from the Company's real estate construction and development
segment's assets (the "Assets"). As of March 13, 1997, all of the Assets
except three speculative homes have been sold for a total of $955,000.
$647,000 of the funds from such sales have been used to reduce debt.
Selected liquidity highlights for the Company for the past three years are
summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents $ 375,000 $ 220,000 $ 566,000
Accounts receivable, net 2,405,000 2,259,000 2,041,000
Inventories 2,003,000 2,282,000 1,964,000
Trade accounts payable 1,395,000 1,354,000 1,502,000
Short-term debt 639,000 957,000 79,000
Current maturities of
long-term debt 910,000 520,000 539,000
Long-term debt 2,911,000 1,454,000 982,000
Working capital 1,745,000 1,989,000 2,427,000
Current ratio 1.49 to 1 1.63 to 1 1.93 to 1
Net cash provided by
operations before changes
in current assets and
liabilities 688,000 315,000 291,000
Net cash provided by
(used in) operations 924,000 (414,000) (185,000)
</TABLE>
In total, the Company's operations provided cash of $924,000 in 1996.
Currently the Company's cash flows from operations are heavily dependent on its
CO2 Segment. Improved operating results in this segment have significantly
increased the Company's operating cash flow. The dry ice operations of the CO2
Segment provided $1,986,000 of cash flow in 1996. This cash flow was offset by
(i) higher levels of selling, general and administrative expenses in the E/RR
Segment as the segment expanded into new lines of business and (ii) higher
levels of general and administrative at the corporate level as the Company
pursued additional business opportunities. The E/RR Segment and other
corporate activities generated net operating cash outflows of $37,000 and
$1,025,000, respectively. (See "Results of operations---Other activities"
below).
The 1996 Settlement significantly enhanced the Company's overall liquidity
through the infusion of $539,000 cash into Carbonics. The infusion of this
cash plus $400,000 of equipment resulted in the addition of $939,000 of pre-tax
income. Cash received from the 1996 Settlement enabled Carbonics to cover more
than 25% of Carbonics' capital expenditures for 1996.
The Company's investing activities used cash of $1,203,000 in 1996. Capital
expenditures and investments in various activities more than offset proceeds
from the sale of assets.
The Company's financing activities generated a positive cash flow of $434,000
in 1996. This resulted mainly from increased borrowings to fund capital
expenditures, to develop real estate inventory, and to fund working capital for
general corporate purposes.
During the fourth quarter of 1996 the Company (i) increased the long-term
line of credit which funds Carbonics' working capital requirements from
$750,000 to $1,250,000 in order satisfy its continuing growth requirements,
and (ii) added a new $500,000 line of credit at the parent Company level to
provide the capital needed for the development drilling currently underway at
McElmo Dome and to fund working capital for general corporate purposes. In
addition, credit lines obtained by the Company from three trusts were extended
to become long-term, and the limits thereof were increased.
Effect of Reorganization on Liquidity. 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 "The 1993 Reorganization---Mandatory Redemptions of Beard
Preferred Stock."
Results of operations
General. The period of 1994-1996 was a time of transition for the Company.
Following the Reorganization in 1993, the Company shifted its focus to the
management of its non-oil and gas investments. During this period the Company
divested itself of its alternative fuels research and development activities and
in January 1997 decided to discontinue its real estate construction and
development activities. As a result, the corporate staff has devoted more
attention to the CO2 Segment and the E/RR Segment, which are considered to have
the greatest potential for growth and profitability, while liquidating assets no
longer in line with the Company's strategic objectives. Operating profit (loss)
for the Company's remaining principal segments for the three years was as set
forth below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating profit (loss):
Carbon dioxide $887,000 $502,000 $300,000
Environmental/resource recovery (757,000) (325,000) (254,000)
-------- -------- --------
Subtotal 130,000 177,000 46,000
Other - principally corporate (1,032,000) (992,000) (961,000)
---------- -------- --------
Total $(902,000) $(815,000) $(915,000)
========== ========= =========
</TABLE>
Following is a discussion of results of operations for the three year period
ended December 31, 1996.
Carbon dioxide. The primary component of revenues for this segment is the
sale of dry ice by Carbonics. A period of business acquisition and expansion in
1990 and 1991 led to a dramatic growth in market share in the following years,
which management believes made this segment the third largest producer of dry
ice in the United States. Subsequent to this expansion Carbonics divested
certain operations and focused its efforts on increasing its market share
within a more manageable geographic area. A core part of its strategy has been
the move from standard industry commodity-type sales into application niche
marketing. The resulting increase in market share is reflected in Carbonics'
revenues in the table below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Dry ice sales $12,209,000 $10,407,000 $9,697,000
Other sales and income 1,098,000 1,299,000 957,000
----------- ----------- ----------
Total sales $13,307,000 $11,706,000 $10,654,000
=========== =========== ===========
The success of Carbonics' niche marketing is reflected in the results of its
retail marketing division. The retail division, which markets Penguin BrandTM
dry ice, generates higher operating margins than Carbonics' overall margin and
has experienced rapid growth, with revenues increasing (i) 86% to $1.7 million
in 1994, (ii) 18% to $2.0 million in 1995 and (iii) 27% to $2.6 million in 1996.
A big contributor to increased sales in 1995 was revenue generated from a
take-or-pay contract. The large increase in 1995 was attributable to the
resolution in 1994 of a take-or-pay contract that had been in dispute during
1992 and 1993. In February 1996, Carbonics and the other party to the
agreement reached a settlement of the take-or-pay contract. Carbonics received
cash and assets totaling approximately $939,000 which the Company recorded as
a gain and is reflected in the 1996 Statement of Operations as other income.
The settlement terminated the take-or-pay contract.
Results of operations for the CO2 Segment reflected an operating profit of
$887,000 for 1996, $502,000 for 1995 and $300,000 for 1994. In addition to the
increased revenues, cost-cutting measures implemented since 1994 contributed to
the improved operating margins. Carbonics' operating margin has improved from
3.2% in 1994 to 3.4% in 1995 and 5.3% in 1996.
The other component of revenues from this segment is the sale of CO2 gas from
the Company's working interests in two producing CO2 gas units in Colorado and
New Mexico. CO2 sales in 1996 increased 43% from 1995, which was caused by
production gains offset by a slight decrease in CO2 prices. CO2 sales in 1995
increased 58% over 1994's level, reflecting a slight increase in price and an
increase in production due to a change in allocation of sales from one of the
units to make up the Company's underproduced status. Operating margins for
these activities have improved, going from a loss of $46,000 in 1994 to
earnings of $108,000 in 1995 and earnings of $184,000 in 1996.
Environmental/resource recovery. Following the 1993 Reorganization the
Company redirected the activities of its oilfield services subsidiaries to focus
upon environmental services activities. Another subsidiary was activated in
1994 to assist in the marketing effort for such activities. An additional
subsidiary focuses on the commercial development of the Company's proprietary
coal technology. HDT, which utilizes trenchless technology for environmental
remediation purposes, was acquired in 1996. Another subsidiary has been added
in 1997 which utilizes a chemical for which it is the sole U.S. licensee of a
process for the remediation of creosote.
Collectively, this group of companies provides a wide range of environmental
services and resource recovery activities. Revenues for this segment have
decreased, falling from $3,212,000 in 1994 to $3,026,000 in 1995 and $3,009,000
in 1996. The 1995 decline resulted from the sale in May of 1994 of certain
technologies in this segment. The 1996 decline was caused primarily by a severe
decline in revenues during the first half of the year resulting from the
suspension of several jobs by a state agency. The first half decline was
largely offset by revenues generated by HDT during the last half of the year.
The proprietary Mulled Coal technology retained by Beard Technologies, Inc.
("BTI") at the time of the EI sale generated $139,000 in revenue and $13,000 of
the segment's operating loss during 1995. Following the completion of the DOE
contract in the first quarter of 1996 BTI spent the remainder of the year
determining the best way to market its new technology. As a result, BTI
generated operating losses for the remainder of the year which adversely
affected the E/RR Segment's operating results.
Other activities. Other activities include general and corporate operations,
as well as assets unrelated to the Company's principal lines of business or held
for investment. These activities generated an operating loss of $1,032,000 in
1996, as compared to losses of $992,000 in 1995 and $961,000 in 1994. A
decrease in revenues generated by the corporate group and an increase in legal
expenses associated with negotiating a settlement with preferred stockholders
were the main factors contributing to the increased loss in 1995. A higher
level of general and administrative expenses also impacted the bottom line in
1996 as the Company continued to pursue additional business opportunities.
Depreciation, depletion and amortization. The Company's depreciation,
depletion and amortization expenses increased 13.7% in 1996 over 1995's expense
and 4.9% in 1995 over 1994's expense. These increases were a consequence of the
higher depreciable base which resulted from the expansions and capital
expenditures made within the CO2 and E/RR Segments. The acquisition of HDT in
May of 1996 also contributed to the increased DD&A in 1996.
Other expenses, including impairment. The 1996 Settlement resulted in
$939,000 of other income to the Company. In 1996 and 1995, the Company
recognized other expenses of $78,000 and $152,000, respectively, consisting of
impairment of the carrying value of certain assets held for investment, as well
as expenses incurred in evaluating investments that did not materialize. In
1995, these expenses were offset by the recognition of $220,000 of income
received from an escrow related to a previous reorganization. In 1994, the
Company recorded a $426,000 impairment provision of the carrying value of
certain long-term investments outside of the Company's three Segments. The
provision primarily resulted from the expectation at that time of continued low
iodine prices.
Selling, general and administrative expenses. Selling, general and
administrative expenses ("SG&A") increased to $4.1 million in 1996 from $3.6
million in 1995 and $3.5 million in 1994. SG&A expense incurred by the CO2
Segment during 1996, which represents 54% of SG&A costs, increased by $354,000
over 1995's expense and increased by $123,000 in 1995 over 1994's costs.
However, as a percentage of the CO2 Segment's revenues, these expenses fell from
16.1% in 1994 to 15.6% in 1995 and increased to 16.2% in 1996. Within the
remaining segments, reductions in SG&A resulting from the sale of EI in 1994
were offset by expansions in the E/RR Segment and the heavier corporate and
other overhead burden after the 1993 Reorganization.
Interest expense. Net interest expense has increased steadily from $93,000
in 1994 to $138,000 in 1995 and to $241,000 in 1996. Such increases reflect
the higher level of debt incurred by the CO2 and E/RR Segments as they have
added additional equipment.
Gain on sale of assets. In 1996, the gain on the sale of assets reflected
proceeds from the sale of certain assets which are in the process of being
liquidated, principally drilling rigs and related equipment. These activities
generated gains of $171,000 in 1996, $423,000 in 1995 and $63,000 in 1994. 1995
also benefited from a $188,000 gain from the sale of a branch operation by
Carbonics, while 1994 recorded a gain of $1.94 million from the sale of
technologies from the E/RR Segment.
Income taxes. The Company has approximately $73.1 million of net operating
loss carryforwards, investment tax credits, and depletion carryforwards to
reduce future income taxes. Based on the Company's historical results of
operations, it is not likely that the Company will be able to realize the
benefit of its net operating loss carryforwards and investment tax credit
carryforwards before they begin to expire in 2001 and 1997, respectively. At
December 31, 1996 and 1995, the Company has not reflected as a deferred tax
asset any future benefit it may realize as a result of its tax credits and
loss carryforwards. Future regular taxable income of the Company will be
effectively sheltered from tax as a result of the Company's substantial tax
credits and loss carryforwards. The Company paid $5,000 in alternative minimum
tax as the result of operations for 1994. It is anticipated that the Company
will continue to incur minor alternative minimum tax in the future, despite
the Company's carryforwards and credits.
Discontinued operations. As previously noted, the Company discontinued its
real estate construction and development activities in January of 1997 in order
to focus its attention on other segments which are considered to have greater
potential for growth and profitability. During 1996 the Company sold three
homes in The Oaks development adjacent to the Oak Tree Golf Club in Edmond,
Oklahoma, compared to six and eleven homes sold in 1995 and 1994, respectively.
As of March 13, 1997, the Company had sold all of the real estate construction
and development assets (the "Assets") with the exception of three speculative
homes. One of these is under contract for closing on March 21, 1997, and
another is under contract for closing on May 30, 1997, leaving one home
remaining to be sold.
The Company estimated and accrued $180,000 at December 31, 1996, representing
the difference in the estimated amounts to be received from disposing of the
Assets and the Assets' recorded value at December 31, 1996. Operating results
of the discontinued operations through the date of sale of all remaining assets
are not expected to be significant.
Forward looking statements. The previous discussions include statements that
are not purely historical and are "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, including statements regarding the Company's expectations, hopes, beliefs,
intentions and strategies regarding the future. The Company's actual results
could differ materially from its expectations discussed herein.
Impact of Recently Issued Accounting Standards
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities ("SFAS No. 125"). SFAS
No. 125 is effective for certain transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996. It is
effective for other transfers of financial assets occurring after December 31,
1997. It is to be applied prospectively. SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial-components
approach that focuses on control. It distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings. Management
of the Company does not expect that adoption of SFAS No. 125 will have a
material impact on the Company's financial position or results of operations.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 96-1, "Environmental Remediation Lia-
bilities." SOP 96-1 was adopted by the Company on January 1, 1997. It
requires, among other things, that environmental remediation liabilities be
accrued when the criteria of SFAS No. 5, "Accounting for Contingencies," have
been met. SOP 96-1 also provides guidance with respect to the measurement of
the remediation liabilities. Such accounting is consistent with the Company's
current method of accounting for environmental remediation costs. Therefore,
adoption of SOP 96-1 will not have a material impact on the Company's
financial position or results of operations.
Item 8. Financial Statements and Supplementary Data
The Beard Company and Subsidiaries
Index to Financial Statements
Forming a Part of Form 10-K Annual Report
to the Securities and Exchange Commission
Page Number
Independent Auditors' Report
Financial Statements:
Balance Sheets, December 31, 1996 and 1995
Statements of Operations, Years ended December 31, 1996, 1995 and 1994
Statements of Shareholders' Equity, Years ended December 31, 1996,
1995 and 1994
Statements of Cash Flows, Years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements, December 31, 1996, 1995 and 1994
Financial statement schedules are omitted as inapplicable or not required,
or the required information is shown in the financial statements or in the
notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The Beard Company:
We have audited the financial statements of The Beard Company and
subsidiaries as listed in the accompanying index. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Beard Company and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1996 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Oklahoma City, Oklahoma
March 19, 1997
<PAGE>
</TABLE>
<TABLE>
THE BEARD COMPANY AND SUBSIDIARIES
Balance Sheets
<CAPTION>
December 31, December 31,
Assets 1996 1995
--------------------- --------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 375,000 $ 220,000
Accounts receivable, less allowance
for doubtful receivables of $71,000
in 1996 and $43,000 in 1995 2,405,000 2,259,000
Inventories 2,003,000 2,282,000
Prepaid expense 442,000 329,000
Other assets 73,000 72,000
--------------------- --------------------
Total current assets (notes 8 and 9) 5,298,000 5,162,000
Investments and other assets 1,710,000 1,935,000
Property, plant and equipment, at cost 16,793,000 14,291,000
Less accumulated depreciation, depletion
and amortization 8,094,000 7,133,000
--------------------- --------------------
Net property, plant and equipment
(notes 6 and 9) 8,699,000 7,158,000
Intangible assets, at cost 4,305,000 3,795,000
Less accumulated amortization 3,539,000 3,435,000
--------------------- ---------------------
Net intangible assets (notes 7 and 9) 766,000 360,000
--------------------- ---------------------
$ 16,473,000 $ 14,615,000
===================== =====================
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable $ 1,395,000 $ 1,354,000
Accrued expense and other liabilities 609,000 342,000
Short-term debt (note 8) 639,000 957,000
Current maturities of long-term debt (note 9) 910,000 520,000
--------------------- --------------------
Total current liabilities 3,553,000 3,173,000
--------------------- --------------------
Long-term debt less current maturities (note 9) 2,911,000 1,454,000
Minority interest in consolidated subsidiaries 153,000 -
Redeemable preferred stock of $100 stated value;
5,000,000 shares authorized; 90,156 shares issued
and outstanding in 1996 and 995, respectively
(notes 1 and 4) 1,200,000 1,200,000
Common shareholders' equity:
Common stock of $.001 par value per share;
10,000 shares authorized; 2,799,074 and
2,730,830 shares issued and outstanding in
1996 and 1995, respectively 3,000 3,000
Capital in excess of par value 41,629,000 41,446,000
Accumulated deficit (32,976,000) (32,661,000)
----------------------- ---------------------
Total common shareholders' equity 8,656,000 8,788,000
----------------------- ---------------------
Commitments and contingencies (notes 4,
11, and 15)
$ 16,473,000 $ 14,615,000
======================= =====================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Operations
<CAPTION>
Year Ended December 31,
--------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Carbon dioxide $ 13,608,000 $ 11,915,000 $ 10,787,000
Environmental/resource
recovery 3,009,000 3,026,000 3,212,000
Other 66,000 71,000 124,000
------------- ------------- -------------
16,683,000 15,012,000 14,123,000
Expenses:
Carbon dioxide 9,478,000 8,598,000 7,822,000
Environmental/resource
recovery 2,642,000 2,420,000 2,562,000
Selling, general and
administrative 4,079,000 3,560,000 3,486,000
Depreciation, depletion, and
amortization 1,309,000 1,151,000 1,097,000
Other 77,000 98,000 71,000
------------- ------------- -------------
17,585,000 15,827,000 15,038,000
Operating profit (loss):
Carbon dioxide 887,000 502,000 300,000
Environmental/resource
recovery (757,000) (325,000) (254,000)
Other, principally corporate (1,032,000) (992,000) (961,000)
------------- ------------- -------------
(902,000) (815,000) (915,000)
Other income (expense):
Interest income 18,000 25,000 20,000
Interest expense (259,000) (166,000) (116,000)
Equity in net loss of
unconsolidated affiliates (42,000) (13,000) (41,000)
Gain on sale of assets (note 5) 171,000 423,000 2,001,000
Gain on take-or-pay contract
settlement (note 10) 939,000 - -
Other, including impairment of
investments (78,000) 68,000 (441,000)
Minority interest in operations of
consolidated subsidiaries 13,000 - -
------------- ------------- -------------
Earnings (loss) from continuing operations
before income taxes (140,000) (478,000) 508,000
Income taxes from continuing operations
(note 12) - - (5,000)
------------- ------------- -------------
Earnings (loss) from continuing
operations (140,000) (478,000) 503,000
Discontinued operations (notes 1 and 2):
Earnings from operations of
discontinued real estate
construction and development
activities 5,000 75,000 214,000
Loss from discontinuing real estate
construction and development
activities (180,000) - -
------------- ------------- -------------
Earnings (loss) from discontinued
operations (175,000) 75,000 214,000
------------- ------------- -------------
Net earnings (loss) $ (315,000) $ (403,000) $ 717,000
============= ============= =============
Net earnings (loss) attributable to
common shareholders $ (315,000) $ (454,000) $ 659,000
============= ============= =============
Net earnings (loss) per common share
(primary EPS) (note 1):
Earnings (loss) from continuing
operations $ (0.05) $ (0.20) $ 0.17
Earnings (loss) from discontinued
operations (0.06) 0.03 0.08
Net earnings (loss) (0.11) (0.17) 0.25
Net earnings (loss) per common share
assuming maximum dilution (fully
diluted EPS) (note 1):
Earnings (loss) from continuing
operations $ (0.05) $ (0.20) $ 0.14
Earnings (loss) from discontinued
operations (0.06) 0.03 0.07
Net earnings (loss) (0.11) (0.17) 0.21
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<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, 1993 $3,000 $41,379,000 ($32,975,000) $8,407,000
Net earnings, year ended
December 31, 1994 - - 717,000 717,000
Accretion of discount on
preferred stock - (58,000) - (58,000)
-------- ------------- ------------- -------------
Balance, December 31, 1994 3,000 41,321,000 (32,258,000) 9,066,000
Net loss, year ended
December 31, 1995 - - (403,000) (403,000)
Accretion of discount on
preferred stock - (51,000) - (51,000)
Issuance of 78,700 shares
of common stock - 176,000 - 176,000
-------- ------------- ------------- ------------
Balance, December 31, 1995 3,000 41,446,000 (32,661,000) 8,788,000
Net loss, year ended
December 31, 1996 - - (315,000) (315,000)
Issuance of 68,244
shares of common stock - 183,000 - 183,000
-------- ------------- ------------- ------------
Balance, December 31, 1996 $3,000 $41,629,000 ($32,976,000) $ 8,656,000
======== ============= ============= ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
THE BEARD COMPANY AND SUBSIDIARIES
Statement of Cash Flows
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Operating activities:
Cash received from customers $ 17,763,000 $ 16,564,000 $ 17,136,000
Cash paid to suppliers and
employees (17,045,000) (16,741,000) (17,129,000)
Cash received from settlement
of take-or-pay contract 539,000 - -
Interest received 15,000 28,000 23,000
Interest paid (348,000) (265,000) (215,000)
Net cash provided by (used in) ----------------- ---------------- ---------------
activities 924,000 (414,000) (185,000)
----------------- ---------------- ---------------
Investing activities:
Acquisition of property, plant
and equipment (1,765,000) (1,035,000) (1,145,000)
Proceeds from sale of assets 434,000 317,000 2,428,000
Proceeds from escrowed or restricted cash - 220,000 -
Other investments 128,000 (397,000) (65,000)
Net cash provided by (used in) ------------------ ---------------- --------------
investing activities (1,203,000) (895,000) 1,218,000
------------------ ---------------- --------------
Financing activities:
Proceeds from line of credit
and term notes 3,728,000 3,195,000 898,000
Payments on line of credit and
term notes (3,331,000) (2,351,000) (2,109,000)
Other 37,000 119,000 -
------------------ ------------------ --------------
Net cash provided by (used in)
financing activities 434,000 963,000 (1,211,000)
------------------ ------------------ -------------
Net increase (decrease) in cash
and cash equivalents 155,000 (346,000) (178,000)
Cash and cash equivalents at
beginning of year 220,000 566,000 744,000
------------------ ------------------ -------------
Cash and cash equivalents at
end of year $ 375,000 $ 220,000 $ 566,000
================== ================== =================
</TABLE>
<PAGE>
<TABLE>
THE BEARD COMPANY AND SUBSIDIARIES
Statement of Cash Flows
Reconciliation of Net earnings (loss) to Net cash provided by (used in)
operating activities
Year Ended December 31,
---------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Net earnings (loss) $ (315,000) $ (403,000) $ 717,000
Adjustments to reconcile net
earnings (loss) to net cash
provided by (used in) operating
activities:
Loss from discontinuing operations 180,000 - -
Depreciation, depletion and amor-
tization 1,313,000 1,158,000 1,102,000
Gain on sale of assets (171,000) (423,000) (2,001,000)
Provision for uncollectible
accounts and notes 28,000 54,000 27,000
Provision for impairment of
other assets and investments 180,000 102,000 441,000
Interest capitalized on real
estate project (94,000) (81,000) (88,000)
Gain on take-or-pay contract
settlement (400,000) - -
Equity in net loss of unconsoli-
dated affiliates 42,000 13,000 41,000
Other (75,000) (105,000) 52,000
--------------- --------------- -------------
Net cash provided by operations
before changes in current assets
and liabilities, net of effects
of acquired companies 688,000 315,000 291,000
Increase in accounts receivable,
prepaid expenses and other current
assets (114,000) (266,000) (285,000)
(Increase) decrease in inventories 134,000 (221,000) 501,000
Increase (decrease) in trade accounts
payables, accrued expenses and other
liabilities 216,000 (242,000) (692,000)
--------------- --------------- ------------
Net cash provided by (used in)
operating activities $ 924,000 $ (414,000) $(185,000)
=============== =============== ============
Supplemental Schedule of Noncash Investing and Financing Activities
Purchase of property, plant and
equipment and intangible assets
through issuance of debt obli-
gations $ 889,000 $ 487,000 $ 435,000
================ =============== ============
Purchase of business for note
payable subsequently converted
to common stock $ 138,000 $ - $ -
================ =============== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
(1) Summary of Significant Accounting Policies
The Beard Company's ("Beard" or the "Company") accounting policies reflect
industry practices and conform to generally accepted accounting principles. The
more significant of such policies are briefly described below.
Nature of Business
The Company currently operates within two major industry segments: (1) the
carbon dioxide ("CO2") segment, comprised of (a) the manufacture and distribu-
tion of dry ice (solid CO2) and (b) the exploration for and production of CO2;
and (2) the environmental/resource recovery ("E/RR") segment, consisting of
environmental services and resource recovery activities. The Company also
operated in the real estate construction and development segment which was
discontinued in January 1997. The Company also has other operations,
including a minority-owned investment in a joint venture for the extraction,
production and sale of crude iodine. Prior to the 1993 Reorganization
discussed in note 4, the Company also operated in the oil and gas explora-
tion and production and oilfield services industries.
Principles of Consolidation and Basis of Presentation
The accompanying financial statements include the accounts of the Company and
its wholly and majority owned subsidiaries and those subsidiaries in which the
Company has a controlling financial interest. All significant intercompany
transactions have been eliminated in the accompanying financial statements.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers investments
in securities whose remaining terms at date of purchase are less than 90 days to
be cash equivalents.
Inventories
Inventories represent primarily the costs associated with the residential real
estate construction and development project which was discontinued by the
Company (see note 2 below) and CO2 tunnel freezers constructed by a subsidiary
of the Company in the carbon dioxide segment. On December 31, 1996, the real
estate inventory is carried at net realizable value. See note 2 below. Prior
to 1996, the inventory was carried at cost on a specific cost basis, not
exceeding net realizable value. The costs associated with the acquisition,
development and construction of the real estate project were capitalized in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 67,
"Accounting for Costs and Initial Rental Operations of Real Estate Projects."
Accordingly, during 1996, 1995, and 1994, general and administrative costs that
relate directly to the project of $30,000, $162,000, and $169,000, respectively,
were capitalized as inventory costs, and at December 31, 1996, and 1995,
inventories included approximately $209,000 and $239,000 respectively, of such
costs. The Company also capitalizes interest costs during the construction
phase of the project and in 1996, 1995, and 1994, capitalized interest costs of
$94,000, $81,000 and $88,000, respectively.
The CO2 tunnel freezers are carried on a specific cost basis, not exceeding net
realizable value. Net realizable value of the CO2 tunnel freezers has been
established by recent sales which are in excess of costs.
Investments
Investments are accounted for principally by the use of the equity method, and
consist primarily of a 40% interest in North American Brine Resources ("NABR"),
a joint venture which extracts iodine from saltwater brine, notes receivable
from companies involved in the environmental/resource recovery industry, and 10%
to 32% interests in certain real estate limited partnerships for which the
Company does not serve as general partner. The summarized financial position
and operating results of NABR for each of the three years ended December 31,
are as follows (unaudited):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current assets $ 699,000 $ 241,000 $ 303,000
Noncurrent assets 3,779,000 3,803,000 3,971,000
Current liabilities 367,000 122,000 88,000
Noncurrent liabilities 630,000 - -
----------- ----------- -----------
Venture equity $3,481,000 $3,922,000 $4,186,000
=========== =========== ===========
Net sales 256,000 282,000 211,000
Gross margin (deficit) 95,000 102,000 (48,000)
Net loss ($441,000) ($264,000) ($377,000)
=========== ========== ==========
</TABLE>
The Company's carrying value of its investment in NABR on December 31, 1996 was
approximately $1,059,000, or $318,000 less than its 40% ownership in the
underlying equity of NABR. During 1994, the Company recorded a provision of
$408,000 for economic impairment of its investment to reflect the effects of
continued lower iodine prices and reduced estimated future cash flows. No
additional provision for impairment has been required since 1994.
The Company's equity in other investees' operations and net assets is not
material to the Company's results of operations or financial position. In 1996,
the Company recorded a provision of $180,000 for economic impairment of an
unsecured note held by the Company in a research and development entity.
Property, Plant and Equipment
Property, plant and equipment are depreciated by use of the straight-line method
using estimated asset lives of 3 to 20 years. Depreciation, depletion and
amortization of properties producing CO2 are computed by the units-of-production
method using estimates of unrecovered proved developed CO2 reserves.
The Company charges maintenance and repairs directly to expense as incurred
while betterments and renewals are generally capitalized. When property is
retired or otherwise disposed of, the cost and applicable accumulated deprecia-
tion, depletion and amortization are removed from the respective accounts and
the resulting gain or loss is reflected in operations.
Intangible Assets
Identifiable intangible assets, comprised primarily of acquired customer lists,
covenants not to compete, and patents, are amortized on a straight-line basis
over their respective estimated useful lives, ranging from five to 17 years.
The excess of acquisition cost over the fair value of net assets acquired
(goodwill) is amortized on a straight-line basis over the expected periods to be
benefited, generally, ten years. Intangible assets are evaluated periodically,
and if conditions warrant, an impairment valuation allowance is provided.
The Company assesses recoverability of its intangible assets under the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of."
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Assets to be Disposed Of," on January 1,
1996. This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
Fair value of financial instruments
The carrying amounts of the Company's cash and cash equivalents, accounts
receivable, other current assets, trade accounts payables, accrued expenses and
short-term debt approximate fair value because of the short maturity of those
instruments. At December 31, 1996 and 1995, the fair value of the long-term
debt was not significantly different than the carrying value of that debt.
Use of estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
As such, compensation expense was recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net earnings and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS
No. 123.
Mandatorily Redeemable Preferred Stock
The Company's preferred stock is accounted for at fair value at the date of
issuance as determined by independent appraisal. The excess of the estimated
redeemable value over the fair value at the date of issuance is accreted over
the redemption term. The carrying value of the preferred stock is increased
annually for the estimated accretion with a corresponding reduction of
capital in excess of par value of common stock. The accretion of carrying
value decreases net income or increases net loss for purposes of calculating
net income (loss) attributable to common shareholders.
Earnings (Loss) Per Share
Loss per common share for 1996 and 1995 was determined by dividing the net loss
attributable to common shareholders by the weighted average number of shares of
common stock outstanding (2,756,094 and 2,662,048 shares in 1996 and 1995,
respectively) during the periods. The calculations do not include common
equivalent shares or potentially dilutive securities outstanding, as the effect
would be antidilutive.
Earnings per common share calculations for 1994 were based on the earnings
attributable to common shareholders and include the potential dilution resulting
from the conversion of the preferred stock to common stock. The number of
common shares used in calculating fully diluted earnings per share for 1994
includes both the average common shares outstanding and the common shares that
would result from the assumed beginning of year conversion of the preferred
shares excluding those preferred shares redeemable from earnings through the
year ended December 31, 1994.
Shares entering into the 1994 computation were:
<TABLE>
<CAPTION>
1994
----
<S> <C>
Average common shares outstanding 2,652,000
Assumed preferred stock conversion 465,000
---------
Shares used in fully diluted computation 3,117,000
=========
</TABLE>
Research and Development
The Company develops dry ice freezing equipment for the food processing industry
and also develops machinery for the efficient handling of dry ice products. The
Company expensed $116,000, $186,000, and $45,000 in 1996, 1995 and 1994,
respectively, related to such development efforts which included the costs of
materials, personnel expense, facilities rental, and other direct expenses.
Reclassifications
Certain 1995 and 1994 balances have been reclassified to conform with the 1996
presentation.
(2) Discontinued Real Estate Construction and Development Operations
As a result of the Company's plan to dispose of the assets of its real estate
construction and development segment, results of the real estate construction
and development segment have been reported as discontinued operations in the
accompanying statements of operations. Prior year financial statements have
been reclassified to present the real estate construction and development
segment as discontinued operations. Revenues applicable to discontinued
operations were $1,083,000, $1,949,000 and $3,358,000 in 1996, 1995 and 1994,
respectively.
As of December 31, 1996, the significant assets of the real estate construction
and development segment include 19 undeveloped lots, a business office and four
completed speculative homes and other real estate construction and development
assets valued at approximately $1,739,000. The significant liabilities of the
real estate construction and development segment consisted of short-term
obligations, accounts payable and accrued expenses of $710,000.
The 1996 statement of operations includes a loss from discontinuing real estate
construction and development activities of $180,000 which represents the
difference in the estimated amounts to be received from disposing of the real
estate construction and development assets and the assets' recorded values as
of December 31, 1996. Operating results of the discontinued operations through
the date of sale of all remaining assets are not expected to be significant.
Subsequent to December 31, 1996, the Company sold one completed speculative home
for $336,000, which approximated the estimated value of the home. Also, on
March 13, 1997, the Company sold the 19 undeveloped lots, the business office
and other real estate construction and development assets for $619,000, which
approximated the Company's estimated disposition values of these assets.
The Company expects to dispose of the three remaining completed speculative
homes by December 31, 1997 at their recorded values as of December 31, 1996.
(3) Acquisition
On May 21, 1996, the Company acquired 80% of the outstanding common stock of
Horizontal Drilling Technologies, Inc. ("HDT") for $482,000. HDT utilizes
trenchless technology and specializes in directional drilling for utility,
underground cable and environmental remediation projects. The purchase price
consisted of a non-interest bearing contingent payment obligation, a non-
interest bearing $150,000 note, convertible at the option of the holder into
common stock of the Company, and 20% of the Company's ownership in an existing
subsidiary involved in environmental/resource recovery operations. The
contingent payment obligation is payable only from 80% of specified cash flows
of HDT and the existing environmental/resource recovery subsidiary and was
recorded based upon its estimated present value. The non-interest bearing note
was also recorded at its present value and was converted into the Company's
common stock subsequent to the acquisition. The fair value of the net
identifiable assets of HDT approximated $143,000 on the acquisition date. The
excess of the purchase price over the fair value of the net identifiable assets
acquired has been recorded as goodwill and is being amortized on a straight-line
basis over ten years. The acquisition has been accounted for by the purchase
method and accordingly, the results of operations of HDT have been included in
the Company's financial statements from May 21, 1996.
Had the Company acquired HDT as of January 1, 1995, revenues, loss from
continuing operations, net loss and related per share amounts on a pro forma
basis for 1996 and 1995 would not have been materially different than 1996 and
1995 amounts reported in the accompanying statements of operations.
(4) Redeemable Preferred Stock
In 1992, Beard Oil Company ("Beard Oil"), which was then the Company's parent,
defaulted on two interest payments and on several restrictive financial
covenants in connection with its senior debt, and the Lenders declared $85
million of debt, together with accrued and deferred interest, immediately
due and payable. After lengthy negotiations, various agreements (the
"Agreements") were signed in July 1993 and consummated in October 1993
(the Reorganization). As a result: (i) a company (Sensor Oil & Gas, Inc.
("Sensor")) owned by the Lenders purchased substantially all of Beard Oil's
oil and gas assets and assumed a portion of Beard Oil's indebtedness; (ii)
Beard Oil was released from any remaining obligations thereunder; (iii) the
Company replaced Beard Oil as the publicly held company and the owner of the
former assets of Beard Oil not transferred to Sensor; (iv) Beard Oil became
a wholly-owned subsidiary of the Company; (v) the former shareholders of
Beard Oil received 75% of the Company's common stock; (vi) the Lenders
received 25% of the Company's outstanding common stock and $9,125,000
stated value, or 100%, of the Company's outstanding Series A redeemable
convertible zero coupon preferred stock.
Under the terms of a Settlement Agreement executed in April, 1995 (the
"Settlement"), the Company released Sensor from certain obligations under the
Agreements, and the Company was relieved from some of the mandatory redemption
obligations in connection with (i) certain asset sales or the issuance of equity
securities and (ii) future acquisitions financed by debt or preferred stock.
The Agreements, as modified by the Settlement, result in the Company's preferred
stock being convertible by the Lenders into as much as 14.18% of the Company's
common stock on a fully diluted basis. Such preferred stock is mandatorily
redeemable through December 31, 2002 by the Company from one-third of the
Company's consolidated net income, as defined in the Agreements, payable within
90 days of the end of the Company's fiscal year. To the extent not redeemed,
the preferred stock may be convertible by the Lenders after December 31, 2002
into as much as 14.18% of the Company's common stock on a fully diluted basis.
The common stock held by the Lenders gives them 20.33% of the voting power of
Beard and an additional 14.18% through their preferred stock ownership, for a
total of 34.51% of the total outstanding voting stock of the Company. As of
the Reorganization date and at December 31, 1996 and 1995, the fair value of
the mandatorily redeemable preferred stock was estimated to be approximately
$1,200,000.
As of December 31, 1994, Sensor owed the Company $51,000 for plugging work
completed on retained oil and gas leases as previously discussed. As a result
of the Settlement, the amount owed by Sensor was canceled and an equivalent
amount of preferred stock was redeemed. Any additional payments made by the
Company for certain other contingent liabilities related to the Reorganization,
up to $250,000, will be treated as redemptions of shares of preferred stock.
(5) Sale of Assets
On May 5, 1994, the Company sold certain technologies of the
environmental/resource recovery segment for cash and also received repayment of
advances made to the alternative fuels research and development segment. The
transaction resulted in a gain of approximately $1,936,000. The Company
retained other research and development technology within the segment which the
Company is continuing to develop. During 1996, 1995, and 1994, the Company also
sold drilling rigs and related equipment and in 1995 sold a dry ice branch.
(6) Property, Plant and Equipment
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995
--------------- ----------------
<S> <C> <C>
Carbon dioxide:
Buildings, machinery and equipment $ 9,639,000 $ 8,182,000
Proved properties, projects in
progress, and unproved properties 2,811,000 2,742,000
Other depreciable assets 942,000 958,000
Land 64,000 14,000
----------- -----------
13,456,000 11,896,000
----------- -----------
Other operating segment and
corporate assets:
Other depreciable assets 2,912,000 1,970,000
Land 425,000 425,000
----------- -----------
3,337,000 2,395,000
----------- -----------
$16,793,000 $14,291,000
=========== ===========
</TABLE>
Accumulated depreciation, depletion and amortization and valuation allowances
are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
------------ -------------
<S> <C> <C>
Carbon dioxide:
Buildings, machinery and equipment $3,637,000 $2,976,000
Proved properties, projects in
progress, and unproved properties 2,476,000 2,452,000
Other depreciable assets 595,000 535,000
----------- ----------
6,708,000 5,963,000
Other operating segment and
corporate depreciable assets 1,386,000 1,170,000
---------- ----------
$8,094,000 $7,133,000
========== ==========
</TABLE>
(7) Intangible Assets
Intangible assets are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Carbon dioxide:
Covenants not to compete $1,728,000 $1,728,000
Acquired customer lists 943,000 943,000
Costs in excess of fair value
of net assets acquired 561,000 561,000
Other intangible assets, including
patents 397,000 369,000
---------- ----------
3,629,000 3,601,000
Other intangible assets, principally
goodwill 676,000 194,000
---------- ----------
$4,305,000 $3,795,000
========== ==========
</TABLE>
Accumulated amortization is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Carbon dioxide:
Covenants not to compete $1,728,000 $1,726,000
Acquired customer lists 921,000 907,000
Costs in excess of fair value
of net assets acquired 351,000 295,000
Other intangible assets, including
patents 354,000 352,000
---------- ----------
3,354,000 3,280,000
Other intangible assets,
principally goodwill 185,000 155,000
---------- ----------
$3,539,000 $3,435,000
========== ==========
</TABLE>
(8) Short-term Debt
Short-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
Real estate construction and
development (a) $639,000 $782,000
Other (b) - 175,000
-------- --------
$639,000 $957,000
======== ========
</TABLE>
_______________
(a) Secured short-term notes payable to banks in connection with the Company's
real estate construction and development project are collateralized by
approximately $1,739,000 of inventory. Interest rates were 10.0% and 9.75% as
of December 31, 1996 and 1995, respectively.
(b) In 1995, three affiliates of the Company's Chairman of the Board of the
Directors entered into loan agreements with the Company. In 1996, the loans
were converted to long-term and the maturities were extended. In February 1997
the maturities were extended to February 1999. Therefore, in 1996 the debt
balance is included in long-term debt.
(9) Long-term Debt
Long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
Carbon dioxide (a) $1,479,000 $1,537,000
Environmental/resource recovery (b) 1,457,000 437,000
Corporate and other (c) 885,000 -
---------- ----------
$3,821,000 $1,974,000
========== ==========
</TABLE>
- ----------------
(a) Borrowings outstanding in the Company's CO2 segment include notes payable of
$379,000 and $569,000, at December 31, 1996 and 1995, respectively, which are
collateralized by property, plant and equipment with an approximate net book
value of $347,000 at December 31, 1996. Payments are generally due monthly with
interest rates ranging from 6.75% to 14.5%, with approximate weighted average
interest rates of 8.5% and 10.0% as of December 31, 1996 and 1995, respectively.
Also, included in the carbon dioxide segment's long-term debt are $1,100,000 and
$750,000 at December 31, 1996 and 1995, respectively, of borrowings under a line
of credit. $250,000 of the line of credit is due December 31, 1997 with the
remainder due April 30, 1998. The line of credit is secured by accounts
receivable and intangible assets and bears interest at 1% above the national
prime lending rate which approximated 8.25% at December 31, 1996.
Included in the long-term debt of the CO2 segment at December 31, 1995, was
approximately $218,000 of secured long-term debt due in 1996 with an affiliate
of an owner of Sensor. Such affiliate owns 11.15% of the Company's common and
47.06% of the Company's preferred stock, and thus holds 16.24% of the total
outstanding voting stock of the Company. The debt was paid by the Company in
1996.
(b) Borrowings outstanding in the Company's E/RR segment include $874,000 and
$137,000 at December 31, 1996 and 1995, respectively, of notes payable which are
collateralized by property, plant and equipment with an approximate net book
value of $964,000 at December 31, 1996. Payments are generally due monthly with
interest rates ranging from 4.9% to 16.6%, with approximate weighted average
interest rates of 9.5% and 9.0% as of December 31, 1996 and 1995, respectively.
Included in the E/RR segment's long-term debt are $282,000 and $300,000 at
December 31, 1996 and 1995, respectively, of borrowings under a line of credit.
The line of credit is due on April 30, 1997, and is secured by accounts
receivable and bears interest at 1/2% above the national prime lending rate,
which was 8.25% at December 31, 1996.
Long-term debt of the E/RR segment also includes a discounted $301,000 con-
tingent payment obligation payable to the former sole shareholder of HDT,
resulting from the Company's acquisition of 80% of HDT's outstanding common
stock. The contingent payment obligation is payable only from 80% of the
cash flows (prescribed under the contingent payment obligation agreement) of
HDT and another subsidiary of the Company in the environmental/resources
recovery segment. The maximum amount payable under the contingent payment
obligation is $483,000. The Company discounted the maximum contingent
payment obligation over its estimated repayment term using a 10% interest
rate.
(c) Borrowings outstanding for corporate and other operations include $680,000
due to affiliates of the Company's Chairman of the Board of Directors. The
loans were originally made in 1995, were extended in 1996, and extended again in
February 1997 to February 1999. In 1995, the obligation were recorded as short-
term debt. All of the loans are unsecured and bear interest at a rate of 10%
per annum.
Included in corporate and other operations long-term debt are $205,000 of
borrowings under a line of credit. The line of credit is due on April 30, 1998,
is secured by the Company's working and overriding royalty interests in certain
CO2 producing properties, is guaranteed by the Company's Chairman of the Board
of Directors and bears interest at 1% above the national prime lending rate
which was 8.25% at December 31, 1996.
The annual maturities of long-term debt at December 31, 1996 are $910,000 for
1997, $1,409,000 for 1998, $1,005,000 for 1999, $140,000 for 2000, and $107,000
in 2001.
(10) Settlement of Take-or-Pay Contract
During 1996, the Company negotiated a settlement of a take-or-pay contract under
which a customer was obligated to purchase certain volumes of liquid CO2. As a
result of the settlement, the Company received cash of $539,000 and assets with
an estimated fair value of $400,000 and the Company released the party of its
contractual obligation to purchase the contracted liquid CO2 volumes. The
Company realized a gain of $939,000 in 1996 relating to this settlement.
(11) Operating Leases
Noncancelable operating leases relate principally to distribution facilities,
warehouse and office space, vehicles and operating equipment. Future minimum
payments under such leases as of December 31, 1996 are summarized as follows:
1997 $555,000
1998 468,000
1999 231,000
2000 111,000
2001 29,000
--------
$1,394,000
==========
The $1,394,000 in future minimum payments consists primarily of $1,096,000 from
the CO2 segment.
Rent expense under operating leases aggregated $594,000 in 1996, $644,000 in
1995 and $506,000 in 1994.
(12) Income Taxes
The primary differences between the carrying values of the Company's assets for
financial and tax purposes result from the accounting methods used for impair-
ment of assets, depletion, depreciation and amortization of property and
equipment and debt restructuring.
As of December 31, 1996 and 1995, the Company's net deferred tax assets, before
valuation allowances, approximated $28,182,000 and $32,939,000, respectively.
Based on the results of the Company's operations, management does not believe
that it is more likely than not that the Company will be able to realize the
benefit of the net operating loss carryforwards and other deductions and credits
before expiration. The Company has fully allowed for the tax deferred assets
through a valuation allowance. In order to fully realize the net deferred tax
assets, before consideration of the valuation allowance, the Company would need
to generate future taxable income of approximately $76,000,000 prior to
expiration of the net operating loss carryforwards which will begin to expire in
2001 and investment tax credits which will expire from 1997 through 2000.
The 1994 income tax expense resulted from federal alternative minimum income
taxes. No regular current income tax expense was provided in any of the three
years ended December 31, 1996 due to the availability for regular income tax
reporting of net operating loss and depletion and investment tax credit
carryforwards.
The changes in the net deferred tax assets and valuation allowance were as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
Deferred Deferred
January 1, Expense December Expense December
1995 (Benefit) 31, 1995 (Benefit) 31, 1996
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deferred tax liability $ - $ 60 $ (60) $ 130 $ (190)
Deferred tax asset 33,551 552 32,999 4,627 28,372
------- ------ ------- -------- -------
Net deferred tax asset $33,551 $ 612 $32,939 $ 4,757 $28,182
Less valuation allowance 33,551 612 32,939 4,757 28,182
------- ------ ------- -------- -------
Deferred tax asset less
valuation allowance $ - $ - $ - $ - $ -
======= ====== ======= ======== =======
</TABLE>
At December 31, 1996, the Company had Federal regular tax operating loss
carryforwards of approximately $66.9 million that expire from 2001 to 2010,
investment tax credit carryforwards of approximately $679,000 that expire from
1997 to 2000, and tax depletion carryforwards of approximately $5.5 million.
These carryforwards may be limited if the Company undergoes a significant
ownership change.
(13) Employee Benefit Plan
Employees of the Company participate in a defined contribution plan with
features under Section 401(k) of the Internal Revenue Code. The purpose of the
Plan is to provide retirement, disability and death benefits for all full-time
employees of the Company who meet certain service requirements. The Plan
allows voluntary "savings" contributions up to a maximum of 15%, and the
employer matches 100% of each employee's contribution up to 5% of such
employee's compensation. Benefits payable under the plan are limited to
the amount of plan assets allocable to the account of each plan participant.
The Company retains the right to modify, amend or terminate the plan at any
time. During 1996, 1995 and 1994, the Company and its eligible subsidiaries
made matching contributions of $134,000, $116,000, and $100,000, respectively,
to the plan.
(14) Stock Option Plans
The Company has reserved 175,000 shares of its common stock for issuance to key
management, professional employees and directors under The Beard Company 1993
Stock Option Plan (the "1993 Plan") adopted in August 1993. The 1993 Plan is
administered by the Compensation and Stock Option Committee (the "Committee") of
the Board of Directors. The option price is determined by the Committee but
cannot be less than the fair market value of the common stock of the Company at
the date of grant for incentive stock options and 75% of fair market value of
the common stock for non-qualified options. All options have ten-year terms and
become exercisable one year after the date of grant at the rate of 25% each year
until fully exercisable. Directors who are not key management employees of the
Company or subsidiaries of the Company shall only be eligible to be granted
non-qualified stock options. At December 31, 1996, there were 22,500 additional
shares available for grant under the Plan.
The per share weighted-average fair value of stock options granted during 1996
was $1.66 on the date of grant using the Black Scholes option pricing model with
the following assumptions: no expected dividend yield, risk-free interest rate
of 6.73%, expected life of ten years, and expected volatility of 38.89%. No
options were granted in 1995.
The Company applies APB Opinion No. 25 in accounting for its stock options and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
net loss and net loss per common share would not have been materially different
than the 1996 amounts reflected in the accompanying statements of operations.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Number of Weighted-Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Balance at December 31, 1993 - $ -
Granted 145,000 2.01
Exercised - -
Forfeited - -
Expired - -
------- -----
Balance at December 31, 1994 145,000 $2.01
Granted - -
Exercised - -
Forfeited - -
Expired - -
------- -----
Balance at December 31, 1995 145,000 $2.01
Granted 12,500 2.63
Exercised (5,000) 2.00
Forfeited (5,000) 2.00
Expired - -
------- -----
Balance at December 31, 1996 147,500 $2.06
======= =====
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $2.00 - $2.63 and eight
years, respectively.
At December 31, 1996 and 1995, the number of options exercisable was 67,500 and
36,250 respectively, and the weighted-average exercise price of those options
was $2.01 for both years.
(15) Commitments and Contingencies
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.
The Company has contracts, which expire in April 2000, to purchase liquid CO2.
The contracts require that the Company purchase the lesser of 46,000 tons of
liquid CO2 or 50% of the Company's combined liquid CO2 requirements for certain
plants. The purchase price of the liquid CO2 is based on the contracts' base
year price adjusted annually for inflation. As of December 31, 1996, the
Company has estimated it will be required to purchase a minimum of $3,488,000
of liquid CO2 through the expiration date of the contracts. The Company's
required purchases under such contracts during each of the years ended December
31, 1996, 1995, and 1994 totaled $1,194,000, $801,000, and $856,000,
respectively.
(16) Business Segment Information
The Company operates principally within two industry segments: (1) the
manufacture and distribution of dry ice (solid CO2) and the production of
carbon dioxide ("CO2"); and (2) environmental/resource recovery.
The Company's carbon dioxide operations are comprised of its 85% owned
subsidiary, Carbonic Reserves, which owns a carbon dioxide liquification and
purification plant, five dry ice plants, 13 distribution centers, and operates
a sixth dry ice plant under a contractual arrangement. Carbon dioxide
operations are conducted in Arkansas, Colorado, Kansas, Missouri, New Mexico,
Oklahoma, Texas and Wyoming. Many of these operations are conducted in leased
premises. Also included in carbon dioxide operations is the ownership of
interests in two carbon dioxide producing units. The operations of the
environmental/resource recovery segment are conducted through two 80%-owned
subsidiaries, a 90%-owned subsidiary and a financially controlled subsidiary
headquartered in Oklahoma City, Oklahoma, as well as a wholly-owned sub-
sidiary headquartered in Pittsburgh, Pennsylvania.
The Company operates principally in only one geographic area, the United
States. Thus, all of its segment operations are domestic and it has no
significant export sales.
The Company and its subsidiaries grant credit, in the normal course of business,
to various entities within the industries they serve. Generally, no collateral
or other security is required of its customers. The Company and its sub-
sidiaries perform ongoing credit evaluations of its customers and maintain
allowances for potential bad debt losses.
Sales to unaffiliated customers, identifiable assets, depreciation, depletion
and amortization and additions to property, plant and equipment by industry
segment are presented in thousands of dollars:
<TABLE>
<CAPTION>
Environmental/ Corporate
Carbon Resource and Consolidated
Dioxide Recovery Other Company
------- -------- -------- ------------
<S> <C> <C> <C> <C>
1996
Sales to unaffiliated customers $13,608 $3,009 $ 66 $16,683
Operating profit (loss) 887 (757) (1,032) (902)
Depreciation, depletion and
amortization 1,008 267 34 1,309
Identifiable assets 9,475 3,268 3,730 16,473
Additions to property, plant and
equipment 1,978 1,138 15 3,131
1995
Sales to unaffiliated customers 11,915 3,026 71 15,012
Operating profit (loss) 502 (325) (992) (815)
Depreciation, depletion and
amortization 960 170 21 1,151
Identifiable assets 8,127 1,790 4,698 14,615
Additions to property, plant and
equipment 1,265 339 22 1,626
1994
Sales to unaffiliated customers 10,787 3,212 124 14,123
Operating profit (loss) 300 (254) (961) (915)
Depreciation, depletion and
amortization 933 147 17 1,097
Identifiable assets 7,708 1,218 4,930 13,856
Additions to property, plant and
equipment 1,252 352 46 1,650
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable
PART III
Item 10. Directors, Executive Officers and Significant Employees of the
Registrant.
The directors, executive officers and significant employees of the Company
are identified below. The table sets forth the age, positions with the
Company and the year in which each person became a director, executive officer
or significant employee. All positions are held with the Company unless
otherwise indicated.
<TABLE>
<CAPTION>
Director, Executive
Officer or Significant
Employee of Beard
Name Position or Beard Oil Since Age
- ---- -------- ---------------------- ---
<S> <C> <C> <C>
W. M. Beard Chairman of the Board,
Chief Executive Officer
and Director (a) June 1969 68
Herb Mee, Jr. President,
Chief Financial Officer
and Director (a) November 1973 68
Allan R. Hallock Director December 1986 67
W. R. Plugge Director September 1986 72
Ford C. Price Director March 1988 59
Michael E. Carr Director (b) February 1994 61
Clifford H.
Collen, Jr. President - Carbonic
Reserves (c,f) August 1987 40
Marc A. Messner President - Whitetail
Services, Inc. (d,f) &
Horizontal Drilling
Technologies, Inc. (d,f) February 1997 34
Philip R. Jamison President - Beard
Technologies, Inc. (e,f) February 1997 58
Philip W. Stack Vice President -
Corporate Development
and Treasurer (a) January 1982 50
Jack A. Martine Controller and Chief
Accounting Officer October 1996 47
_______________
</TABLE>
(a) Director of the Company.
(b) Trustee of certain assets of the Company's 401(k) Trust.
(c) Devotes all of his time to Carbonic Reserves.
(d) Devotes all of his time to these two subsidiaries.
(e) Devotes all of his time to Beard Technologies, Inc.
(f) Indicated entities are subsidiaries of the Registrant.
The executive officers and other officers of the Company serve at the pleasure
of the Board of Directors.
W. M. Beard has served Beard as its Chairman of the Board and Chief Executive
Officer since December 1992. He previously served as Beard's President and
Chief Executive Officer from the Company's incorporation in October 1974 until
January 1985. He has served Beard Oil as its Chairman of the Board and Chief
Executive Officer since its incorporation. He has also served as a director of
Beard and Beard Oil since their incorporation. Mr. Beard has been actively
involved since 1952 in all management phases of Beard and Beard Oil from their
inception, and as a partner of their predecessor company.
Herb Mee, Jr. has served as Beard's President since October 1989 and as its
Chief Financial Officer since June 1993. He has served as Beard Oil's President
since its incorporation, and as its Chief Financial Officer since June 1993. He
has also served as a director of Beard and Beard Oil since their incorporation.
Mr. Mee served as President of Woods Corporation, a New York Stock Exchange
diversified holding company, from 1968 to 1972 and as its Chief Executive
Officer from 1970 to 1972. He serves as a director of Liberty Bancorp, Inc.
("LBNA") and of its two principal banking subsidiaries. LBNA is a publicly-
held company (OTC).
Allan R. Hallock was elected a director of Beard in July 1993. He served as
a director of Beard Oil from December 1986 until October 1993. Mr. Hallock is
currently an independent consulting geologist. He served as Vice President and
Exploration Manager of Gemini Corporation from 1970 until December 1986.
W. R. Plugge was elected a director of Beard in July 1993. He served as a
director of Beard Oil from September 1986 until October 1993. Mr. Plugge was
with Stanford Research Institute, a non-profit research corporation, from 1976
until his retirement in 1988, last serving as Vice President-International
Operations. He is a private investor, and also serves as a director of Computer
Horizons Inc., a publicly-held company (OTC).
Ford C. Price was elected a director of Beard in July 1993. He served as a
director of Beard Oil from June 1987 until October 1993. From 1961 until 1986
Mr. Price served in various capacities with The Economy Company, a privately-
held schoolbook publishing company, last serving as its Chairman of the Board
and Chief Executive Officer. Mr. Price is a private investor.
Michael E. Carr was elected by the preferred stockholders to serve as their
representative on the Board of Directors of Beard in February 1994. Mr. Carr
served as Senior Vice President of Beard Oil from December 1986 until October
1993. He served as President and Chief Executive Officer of Sensor Oil & Gas,
Inc. ("Sensor") from October 1993 until August 1996. He presently serves as
President of Mica Energy Corp.
Philip W. Stack has served as Vice President - Corporate Development of Beard
since October 1993, and has served in such capacity for Beard Oil since August
1989. He had previously served in varying positions as an officer of Beard Oil
since its incorporation.
Jack A. Martine was elected as Controller, Chief Accounting Officer and Tax
Manager of Beard in October 1996. Mr. Martine served as tax manager for Beard
from June 1989 until October 1993 at which time he joined Sensor in a similar
capacity. Mr. Martine is a certified public accountant.
Clifford H. Collen, Jr. has served as President of Carbonic Reserves since he
and Beard Oil founded the company in August 1987. Mr. Collen has been associated
with the CO2 industry since 1979, working in various positions in the liquid
carbon dioxide business and also serving as president of an engineering and
consulting company in the industrial and carbon dioxide gas plant industry.
Marc A. Messner has served as President of HDT since he and another person
founded the company in July 1993. He was elected President of Whitetail in
November 1996. Mr. Messner has been associated with the environmental services
industry since 1989, last serving as a project manager for a large national
environmental consulting firm before leaving to start HDT.
Philip R. Jamison has served as President of BTI since August 1994. Mr.
Jamison has been associated with the coal industry since 1960, working in
various positions. From 1972 to 1977 he served as Vice President Operations for
International Carbon and Minerals and as President and CEO of all its coal
producing subsidiaries. From 1979 to 1988 he served as CEO of four small
companies which were engaged in the production and sales of coal. From 1993 to
1995 he served as a consultant to EI in connection with its development of the
Mulled Coal process, and installed and operated the process at the Alabama coal
preparation plant in connection with the DOE contract.
The directors of the Company have been elected to serve until the annual
stockholders' meeting to be held in the year indicated opposite their respective
names or until their successors are duly elected and qualified:
Director Term
-------- ----
Allan R. Hallock 1997
Ford C. Price 1997
Herb Mee, Jr. 1998
W. M. Beard 1999
W. R. Plugge 1999
Michael E. Carr (a)
__________
(a) Will serve until his successor has been duly elected and qualified.
There is no family relationship between any of the directors or executive
officers of the Company. All executive officers hold office until the first
meeting of the Board of Directors following the next annual meeting of
stockholders or until their prior resignation or removal.
Compliance with Section 16(a) of the Securities Exchange Act of 1934. Section
16(a) of the Securities Exchange Act of 1934 requires the Company's directors
and executive officers, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities (collectively "reporting
persons"), to file with the Securities and Exchange Commission and the American
Stock Exchange initial reports of ownership and reports of changes in ownership
of common stock and other equity securities of the Company. Reporting persons
are required by the SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on information received from each
reporting person which includes written representations that no other reports
were required during the fiscal year ended December 31, 1996, all Section 16(a)
filing requirements applicable to its reporting persons were complied with.
Item 11. Executive Compensation.
The table on the next page sets forth sets forth the compensation paid or
accrued during each of the last three fiscal years by the Company and its
subsidiaries to the Company's Chief Executive Officer and each of the Company's
other most highly compensated executive officers (hereafter referred to as the
named executive officers), whose aggregate salary and bonus exceeded $100,000,
for any of the fiscal years ended December 31, 1996, 1995 or 1994:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
---------------------------
Annual Compensation Awards Payouts
- ----------------------------------------------------- ------ -------
(a) (b) (c) (d) (g) (h) (i)
Securities
Underlying All Other
Options/ LTIP Compen-
Name and Salary (A) Bonus (B) SAR's Payouts sation (C)
Principal Position Year ($) ($) (#) ($) ($)
- ------------------ ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
W. M. Beard 1996 99,000(D) -0-(D) -0- $35,150(D) 5,031(D)
Chairman & CEO 1995 129,250(D) -0-(D) -0- $4,850(D) 6,462(D)
1994 132,000 2,050 50,000 -0- 6,703
Herb Mee, Jr. 1996 132,000 1,150 -0- -0- 6,658
President & CFO 1995 132,000 1,100 -0- -0- 6,655
1994 132,000 1,050 50,000 -0- 6,653
C. H. Collen, Jr. 1996 100,000 13,750 -0- -0- 5,688
President-Carbonic 1995 103,134 633 -0- -0- 5,179
Reserves 1994 72,184 581 -0- -0- 3,600
</TABLE>
______________
(A) Amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred pursuant to the Company's 401(k)
Plan at the election of those officers.
(B) Bonus for length of service with Beard, Beard Oil or Carbonics.
(C) Consists of the Company's contribution to the Company's 401(k) Plan.
(D) In 1996 Mr. Beard deferred one-fourth ($33,000) of his salary and all
($2,150) of his bonus for the year; in 1995 he deferred one-fourth ($2,750) of
his December salary and all ($2,100) of his bonus for the year pursuant to the
Company's Deferred Stock Compensation Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information, with respect to the
named executive officers, concerning the exercise of options during the
Company's last fiscal year and unexercised options held as of the end of
the last fiscal year:
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Unexercised In-the-Money
Options at Options at
FY-END(#) FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- --------------- ------------ ------------- ----------------
<S> <S> <C> <C> <C>
W. M. Beard -0- $ -0- 25,000/25,000 $21,094/$21,094
Herb Mee, Jr. -0- $ -0- 25,000/25,000 $21,875/$21,875
C. H. Collen, Jr. -0- $ -0- -0-/-0- $-0-/$-0-
</TABLE>
Compensation of Directors
Messrs. Hallock, Plugge, Price and Carr received compensation of $4,927, $86,
$1,909 and $8,450, respectively, for services rendered during 1996 as directors
of Beard, excluding $8,500, $8,850 and $8,750 of fees deferred by Messrs.
Hallock, Price and Plugge, respectively, under the Company's Deferred Stock
Compensation Plan. Currently, the non-management directors each receive $500
per month for their services, and also receive the following fees for directors'
meetings which they attend: annual and 1-1/2 day meetings -- $750; regular
meeting -- $500; telephone meeting -- $100 to $300 depending upon length of
meeting. The non-management directors also receive a small year-end bonus
depending upon their length of service as directors of Beard and Beard Oil.
Accordingly, Messrs. Plugge, Hallock, Price and Carr received $500, $400, $400,
and $100, respectively, in 1996. All of the directors except Mr. Carr elected to
defer such bonuses pursuant to the Plan. Beard also provides health and
accident insurance benefits for its non-management directors who are not
otherwise covered and the value of these benefits is included in the above
compensation amounts. None of the directors received additional compensation
in 1996 for their committee participation.
The three eligible non-management directors (Messrs. Hallock, Plugge, and
Price) were each granted 5,000 phantom stock units (the "Units") under the
Company's 1994 Phantom Stock Units Plan on November 1, 1994. Mr. Carr was
awarded 5,000 Units when he became eligible on February 22, 1995. All awards
were based on an award price of $2.00* per share and vest over a five year
period at the rate of 20% per year. Each participant has the option of
receiving payment for his award: (i) as it vests; (ii) at the conclusion of
the award period; or (iii) 50% as it vests, with the other 50% deferred to the
conclusion of the award period. Payments are based upon appreciation in the
market value of the Company's common stock during the appropriate time interval
selected.
_______________
*The market value on November 1, 1994 was $1.875 per share; on February 22,
1995 it was $1.75 per share.
Compensation Committee Interlocks and Insider Participation
Michael E. Carr, who has been elected by the preferred shareholders to serve
as their representative on the Board of Directors, was elected to serve as a
member of the Compensation Committee on April 26, 1994. Mr. Carr served as
Senior Vice President of Beard Oil from December 1986 until October 1993.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The table on the next page sets forth the name and address of each shareholder
who is known to the Company to own beneficially more than 5% of Beard's
outstanding common stock or preferred stock, the number of shares beneficially
owned by each and the percentage of outstanding common or preferred stock so
owned as of February 28, 1997. Unless otherwise noted, the person named has
sole voting and investment powers over the shares reflected opposite his name.
<TABLE>
<CAPTION>
Combined
Number of Number of Common
Preferred Common and
Shares and Shares and Preferred
Nature of Percent Nature of Percent Voting
Name and Address Ownership of Class Ownership of Class Percentage
---------------- --------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
John Hancock Mutual Life 42,427.10 47.06% 312,040(1)(2) 11.15%(2) 16.24%(3)
Insurance Company ("Hancock")
57th Floor
200 Clarendon Street
Boston, Massachusetts 02117
The Beard Group 401(k) Plan ("Plan")
c/o The Liberty Bank and Trust
Company, Trustee None 0.00% 301,605(4) 10.78% 9.25%
100 N. Broadway Avenue
Oklahoma City, OK 73102
W. M. Beard None 0.00% 809,672(5) 28.67% 24.64%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
Lu Beard None 0.00% 233,998(6) 8.36% 7.17%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
Warren B. Kanders 25,188.76 27.94% 174,274(2) 6.23%(2) 9.30%(3)
2100 South Ocean Boulevard
Suite 302 North
Palm Beach, FL 33480
Herb Mee, Jr. None 0.00% 233,079(7) 8.25% 7.09%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
</TABLE>
_________________
(1) Shares are held by Hancock on behalf of itself and affiliated entities.
(2) Excludes the Beard preferred shares which will collectively become
convertible into 14.18% of the outstanding common stock (after conversion) on
January 1, 2003 to the extent not previously redeemed or converted.
(3) The preferred shareholders collectively own 663,084 common shares and
1,125,528 common equivalent shares (34.51%), after giving effect to the
conversion of their 90,155.86 preferred shares.
(4) Shares held by the Plan are owned by the participating employees, each
of whom has sole voting and investment power over the shares held in his or her
account. Includes 96,867.00, 121,631.70 and 25,552.18 shares held for the
accounts of Messrs. Beard, Mee and Collen, respectively, and 573.23 shares held
for the accounts of other executive officers.
(5) Includes 368,685 shares owned directly by Mr. Beard as to which he has
sole voting and investment power; 232,319 shares (or 8.30%) owned by the William
M. Beard and Lu Beard 1988 Charitable Unitrust (the "1988 Unitrust"), of which
Mr. Beard and his wife, Lu Beard, serve as co-trustees and share voting and
investment power; 16,666 shares each held by the William M. Beard Irrevocable
Trust "A," the William M. Beard Irrevocable Trust "B," and the William M. Beard
Irrevocable Trust "C" (collectively, the "Beard Irrevocable Trusts") of which
Messrs. Beard and Herb Mee, Jr. are trustees and share voting and investment
power; 6,738 shares each held by the John Mason Beard II Trust, the Joseph G.
Beard Trust and the Rebecca Banner Beard Trust as to which Mr. Beard is the
trustee and has sole voting and investment power; 3,256 shares held by the
Rebecca Banner Beard Lilly Living Trust as to which Mr. Beard is a co-trustee
and shares voting and investment power with his daughter; 96,867.00 shares
held by The Beard Group 401(k) Trust (the "401(k) Trust") for the account of
Mr. Beard as to which he has sole voting and investment power; and 13,333
shares held by B & M Limited, a general partnership, of which Mr. Beard is a
general partner and shares voting and investment power with Mr. Mee. Also
includes 25,000 shares subject to presently exercisable options. Excludes
1,679 shares owned by his wife as to which Mr. Beard disclaims beneficial
ownership. Also excludes 41,228 shares held by four separate trusts for the
benefit of Mr. Beard's children.
(6) Represents 232,319 shares owned by the 1988 Unitrust, of which Mr. Beard
and Mrs. Beard serve as co-trustees and share voting and investment power. Also
includes 1,679 shares owned directly by Mrs. Beard as to which she has sole
voting and investment power.
(7) Includes 16,450 shares owned directly by Mr. Mee as to which he has
sole voting and investment power; 6,666 shares held by Mee Investments, Inc., as
to which Mr. Mee has sole voting and investment power; 13,333 shares held by B
& M Limited as to which Mr. Mee shares voting and investment power with Mr.
Beard but as to which Mr. Mee has no present economic interest; and 121,631.70
shares held by the 401(k) Trust for the account of Mr. Mee as to which he has
sole voting and investment power. Also includes 16,666 shares each held by the
Beard Irrevocable Trusts as to which Mr. Mee is a co-trustee and shares voting
and investment power with Mr. Beard but as to which Mr. Mee has no pecuniary
interest and disclaims beneficial ownership. Also includes 25,000 shares
subject to presently exercisable options. Excludes 45 shares owned by his wife,
Marlene W. Mee, as to which Mr. Mee disclaims beneficial ownership.
Security Ownership of Management
The following table sets forth certain information regarding the number of
shares of Beard common stock beneficially owned by each director and nominee,
the Chief Executive Officer ("CEO"), each named executive officer and by all
directors and executive officers as a group and the percentage of outstanding
common stock so owned as of February 28, 1997.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Name and Address Ownership of Class
---------------- ---------- --------
<S> <C> <C>
W. M. Beard 809,672(1) 28.67%
Herb Mee, Jr. 233,079(2) 8.25%
Allan R. Hallock 40,458(3) 1.45%
Michael E. Carr 28,643 1.02%
Ford C. Price 8,665(4) ---(8)
W. R. Plugge 2,000 ---(8)
C. H. Collen, Jr 42,602(5) 1.52%
Marc A. Messner 50,000 1.79%
Philip R. Jamison 240(6) ---(8)
All directors and executive
officers as a group (11 in number) 1,165,291(7) 40.76%
</TABLE>
_________________
(1) See footnote (5) to table "Security Ownership of Certain Beneficial Owners."
(2) See footnote (7) to table "Security Ownership of Certain Beneficial Owners."
(3) Reflects shares owned by A. R. Hallock & Co., a partnership, as to which Mr.
Hallock shares voting and investment power with his wife.
(4) Includes 5,399 shares owned directly by Mr. Price as to which he has sole
voting and investment power and 3,266 shares held by an IRA for the benefit of
Mr. Price as to which he has sole voting and investment power.
(5) Includes 17,050 shares owned directly by Mr. Collen as to which he has sole
voting and investment power and 25,552.18 shares held by the 401(k) Trust for
the account of Mr. Collen as to which he has sole voting and investment power.
(6) Represents Mr. Jamison's 20% vested interest in the 1,203 shares owned for
his account in the 401(k) Trust; Mr. Jamison has sole voting and investment
power as to such shares.
(7) Includes 825,927 shares as to which directors and executive officers have
sole voting and investment power and 339,364 shares as to which they share
voting and investment power with others.
(8) Reflects ownership of less than one (1) percent.
Item 13. Certain Relationships and Related Transactions.
In September 1995, William M. Beard and Lu Beard, as trustees of the William
M. Beard and Lu Beard 1988 Charitable Unitrust (the "Unitrust") agreed to loan
the Company up to $250,000 under a revolving loan arrangement for a period of
one year. In March 1996, the Unitrust extended the maturity of such note to
October 1997; in October 1996 the credit line was increased to $500,000 and the
maturity was extended to March 1998. In February 1997 the maturity was
extended to February 1999. Various advances and repayments have been made
under such arrangement, and at year-end 1996 the principal balance due was
$455,000. The loan is unsecured and bears interest at the rate of 10% per
annum.
In December 1995 the William M. Beard Irrevocable Trust "B" and the William
M. Beard Irrevocable Trust "C" agreed to loan $130,000 and $95,000, respec-
tively, to the Company for a period of one year. In March 1996, the Trusts
extended the maturity of such notes to October 1997. In February 1997 the
maturity was extended to February 1999 and the principal amount of the loans
were increased to $140,000 and $105,000, respectively. Loans of $130,000 and
$95,000, respectively, were outstanding pursuant to such arrangement as of
year-end 1996. The loans are unsecured and bear interest at the rate of 10%
per annum.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements. Reference is made to the Index to Financial
Statements and Financial Statement Schedules appearing at
Item 8 on Page 26 of the report.
2. Financial Statement Schedules. Financial Statement Schedules are
omitted as inapplicable or not required, or the required
information is shown in the financial statements or in the notes
thereto.
3. Exhibits. The following exhibits are filed with this Form 10-K and
are identified by the numbers indicated:
2 Agreement and Plan of Reorganization by and among Registrant, Beard Oil
Company ("Beard Oil") and New Beard, Inc., dated as of July 12, 1993 (see
Addendum A to Part I, which is incorporated herein by reference; schedules
to the Agreement have been omitted). (This Exhibit has been previously
filed as Exhibit 3(b), filed on July 27, 1993 to Registrant's Registration
Statement on Form S-4, File No. 33-66598, and same is incorporated by
reference).
3(i) Amended and Restated Certificate of Incorporation of Registrant as filed
with the Secretary of State of Oklahoma on August 25, 1993. (This Exhibit
has been previously filed as Exhibit 3(a) to Amendment No. 1, filed on
September 3, 1993 to Registrant's Registration Statement on Form S-4,
File No. 33-66598, and same is incorporated by reference).
3(ii) Registrant's Restated By-Laws (as amended January 11, 1996). (This
Exhibit has been previously filed as Exhibit 3(ii) to Registrant's Form
10-K for the period ended December 31, 1995, filed on April 1, 1996, and
same is incorporated by reference).
4 Instruments defining the rights of security holders:
4(a) Agreement of Sale and Purchase by and among Beard Oil and Sensor Oil &
Gas, Inc. ("Sensor"). (This Exhibit has been previously filed as
Addendum B to Amendment No. 1, filed on September 3, 1993 to Registrant's
Registration Statement on Form S-4, File No. 33-66598, and same is
incorporated by reference).
4(b) Certificate of Designations, Powers, Preferences and Relative,
Participating, Option and Other Special Rights, and the Qualifications,
Limitations or Restrictions Thereof of the Series A Convertible Voting
Preferred Stock of the Registrant. (This Exhibit has been previously
filed as Exhibit 3(c) to Amendment No. 2, filed on September 17, 1993 to
Registrant's Registration Statement on Form S-4, File No. 33-66598, and
same is incorporated by reference).
4(c) Stock Purchase Agreement by and among Registrant, Beard Oil, New York
Life Insurance Company ("NYL"), New York Life Insurance and Annuity
Company ("NYLIAC"), John Hancock Mutual Life Insurance Company ("Hancock")
and Memorial Drive Trust ("MDT"), dated July 12, 1993 (see Addendum C to
Part I which is incorporated herein by reference; schedules to the
Agreement have been omitted). (This Exhibit has been previously
filed as Exhibit 10(g) to Amendment No. 1, filed on September 3,
1993 to Registrant's Registration Statement on Form S-4,
File No. 33-66598, and same is incorporated by reference).
4(d) Settlement Agreement, with Certificate of Amendment attached thereto, by
and among Registrant, Beard Oil, NYL, NYLIAC, Hancock, MDT and Sensor,
dated as of April 13, 1995. (This Exhibit has been previously filed as
Exhibit 4(g) to Registrant's Form 10-K for the period ended December
31, 1994 and same is incorporated by reference).
4(e) Promissory Note from Carbonics to John Hancock Leasing Corporation
("JHLC") dated July 1, 1991. (This Exhibit has been previously filed
as Exhibit 4(f) to Registrant's Form 10-K for the period ended
December 31, 1993 and same is incorporated by reference).
4(f) Security Agreement from Carbonics to JHLC dated June 11, 1991. (This
Exhibit has been previously filed as Exhibit 4(g) to Registrant's
Form 10-K for the period ended December 31, 1993 and same is
incorporated by reference).
4(g) Guarantee from Registrant to JHLC dated July 1, 1991. (This Exhibit
has been previously filed as Exhibit 4(h) to Registrant's Form 10-K
for the period ended December 31, 1993 and same is incorporated by
reference).
4(h) Loan Agreement by and among Registrant, Carbonics and Liberty Bank &
Trust Company of Oklahoma City, N.A. ("Liberty"), effective May 19, 1995.
(This Exhibit has been previously filed as Exhibit 4(n) to Registrant's
Form 10-Q for the period ended June 30, 1995, filed on August 7, 1995,
and same is incorporated by reference).
4(i) First Amendment to Loan Agreement by and among Registrant, Carbonics and
Liberty, dated November 13, 1995. (This Exhibit has been previously
filed as Exhibit 4(r) to Registrant's Form 10-Q for the period ended
March 31, 1996, filed on May 3, 1996, and same is incorporated by
reference).
4(j) Second Amendment to Loan Agreement by and among Registrant, Carbonics and
Liberty, dated effective March 12, 1996. (This Exhibit has been previously
filed as Exhibit 4(s) to Registrant's Form 10-Q for the period ended
March 31, 1996, filed on May 3, 1996, and same is incorporated by
reference).
4(k) Third Amendment to Loan Agreement by and among Registrant, Carbonics and
Liberty, dated effective April 30, 1996. (This Exhibit has been
previously filed as Exhibit 4.1 to Registrant's Form 10-Q for the period
ended June 30, 1996, filed on August 14, 1996, and same is incorporated
by reference).
4(l) Amended and Restated Loan Agreement by and among Registrant, Carbonics and
Liberty, dated as of October 31, 1996.
4(m) Letter Agreement for Construction Guidance Line of Credit between
Registrant d/b/a The Oaks Venture and Liberty, dated July 17, 1995.
(This Exhibit has been previously filed as Exhibit 4(o) to Registrant's
Form 10-Q for the period ended June 30, 1995, filed on August 7, 1995,
and same is incorporated by reference).
4(n) Letter Agreement for Construction Guidance Line of Credit between
Registrant d/b/a The Oaks Venture and Liberty, dated effective March
21, 1996. (This Exhibit has been previously filed as Exhibit 4(t) to
Registrant's Form 10-Q for the period ended March 31, 1996, filed on
May 3, 1996, and same is incorporated by reference).
4(o) Promissory Note from Registrant to the Trustees of the William M. Beard
and Lu Beard 1988 Charitable Unitrust (the "Trustees") dated September 20,
1995. (This Exhibit has been previously filed as Exhibit 4(o) to
Registrant's Form 10-K for the period ended December 31, 1995, filed on
April 1, 1996, and same is incorporated by reference).
4(p) Extension and Renewal Promissory Note from Registrant to the Trustees
dated March 31, 1996. (This Exhibit has been previously filed as Exhibit
4(u) to Registrant's Form 10-Q for the period ended March 31, 1996,
filed on May 3, 1996, and same is incorporated by reference).
4(q) Amended and Restated Renewal Promissory Note from Registrant to the
Trustees dated October 11, 1996.
4(r) Amended and Restated Renewal Promissory Note from Registrant to the
Trustees dated February 17, 1997.
4(s) Promissory Note from Registrant to the Trustee of the William M. Beard
Irrevocable Trust "B" (the "B Trust") dated December 27, 1995. (This
Exhibit has been previously filed as Exhibit 4(p) to Registrant's
Form 10-K for the period ended December 31, 1995, filed on April 1,
1996, and same is incorporated by reference).
4(t) Extension and Renewal Promissory Note from Registrant to the B Trust
dated March 31, 1996. (This Exhibit has been previously filed as
Exhibit 4(v) to Registrant's Form 10-Q for the period ended March 31,
1996, filed on May 3, 1996, and same is incorporated by reference).
4(u) Amended and Restated Renewal Promissory Note from Registrant to the B
Trust dated February 17, 1997.
4(v) Promissory Note from Registrant to the Trustee of the William M. Beard
Irrevocable Trust "C" (the "C" Trust") dated December 27, 1995. (This
Exhibit has been previously filed as Exhibit 4(q) to Registrant's Form
10-K for the period ended December 31, 1995, filed on April 1, 1996, and
same is incorporated by reference).
4(w) Extension and Renewal Promissory Note from Registrant to the C Trust
dated March 31, 1996. (This Exhibit has been previously filed as Exhibit
4(w) to Registrant's Form 10-Q for the period ended March 31, 1996, filed
on May 3, 1996, and same is incorporated by reference).
4(x) Amended and Restated Renewal Promissory Note from Registrant to the C
Trust dated February 17, 1997.
10 Material contracts:
10(a) The Beard Company 1993 Stock Option Plan dated August 27, 1993. (This
Exhibit has previously been filed as Exhibit 10(f) to Amendment No. 1,
filed on September 3, 1993 to Registrant's Registration Statement on
Form S-4, File No. 33-66598, and same is incorporated by reference).*
10(b) The Beard Company 1994 Phantom Stock Units Plan adopted November 1, 1994.
(This Exhibit has been previously filed as Exhibit 10(h) to Registrant's
Form 10-K for the period ended December 31, 1994, filed on April 17, 1995,
and same is incorporated by reference).*
10(c) Stockholders' Agreement made as of January 27, 1993 by and among
Registrant, Carbonics and Clifford Collen, Jr. ("Collen"). (This
Exhibit has been previously filed as Exhibit 10(i) to Registrant's
Form 10-K for the period ended December 31, 1994, filed on April 17,
1995, and same is incorporated by reference).*
10(d) Stock Purchase Agreement dated as of December 15, 1991 by and among
Registrant (formerly known as Beard Investment Company), Carbonics and
Collen. (This Exhibit has been previously filed as Exhibit 10.9 of
Item 14(a) to Beard Oil's Form 8, Amendment No. 1, Form 10-K for the
fiscal year ended December 31, 1991 and same is incorporated herein by
reference).*
10(e) Conversion Agreement dated as of January 31, 1995 by and among Registrant,
Carbonics and Collen. (This Exhibit has been previously filed as
Exhibit 10(k) to Registrant's Form 10-K for the period ended December
31, 1994, filed on April 17, 1995, and same is incorporated herein by
reference).*
10(f) Employment Agreement dated April 3, 1995 by and among Registrant,
Carbonics, Collen and Beard Oil. (This Exhibit has been previously
filed as Exhibit 10(l) to Registrant's Form 10-K for the period ended
December 31, 1994, filed on April 17, 1995, and same is incorporated
herein by reference).*
10(g) The Beard Company Deferred Stock Compensation Plan. (This Exhibit has been
previously filed as Exhibit 10(k) to Registrant's Form 10-K for the
period ended December 31, 1995, filed on April 1, 1996, and same is
incorporated by reference).*
- ------------------
* Compensatory plan or arrangement.
10(h) Subscription Agreement by and between Cibola Corporation ("Cibola") and
Registrant, dated April 10, 1996. (This Exhibit has been previously
filed as Exhibit 10.1 to Registrant's Form 10-Q for the period ended
June 30, 1996, filed on August 14, 1996, and same is incorporated by
reference).
10(i) Nonrecourse Secured Promissory Note from Registrant to Cibola, dated
April 10, 1996. (This Exhibit has been previously filed as Exhibit 10.2
to Registrant's Form 10-Q for the period ended June 30, 1996, filed on
August 14, 1996, and same is incorporated by reference).
10(j) Security Agreement by and among Registrant, Cibola and the Cibola
shareholders, dated April 10, 1996. (This Exhibit has been previously
filed as Exhibit 10.3 to Registrant's Form 10-Q for the period ended
June 30, 1996, filed on August 14, 1996, and same is incorporated by
reference).
10(k) Tax Sharing Agreement by and among Registrant, Cibola and the Cibola
shareholders, dated April 10, 1996. (This Exhibit has been previously
filed as Exhibit 10.4 to Registrant's Form 10-Q for the period ended
June 30, 1996, filed on August 14, 1996, and same is incorporated by
reference).
21 Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedules
The Company will furnish to any shareholder a copy of any of the above
exhibits upon the payment of $.25 per page. Any request should be sent to
The Beard Company, Enterprise Plaza, Suite 320, 5600 North May Avenue,
Oklahoma City, Oklahoma 73112
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE BEARD COMPANY
(Registrant)
HERB MEE, JR.
DATE: March 25, 1997 Herb Mee, Jr.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated below.
Signature Title Date
--------- ----- ----
W.M. BEARD
W.M. Beard Chief Executive Officer March 25, 1997
HERB MEE, JR.
Herb Mee, Jr. President and Chief March 25, 1997
Financial Officer
JACK A. MARTINE
Jack A. Martine Controller and Chief March 25, 1997
Accounting Officer
W.M. BEARD
W.M. Beard Chairman of the Board March 25, 1997
HERB MEE, JR.
Herb Mee, Jr. Director March 25, 1997
ALLAN R. HALLOCK
Allan R. Hallock Director March 25, 1997
W.R. PLUGGE
W.R. Plugge Director March 27, 1997
FORD C. PRICE
Ford C. Price Director March 25, 1997
MICHAEL E. CARR
Michael E. Carr Director March 26, 1997
<PAGE>
THE BEARD COMPANY
EXHIBIT INDEX
Forming a Part of Form 10-K Annual Report
to the Securities and Exchange Commission
Exhibit
Number Brief Description Method of Filing
- ------- ----------------- ----------------
2 Agreement and Plan of Reorganization (1)
3(i) Amended and Restated Certificate of
Incorporation (1)
3(ii) Restated By-Laws (as amended January
11, 1996) (1)
4(a) Agreement of Sale and Purchase by and
among Beard Oil and Sensor Oil
& Gas, Inc. (1)
4(b) Certificate of Designations, Powers,
Preferences and other Special Rights (1)
4(c) Stock Purchase Agreement (1)
4(d) Settlement Agreement with Certificate of
Amendment attached (1)
4(e) Promissory Note from Carbonic Reserves to
John Hancock dated July 1, 1991 (1)
4(f) Security Agreement from Carbonics to
JHLC dated June 11, 1991 (1)
4(g) Guarantee from Registrant to Hancock (1)
4(h) Loan Agreement by and among Registrant,
Carbonics and Liberty Bank &
Trust Company (1)
4(i) First Amendment to Loan Agreement dated
November 13, 1995 (1)
4(j) Second Amendment to Loan Agreement dated
March 12, 1996 (1)
4(k) Third Amendment to Loan Agreement dated
April 30, 1996 (1)
4(l) Amended and Restated Loan Agreement
dated October 31, 1996 (3)
4(m) Letter Agreement for Construction Guidance
Line of Credit dated July 17, 1995 (1)
4(n) Letter Agreement for Construction Guidance
Line of Credit dated March 21, 1996 (1)
4(o) Promissory Noted from Registrant to the
Trustees of the William M. Beard and Lu
Beard 1988 Charitable Unitrust dated
September 20, 1995 (1)
4(p) Extension and Renewal Promissory Note
from Registrant to the Trustees dated
March 31, 1996 (1)
4(q) Amended and Restated Renewal Promissory
Note from Registrant to the Trustees
dated October 11, 1996 (3)
4(r) Amended and Restated Renewal Promissory
Note from Registrant to the Trustees
dated February 17, 1997 (3)
4(s) Promissory Note from Registrant to
Irrevocable Trust "B" dated December 27,
1995 (1)
4(t) Extension and Renewal Promissory Note to
the B Trust dated March 31, 1996 (1)
4(u) Amended and Restated Renewal Promissory
Note from Registrant to the B Trust dated
February 17, 1997 (3)
4(v) Promissory Note from Registrant to
Irrevocable Trust C dated December 27, 1995 (1)
4(w) Extension and Renewal Promissory Note
from Registrant to the C Trust dated
March 31, 1996 (1)
4(x) Amended and Restated Renewal Promissory
Note from Registrant to the C Trust
Dated February 17, 1997 (3)
10(a) The Beard Company 1993 Stock Option Plan (2)
10(b) The Beard Company 1994 Phantom Stock Plan (2)
10(c) Shareholders' Agreement made as of
January 27, 1993 (2)
10(d) Stock Purchase Agreement dated as of
December 15, 1991 (2)
10(e) Conversion Agreement dated as of
January 31, 1995 (2)
10(f) Employment Agreement dated April 3, 1995 (2)
10(g) The Beard Company Deferred Stock
Compensation Plan (2)
21 Subsidiaries of the Registrant (3)
23 Consent of KPMG Peat Marwick LLP (3)
27 Financial Data Schedule (3)
- --------------------
(1) Incorporated by reference.
(2) Compensatory plan or arrangement.
(3) Filed herewith electronically.
EXHIBIT 4(l)
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT ("Agreement") is made
and entered into as of October 31, 1996, by and among CARBONIC
RESERVES, a Nevada corporation (hereinafter referred to as the
"Borrower"), THE BEARD COMPANY, an Oklahoma corporation
(hereinafter referred to as the "Guarantor"), and LIBERTY BANK AND
TRUST COMPANY OF OKLAHOMA CITY, NATIONAL ASSOCIATION (hereinafter
referred to as the "Bank").
RECITALS
A. The Borrower, the Guarantor and the Bank are parties to
that certain Loan Agreement dated as of May 19, 1995, as amended by
that certain First Amendment dated November 13, 1995, as further amended by that
certain Second Amendment dated March 12, 1996, and as further amended by that
certain Third Amendment dated April 30, 1996 (said Loan Agreement, as
amended, is hereinafter referred to as the "Existing Loan
Agreement"), pursuant to which the Bank has established a revolving
loan facility in favor of the Borrower in the principal amount not
to exceed $750,000.00.
B. The Guarantor has guaranteed the Borrower's payment and
performance of all liabilities, obligations and indebtedness
arising under or in connection with the Existing Loan Agreement
pursuant to the terms and provisions of that certain Guaranty
Agreement dated May 19, 1995 (the "Existing Guaranty").
C. The Borrower has requested that the maximum principal
amount available for borrowing under the revolving loan facility be
increased to $1,250,000.00.
D. The Bank is willing to increase the revolving loan
facility on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the Borrower, the Guarantor and the Bank hereby agree
to amend and restate the Existing Loan Agreement in its entirety,
effective as of the Effective Date (as hereinafter defined), to
read as follows:
1. DEFINITIONS. As used in this Agreement:
1.1 Terms Defined Above. The terms "Borrower," "Guarantor,"
"Bank," "Existing Loan Agreement" and "Existing Guaranty" have the
respective meanings set forth above.
1.2 Certain Definitions. As used herein, the following terms
have the meanings indicated below (unless the context otherwise
requires):
"Affiliate" means, with respect to any Person, any other
Person who, directly or indirectly, controls or is controlled
by or is under common control with such Person. For purposes
of this definition, a Person has "control" over another Person
if such Person has the ability to exercise a controlling
influence over the management and policies of the other Person
or if such Person directly or beneficially owns five percent
(5%) or more of the equity interest in the other Person. With
respect to the Borrower, the term "Affiliate" includes (i) the
Guarantor and (ii) each officer and director of the Borrower.
"Agreement," and such terms as "herein," "hereof,"
"hereto," "hereby," "hereunder" and the like shall mean and
refer to this Loan Agreement, together with any and all
exhibits and schedules attached hereto, and any and all
supplements, modifications or amendments hereto.
"Applicable Margin" means the margin (expressed as
percentage basis points) used in determining the interest rate
applicable to the Revolving Note, as provided in Section
2.5.1. The Applicable Margin shall be determined as of each
Quarterly Calculation Date for the following fiscal quarter
based upon the Borrower's Cash Flow Coverage Ratio calculated
as of such Quarterly Calculation Date in accordance with the
table set forth below. For the period commencing on the
Effective Date and ending on December 31, 1996, the Applicable
Margin shall be 100 basis points (1.00%).
Cash Flow Coverage Ratio Applicable Margin
------------------------ -----------------
Greater than or equal to 1.25:1.00,
but less than or equal to 1.50:1.00 150 basis points (1.50%)
Greater than 1.50:1.00, but less than
or equal to 2.00:1.00 125 basis points (1.25%)
Greater than 2.00:1.00 100 basis points (1.00%)
"Borrowing Base" means, as of any date of calculation, an
amount equal to the sum of (i) ninety percent (90%) of
Eligible Insured Receivables as of such date plus (ii) sixty
percent (60%) of Eligible Uninsured Receivables as of such
date; provided, however, that in no event shall the amount
determined under clause (ii) be greater than seventy-five
percent (75%) of the amount determined under clause (i).
"Borrowing Base Certificate" means a written certificate
in the form of Exhibit "D" attached hereto
"Business Day" means that portion of any day, other than
a Saturday, Sunday or legal holiday for commercial banks under
the laws of the State of Oklahoma, during which the Bank is
open for substantially all of its normal banking functions.
"Capital Expenditure" means any payment for any fixed
assets or improvements, or for replacements, substitutions or
additions thereto, which are required to be capitalized under
GAAP.
"Cash Flow Coverage Ratio," as of any Quarterly
Calculation Date, means the fraction whose numerator is equal
to the following:
(i) the net income of the Borrower for the four (4)
fiscal quarters ending on such Quarterly
Calculation Date, excluding Affiliate interest
expense; plus
(ii) the Borrower's depreciation and amortization
expense and other noncash expenses for the four (4)
fiscal quarters ending on such Quarterly
Calculation Date;
and whose denominator is equal to the following:
(i) the current maturities of the Borrower's long-term
Debt (including capitalized lease obligations, but
excluding for purposes of this calculation any
payment made by the Borrower in respect of any
Clean-Down Period in order to comply with the
requirements of Section 2.7.2) during the four (4)
fiscal quarters immediately following such
Quarterly Calculation Date; plus
(ii) the total redemptions payable by the Borrower on
the outstanding shares of Preferred Stock during
the four (4) fiscal quarters immediately following
such Quarterly Calculation Date.
"Clean-Down Period" has the meaning set forth in
Subsection 2.7.2 hereof.
"Collateral" means (i) all of the Borrower's Receivables,
(ii) all of the Borrower's rights with respect to Credit
Insurance covering any of the Receivables, (iii) all books,
documents, records, files, ledger cards, electronic data
processing materials and other general intangibles relating to
the Borrower's Receivables, and (iv) all Proceeds of the
foregoing.
"Commitment Period" means the period beginning on the
Effective Date and ending one Business Day prior to the
Maturity Date.
"Compliance Certificate" means a written certificate in
the form of Exhibit "E" attached hereto.
"Contingent Debt" means, as to any Person, any contingent
liabilities, obligations or indebtedness, including (i)
obligations under guaranties (direct or indirect) or similar
undertakings to assure payment of Debt of other Persons, (ii)
obligations to purchase or otherwise acquire Debt of other
Persons (including obligations to repurchase Receivables
previously transferred or assigned by the Borrower to other
Persons), (iii) obligations to indemnify other Persons against
liabilities or losses arising under certain contingencies, and
(iv) warranty obligations and other contractually assumed
obligations not arising in the ordinary course of business.
"Credit Insurance" means a policy of credit insurance
which, among other things, (i) is issued by an Insurance
Provider selected by the Borrower and acceptable to the Bank,
(ii) names the Borrower as insured and the Bank as an
additional insured, (iii) insures each Receivable insured
thereunder against loss on account of nonpayment by the
account debtor when such Insured Receivable becomes three (3)
months past due or six (6) months after shipment date, and
(iv) provides for a cumulative deductible of not more than
$7,500.00 per year.
"Debt" means, as to any Person, (i) all obligations of
such Person which, in accordance with GAAP, would be shown on
its balance sheet as a liability (including obligations for
borrowed money and for the deferred purchase price of property
or services, and obligations evidenced by bonds, debentures,
notes or other similar instruments), (ii) all rental
obligations under leases required to be capitalized under
GAAP, and (iii) Debt of others secured by a Lien on any
Property of such Person, whether or not assumed.
"Default" means the occurrence of any event or the
existence of any circumstances which, but for the giving of
notice or the passage of time, or both, would constitute an
Event of Default.
"Disbursement Request" means a written request from the
Borrower for a Revolving Advance, substantially in the form of
Exhibit "C" attached hereto.
"Effective Date" means the date and time, as provided in
Subsection 4.1 hereof, on which this Agreement and the
increase in the Revolving Loan contemplated hereby become
effective.
"Eligible Insured Receivables" means, as of any
calculation date, the total unpaid balances of all Eligible
Receivables which are Insured Receivables.
"Eligible Receivable" means the face amount (net of
applicable discounts and allowances offered in the ordinary
course of business for prompt payment) of any Receivable (i)
which arises from a bona fide, outright sale of goods or
services in the ordinary course of the Borrower's business,
(ii) which is based upon a valid, enforceable and legally binding
order or contract, (iii) which is evidenced by an invoice or other
documentary evidence satisfactory to the Bank, (iv) as to
which the Bank has a perfected first priority Lien thereon,
and (v) which otherwise meets the criteria set forth in this
definition. The following shall be excluded from Eligible
Receivables:
(a) Any Receivable as to which the goods giving rise thereto
Receivable have not been shipped and delivered to and accepted by
the account debtor, or the services giving rise to such Receivable
have not been performed by the Borrower and accepted by the account
debtor, and any Receivable which otherwise does not represent a
final sale or which is contingent in any respect or for any reason;
(b) Any Receivable as to which the Borrower has
made any agreement with the account debtor for any
deduction therefrom, except for discounts or allowances
made in the ordinary course of business for prompt
payment, all of which discounts or allowances are
reflected in the calculation of the face value of such
Receivable;
(c) Any Receivable as to which the Borrower has
received notice that the account debtor claims right of
rejection or return, or as to which any return, rejection
or repossession of the goods sold has occurred;
(d) Any Receivable which is subject to any offset,
deduction, recoupment, defense to payment, dispute,
chargeback or counterclaim;
(e) Any Receivable arising from a sale on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval, promotional,
consignment, memorandum account or any other repurchase or return
basis;
(f) Any Receivable which is subject to any
assignment, adverse claim or Lien (except in favor of the
Bank);
(g) Any Receivable which is evidenced by, or as to
which the Borrower has received, a promissory note,
chattel paper, draft, check, trade acceptance or other
instrument in payment thereof;
(h) Any Receivable as to which the account debtor
is an Affiliate of the Borrower;
(i) Any Receivable as to which the account debtor
is the United States of America, any state or any
Governmental Authority;
(j) Any Receivable as to which the account debtor
has died or is the subject of dissolution, liquidation,
termination of existence, insolvency, business failure,
receivership, bankruptcy, readjustment of debt,
assignment for the benefit of creditors or similar
proceedings;
(k) Any Receivable as to which the Borrower has an
offsetting trade payable;
(l) Any Receivable arising from a sale made on a
C.O.D. basis;
(m) Any Receivable which remains unpaid for a
period in excess of thirty (30) days beyond the stated
due date or sixty (60) days beyond the original invoice
date;
(n) All Receivables which are due from any account
debtor who owes Receivables ten percent (10%) or more of
which remain unpaid for a period in excess of thirty (30)
days beyond the stated due date or sixty (60) days beyond
the original invoice date;
(o) That portion of the total Receivables owing on
any calculation date from an single account debtor or
related group of account debtors which is in excess of
twenty percent (20%) of the total of all outstanding
Receivables;
(p) Any Receivable which is not payable to the
Borrower;
(q) Any Receivable which is due from an account
debtor who is not located in the United States or which
is payable in a currency other than U.S. dollars; and
(r) Any other Receivable as to which the Bank has
made a determination, in the reasonable exercise of its
discretion, that the prospects for collection are
doubtful.
"Eligible Uninsured Receivables" means, as of any
calculation date, the total unpaid balances of all Eligible
Receivables which are Uninsured Receivables.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended and as in effect from time to time.
"Environmental Law" means any Law applicable to the Borrower's
business and operations or to its Properties that relates to (i) the
prevention, abatement, remediation or elimination of pollution, (ii)
occupational health and safety, sanitation or food standards, (iii)
the protection of the environment, (iv) the protection of individuals
or property from actual or potential exposure (or the effects of
exposure) to an actual or potential spill or release of a Hazardous
Substance, or (v) the manufacture, processing, production, gathering,
transportation, importation, use, treatment, storage or disposal of a
Hazardous Substance. The term "Environmental Law" includes the Clean
Air Act, the Compre-hensive Environmental, Response, Compensation, and
Liability Act of 1980, the Federal Water Pollution Control Act, the
Occupational Safety and Health Act of 1970, the Resource Conservation
and Recovery Act of 1976, the Safe Drinking Water Act, the Toxic
Substances Control Act, the Hazardous & Solid Waste Amendments Act
of 1984, the Superfund Amendments and Reauthorization Act of 1986,
the Hazardous Materials Transportation Act, any state Laws implementing
the foregoing federal Laws, and all other environmental conservation or
protection Laws.
"Event of Default" means the occurrence of any of the
events or the existence of any of the circumstances specified
in Section 8 hereof.
"Excess Cash Flow" means, with respect to each Quarterly
Calculation Date, the Borrower's net income (or net loss)
after tax (current portion) for the four (4) quarters ending
on such Quarterly Calculation Date, exclusive of Affiliate
interest expense, plus depreciation and amortization expense
and all other noncash expenses of the Borrower for the four
(4) quarters ending on such Quarterly Calculation Date, minus
the current maturities of the Borrower's long-term Debt
(inclusive of capitalized lease obligations) during the four
(4) fiscal quarters immediately following such Quarterly
Calculation Date, and minus redemptions paid or payable with
respect to shares of Preferred Stock during the four (4)
quarters ending on such Quarterly Calculation Date.
"GAAP" means generally accepted accounting principles in
effect from time to time, applied on a consistent basis
throughout the periods involved, as set forth in the opinions
of the Accounting Principles Board of the American Institute
of Certified Public Accountants and/or Statements of the
Financial Accounting Standards Board which may be applicable
as of any determination date.
"Governmental Authority" means any court or any
administrative or governmental department, commission, board,
bureau, authority, agency or body (domestic or foreign).
"Guaranty" means the Guaranty Agreement to be executed by
the Guarantor in favor of the Bank, substantially in the form
of Exhibit "B" attached hereto, to be executed by the Borrower
in favor of the Bank, as provided in Subsection 3.3 hereof.
"Hazardous Substance" means any substance, chemical, pollutant,
waste or other material (i) that consists, wholly or in part, of a
substance that is regulated as toxic or hazardous to human health or
the environment under any Environmental Law, or (ii) that exists
in a condition or under circumstances that constitute a violation
of an Environmental Law.
"Indebtedness" means all liabilities, obligations and
indebtedness of the Borrower to the Bank, of every kind and
description, now existing or hereafter incurred, direct or
indirect, absolute or contingent, due or to become due,
matured or unmatured, and whether or not of the same or a
similar class or character as the Revolving Loan and whether
or not currently contemplated by the Bank or the Borrower,
including (i) principal and interest due and to become due on
the Revolving Loan, (ii) all other liabilities, obligations
and indebtedness of the Borrower to the Bank arising out of or
relating to this Agreement, the Revolving Note, or any other
Loan Documents, (iii) costs and expenses incurred by the Bank,
as described in Subsection 6.13 hereof, and (iv) any
overdrafts by the Borrower on any deposit account maintained
with the Bank.
"Insurance Provider" means American Credit Indemnity
Company, whose home office is located in Baltimore, Maryland,
or such other issuer or underwriter of any policy of Credit
Insurance as shall be selected by the Borrower and approved by
the Bank.
"Insured Receivable" means any Receivable (i) which is
insured, subject to applicable policy limits, under one or
more policies of Credit Insurance, and (ii) as to which the
Borrower has remitted the applicable premium payment and
received confirmation thereof from the Insurance Provider.
"Law" means any law, requirement, statute, rule,
regulation, ordinance, decree, judgment or order of any
Governmental Authority, whether federal, state, regional or
local.
"Lien" means any mortgage, pledge, lien, security
interest, assignment, charge, restriction, claim, or other
encumbrance, whether statutory, consensual or otherwise, which
is granted, created or suffered to exist by any Person on any
of its Properties and which secures any Debt of such Person.
"Loan Documents" means this Agreement, the Revolving
Note, the Security Agreement, the Guaranty, and all other
instruments and documents executed or issued, or to be
executed or issued, in favor of the Bank pursuant hereto or in
connection with this Agreement and all amendments,
modifications, extensions and renewals of any of the
foregoing.
"Material Adverse Effect" means any circumstance or set
of events which (i) has or could reasonably be expected to
have any adverse effect whatsoever on the validity,
enforceability or performance of the Loan Documents, (ii) is
or could reasonably be expected to be material and adverse to
the financial condition or business operations of the
Borrower, (iii) is or could reasonably be expected to impair
the ability of the Borrower to fulfill its obligations under
the terms and conditions of the Loan Documents, or (iv) causes
or creates a Default.
"Maturity Date" means the earlier of (i) April 30, 1998
(or such later date as may be established from time to time by
the Bank pursuant to Subsection 2.11 hereof), or (ii) the date
on which the Revolving Note and all other Indebtedness is
accelerated pursuant to Subsection 9.2 hereof.
"Permit" means any permit, certificate, consent,
franchise, concession, license, authorization, approval,
filing, registration or notification from or with any
Governmental Authority or other Person.
"Permitted Liens" means the following Liens against any
Properties of the Borrower: (i) deposits to secure payment of
worker's compensation, unemployment insurance and other
similar benefits; (ii) Liens for property taxes not yet due;
(iii) statutory Liens against which there are established
reserves in conformity with GAAP and which (A) are being
contested in good faith by appropriate legal proceedings or
(B) arise in the ordinary course of business and secure
obligations which are not yet due and not in default; (iv)
existing Liens disclosed on Schedule I attached hereto, and
(v) Liens in favor of the Bank.
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability
company, institution, entity, party, or Governmental
Authority.
"Preferred Stock" means shares of the Borrower's
Redeemable Preferred Stock, par value $1,000 per share.
"Prime Rate" means the index rate of interest recognized
from time to time by the Bank as the "national prime rate."
The Prime Rate is an index rate used by the Bank in pricing
loans and is not necessarily the lowest or best rate offered
by the Bank.
"Proceeds" means all proceeds of the Collateral,
including (i) all proceeds of any insurance (including Credit
Insurance), judgment, indemnity, warranty or guaranty payable
to or for the account of the Borrower with respect to all or
any portion of the Collateral, (ii) all proceeds in the form
of accounts, collections, contract rights, documents,
instruments, chattel paper or general intangibles relating in
whole or in part to the Collateral, and (iii) all payments, in
any form whatsoever, made or due and payable to or for the
account of the Borrower in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or
any portion of the Collateral by any Governmental Authority.
"Property" means any asset or property, whether real,
personal or mixed, tangible or intangible, whether now or at
any time hereafter owned, operated or leased.
"Quarterly Calculation Date" shall mean the last day of
each fiscal quarter during the term of this Agreement
beginning December 31, 1996.
"Receivables" means all accounts of the Borrower, of
every nature whatsoever, whether now existing or hereafter
arising, including all accounts receivable, contracts,
contract rights, and other right to payment for goods sold or
leased or for services rendered (whether or not it has been
earned by performance), together with all rights, interests
(including security interests), claims, remedies and benefits
relating thereto.
"Revolving Advance" means a cash loan from the Bank to
the Borrower under the Revolving Loan.
"Revolving Commitment" means the lesser of (i) the sum of
$1,250,000.00 (or such lower amount as may be established from
time to time by the Borrower pursuant to Subsection 2.12
hereof) and (ii) the Borrowing Base from time to time in
effect; provided, however, that during each Clean-Down Period,
the term "Revolving Commitment" means the lesser of (i) the
sum of $850,000.00 and (ii) the Borrowing Base from time to
time in effect during such Clean-Down Period.
"Revolving Loan" means the revolving loan facility
established by the Bank in favor of the Borrower under the
Existing Loan Agreement and to be continued and increased
pursuant to Subsection 2.1 hereof.
"Revolving Note" means the Amended and Restated
Promissory Note, substantially in the form of Exhibit "A"
attached hereto, to be executed by the Borrower in favor of
the Bank, as provided in Subsection 2.4 hereof.
"Security Agreement" means that certain Security
Agreement executed by the Borrower in favor of the Bank, as
more particularly described in Subsection 3.1 hereof.
"UCC" means the Uniform Commercial Code as in effect from
time to time in any state in which the Collateral is located.
"Uninsured Receivable" means any Receivable which is not
an Insured Receivable.
1.3 Accounting Terms. Accounting and financial terms used
herein and not otherwise defined with respect to the Borrower's
financial statements and financial position shall have the meanings
ascribed thereto pursuant to GAAP.
1.4 Terms Defined in UCC. Terms used herein that are defined
in Article 9 of the UCC (such as the terms "accounts," "chattel
paper," "contract rights," "general intangibles," "instruments" and
"proceeds") shall have the respective meanings set forth therein.
1.5 Construction. The following rules of construction shall
apply, unless elsewhere specifically indicated to the contrary: (a)
all terms defined herein in the singular shall include the plural,
as the context requires, and vice-versa; (b) pronouns stated in the
neuter gender shall include the masculine, the feminine and the
neuter genders; (c) the term "or" is not exclusive; (d) the term
"including" (or any form thereof) shall not be limiting or
exclusive; and (e) all references to this Agreement, the Revolving
Note, the Security Agreement, the Guaranty or any other Loan
Documents shall include any and all modifications, amendments or
supplements hereto or thereto, any and all renewals and extensions
hereof or thereof, and any and all replacements or substitutions
therefor.
2. LENDING AGREEMENT. Subject to the terms and conditions of
this Agreement and the Loan Documents, and in reliance upon the
representations and warranties contained herein and therein:
2.1 Revolving Loan. The Bank agrees to renew, extend and
increase the Revolving Loan established under the Existing Loan
Agreement and to make Revolving Advances thereunder to the Borrower
from time to time during the Commitment Period in an aggregate
amount at any time outstanding not to exceed the Revolving
Commitment. The Borrower may request Revolving Advances from time
to time under the Revolving Loan in accordance with the provisions
of Subsection 2.3 hereof, and may prepay and re-borrow on a
revolving basis; provided, however, that the aggregate principal
amount of all Revolving Advances at any time outstanding under the
Revolving Loan shall not exceed the lesser of (i) the Revolving
Commitment as in effect on such date, and (ii) the Borrowing Base
as in effect on such date. The Borrower acknowledges and agrees
that the principal balance outstanding under the Revolving Loan at
the close of business on the Effective Date was $649,979.25 and
that Borrower has no defense, counterclaim or offset with respect
to the Existing Loan Agreement or the Revolving Loan.
2.2 Use of Proceeds. The proceeds of each Revolving Advance
will be used by the Borrower for working capital purposes.
2.3 Borrowing Procedures. The Borrower may request a
Revolving Advance on any Business Day during the Commitment Period.
The Borrower shall make each request by giving the Bank written
notice (which may be sent via telefacsimile) in the form of a
properly completed and executed Disbursement Request stating the
amount of the requested Revolving Advance (which amount shall be at
least $5,000.00); provided, however, that the Borrower may give
oral notice by telephone if confirmed by a written notice (which
may be sent via telefacsimile) in the form of a properly completed
and executed Disbursement Request within three (3) Business Days
thereafter. Subject to the Borrower's satisfaction of all other
conditions precedent as set forth in Subsection 4.3 hereof, each
Revolving Advance will be made on the same Business Day on which
the Bank receives the Borrower's Disbursement Request, if the
Disbursement Request is received by 1:00 p.m., or on the following
Business Day, if it is received after 1:00 p.m. The Bank will make
each Revolving Advance by crediting the general operating account
maintained by the Borrower with the Bank.
2.4 Revolving Note. The Revolving Advances from time to time
outstanding under the Revolving Loan (including amounts advanced
under the Existing Loan Agreement) will be evidenced by the
Revolving Note, which shall be made and delivered by the Borrower
at or prior to the Effective Date. Notwithstanding the principal
amount stated on the face of the Revolving Note, the actual
principal due from the Borrower on account of the Revolving Note
will be the sum of all Revolving Advances from time to time made by
the Bank (including amounts advanced under the Existing Loan
Agreement), less all principal payments actually received by the
Bank in collected funds. Each Revolving Advance and each principal
payment under the Revolving Loan will be recorded by the Bank in
its books and records, and the unpaid principal balance so recorded
will be presumptive evidence of the principal amount owing under
the Revolving Note.
2.5 Interest.
2.5.1 Rate. The unpaid principal amount of the
Revolving Advances from time to time outstanding under the
Revolving Note will bear interest at a fluctuating rate per
annum equal to the Prime Rate, plus the Applicable Margin;
provided, however, that, upon the occurrence of any Event of
Default and until cured to the satisfaction of the Bank, the
unpaid principal amount of all Revolving Advances from time to
time outstanding under the Revolving Note will bear interest
at a fluctuating rate per annum equal to the Prime Rate (but
not less than the Prime Rate in effect on the date of the
occurrence of the Event of Default), plus five (5) percentage
points. The interest rate payable under the Revolving Note
will be adjusted as of the opening of business on the day of
each change in the Prime Rate and as of the first day of the
fiscal quarter following any change in the Applicable Margin.
2.5.2 Payment. Interest shall be due and payable
monthly in arrears on the last day of each calendar month
commencing November 30, 1996, and on the Maturity Date.
2.5.3 Computation of Interest. Interest on the
Revolving Advances outstanding under the Revolving Note shall
be computed on the basis of a year consisting of 360 days and
for the actual number of days elapsed.
2.6 Non-Use Fee. The Borrower will pay the Bank a "Non-Use
Fee" calculated at the rate of one half of one percent (0.5%) per
annum on the average daily unborrowed amount of the Revolving
Commitment, payable monthly in arrears on the first day of each
month beginning on December 1, 1996, with final payment being due
and payable on the Maturity Date. The calculation of the "Non-Use
Fee" will be based upon a year consisting of 360 days and for the
actual number of days elapsed.
2.7 Principal Payments.
2.7.1 Maturity. The entire outstanding principal
balance of the Revolving Note, together with all unpaid
interest accrued thereon, shall be due and payable in full on
the Maturity Date.
2.7.2 Clean-Down Periods. At least once during each
fiscal year of the Borrower, the Borrower shall designate a
period of thirty (30) consecutive calendar days as a "Clean-
Down Period." During each Clean-Down Period: (a) the aggregate
outstanding Revolving Advances shall not exceed the sum of
$850,000.00; and (b) the Borrower shall not request, and the
Bank shall not be obligated to make, any new Revolving
Advances if the making of such Revolving Advances would cause
the aggregate outstanding Revolving Advances to exceed
$850,000.00.
2.7.3 Mandatory Prepayments. If the principal balance
of the Revolving Advances outstanding under the Revolving Note
at any time exceeds the Borrowing Base then in effect, the
Borrower shall make an immediate mandatory prepayment of
principal on the Revolving Note in an amount equal to the
excess.
2.8 Optional Prepayment. The Borrower may, from time to time,
prepay the outstanding principal amount of the Revolving Note, in
whole or in part, without premium or penalty.
2.9 Making of Payments. All payments, including prepayments,
of principal or interest on the Revolving Note shall be made to the
Bank at its principal office in Oklahoma City, Oklahoma, on or
before 2:00 p.m., on the date due in immediately available funds.
Whenever a payment is due on a day other than a Business Day, the
due date shall be extended to the next succeeding Business Day and
interest (if any) shall accrue during such extension.
2.10 Maximum Lawful Interest Rate. It is not the intention of
the Bank or the Borrower to violate the Laws of any applicable
jurisdiction relating to usury or other restrictions on the maximum
lawful interest rate. The Loan Documents and all other agreements
between the Borrower and the Bank, whether now existing or
hereafter arising and whether written or oral, are hereby limited
so that in no event shall the interest paid or agreed to be paid to
the Bank for the use, forbearance or detention of money loaned, or
for the payment or performance of any covenant or obligation
contained herein or in any other Loan Document, exceed the maximum
amount permissible under applicable law. If from any circumstances
whatsoever fulfillment of any provision hereof or of any other Loan
Document, at the time the performance of such provision shall be
due, shall involve transcending the limit of validity prescribed by
law, then, ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity. If from any such
circumstances the Bank shall ever receive anything of value deemed
interest under applicable law which would exceed interest at the
highest lawful rate, such excessive interest shall be applied to
the reduction of the principal amount owing hereunder, and not to
the payment of interest, or if such excessive interest exceeds any
unpaid balance of principal, such excess shall be refunded to the
Borrower. All sums paid or agreed to be paid to the Bank for the
use, forbearance or detention of monies included in the Loans
shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the rate of interest on
account of such indebtedness is uniform throughout the term
thereof. This Subsection 2.10 shall control every other provision
of the Loan Documents and all other agreements between the Bank and
the Borrower contemplated thereby.
2.11 Renewal and Extension. The parties anticipate that the
Bank may from time to time, in its sole and absolute discretion,
extend the Maturity Date (and thereby extend the Commitment Period)
upon request by the Borrower. The Bank shall not be obligated to
extend the Maturity Date at any time, and the Borrower acknowledges
that the Bank has not made any commitment, written or oral,
concerning extension of the Maturity Date. In the event the
Maturity Date is extended, the terms and provisions of this
Agreement will continue in full force and effect, except as may
otherwise be agreed in writing by the Borrower and the Bank.
2.12 Reduction of Revolving Commitment. The Borrower may at
any time or from time to time permanently reduce the amount of the
Revolving Commitment by giving notice of the amount of such
reduction to the Bank and prepaying the amount by which the
principal balance of the then outstanding Revolving Advances
exceeds the reduced amount of the Revolving Commitment. Further,
the Borrower may terminate the Revolving Commitment at any time by
giving notice of such termination to the Bank and paying the entire
principal balance of the Revolving Note and all unpaid interest,
fees and other charges accrued in respect of the Revolving Loan.
3. SECURITY. As security for the prompt payment and performance
of the Indebtedness, at all times during the term of this Agreement
and until the Indebtedness is paid and satisfied in full:
3.1 Collateral. The Borrower will maintain and continue in
favor of the Bank a valid and perfected security interest in and to
the Collateral, which security interest shall be first and prior to
all other Liens. In order to provide the Bank with a valid and
perfected, first priority security interest in the Collateral, the
Borrower acknowledges that it has previously delivered in favor of
the Bank that certain Security Agreement dated May 19, 1995, and
appropriate UCC financing statements covering the Collateral, all
of which are hereby ratified and re-affirmed in all respects as
security for payment and performance of the Indebtedness. From time
to time after the Effective Date, the Borrower will, upon the
request of the Bank, promptly execute and deliver, or cause to be
executed and delivered, to the Bank such additional security
agreements, instruments, assignments, financing statements and
other documents, and do such other acts and things with respect to
the Collateral, as the Bank may reasonably deem necessary or
advisable to protect or perfect its interest in the Collateral.
3.2 Negative Pledge. Until payment in full of the
Indebtedness, the Borrower agrees that, without the prior written
consent of the Bank, it will not (i) create, assume or suffer to
exist any Lien on any of its Properties, except for Permitted
Liens, (ii) sell, transfer, assign or factor any of its
Receivables, or permit any Person to have any ownership right or
participation interest in any of its Receivables, or (iii) sell,
transfer or otherwise dispose of all or any substantial portion of
its other Properties, whether pursuant to a single transaction or
a series of transactions. Notwithstanding the foregoing:
(a) the Borrower shall be permitted to collect its
Receivables and sell inventory, supplies and materials in the
ordinary course of business;
(b) the Borrower shall be permitted to transfer, sell or
otherwise dispose of Properties (other than Receivables) which
are no longer used or useful in its business, provided that
such sale, transfer or other disposition does not create a
Default or Event of Default under any other provision of this
Agreement;
(c) the Borrower shall be permitted to transfer to the
Insurance Provider for collection any past-due Receivables as
to which the Borrower has filed claims under any applicable
Credit Insurance; and
(d) the Borrower shall be permitted to grant purchase
money security interests in equipment acquired by the Borrower
after the Effective Date, provided that the Debt secured
thereby does not exceed the limitations set forth in
Subsection 7.3.1(iv) hereof.
3.3 Grant of Liens Upon Default. Upon the occurrence of any
Event of Default, or at any time thereafter during the continuation
of such Event of Default, the Bank may, at its option, require the
Borrower to grant valid and enforceable first priority Liens in
favor of the Bank in and to all of its Properties. Promptly upon
any such request, the Borrower shall execute and deliver to the
Bank such security agreements, financing statements, real estate
mortgages, deeds of trust and other collateral documents, in form
satisfactory to the Bank, as the Bank may request and as are
necessary in order to grant and convey to the Bank a first, prior
and perfected Lien in and to all of its Properties.
3.4 Guaranty. The Guarantor hereby absolutely and
unconditionally guarantees the Borrower's prompt payment and
performance of the Indebtedness and further agrees to execute and
deliver the Guaranty to the Bank. The Guarantor acknowledges and
agrees that its obligations under the Guaranty will be in
continuation and increase of its obligations under the Existing
Guaranty and that the Guaranty will supersede and replace the
Existing Guaranty.
4. CONDITIONS OF LENDING.
4.1 Effective Date. This Agreement shall be effective as of
October 31, 1996, subject to the Borrower's satisfaction of the
conditions precedent set forth in Subsection 4.2 hereof.
4.2 Conditions to Effectiveness. This Agreement and the
obligation of the Bank hereunder shall become effective only when
all of the following conditions precedent have been satisfied (to
the extent not previously satisfied):
4.2.1 Execution of Amended Loan Documents. The following
Loan Documents shall have been executed by the appropriate
parties thereto and delivered to the Bank, all in form and
substance satisfactory to the Bank:
(a) this Agreement;
(b) the Revolving Note; and
(c) the Guaranty.
4.2.2 Interest and Fees. All interest, fees and other
charges accrued under the Existing Loan Agreement to the
Effective Date shall have been paid to the Bank in full.
4.2.3 Perfection; Recordings and Filings. All actions
shall have been taken as are necessary or appropriate for the
Bank to acquire and perfect a first, prior and perfected
security interest in and to the Collateral, including the
filing of appropriate UCC-1 financing statements naming the
Borrower as debtor and the Bank as secured party and covering
the Collateral.
4.2.4 Lien Searches. The Bank shall have received
certified responses to UCC lien search requests reflecting
that there are no effective UCC financing statements on file
in any filing offices in the State of Texas or any other
states or jurisdictions in which the Borrower maintains any
place of business or owns any Properties naming the Borrower
as debtor and covering the Collateral, other than (i)
financing statements in favor of the Bank, and (ii) financing
statements relating to Permitted Liens.
4.2.5 Borrowing Base Certificate. The Bank shall have
received a properly completed Borrowing Base Certificate dated
as of the Effective Date.
4.2.6 Corporate Documents. The Bank shall have received
(i) a copy of the Articles or Certificate of Incorporation, as
amended, of the Borrower, certified as true and correct by the
Nevada Secretary of State, (ii) a copy of the Bylaws of the
Borrower, as amended, certified as true and correct by its
duly elected and acting corporate secretary, (iii) a good
standing certificate issued by the Nevada Secretary of State
certifying as to the Borrower's due incorporation and good
standing, and (iv) a certificate issued by the Secretary of
State or equivalent public official of each other state or
jurisdiction in which the Borrower does business or owns any
Properties, certifying as to its good standing as a foreign
corporation under the Laws of such state or jurisdiction.
4.2.7 Resolutions. The Bank shall have received a true
and correct copy of the resolutions adopted by the Board of
Directors of the Borrower duly authorizing the borrowings
contemplated hereunder and the execution, delivery and
performance of the Loan Documents to which it is a party.
4.2.8 Incumbency Certificates. The Bank shall have
received a certificate executed by the duly elected and acting
corporate secretary of the Borrower stating the names and
titles and containing specimen signatures of the officers
authorized to execute and deliver Loan Documents on behalf of
the Borrower as well as the officers authorized to submit
Disbursement Requests and to make telephonic requests for
Revolving Advances.
4.2.9 Insurance Policies. The Bank shall have received
copies of such insurance policies, or binders or certificates
of insurance, in form and substance satisfactory to the Bank,
evidencing that the Borrower has obtained and is maintaining
the minimum insurance coverages required by this Agreement.
4.2.10 Financial Statements. The Bank shall have
received copies of the financial statements referred to in
Subsection 5.6 hereof, and such financial statements shall be
satisfactory to the Bank.
4.2.11 Credit Insurance Policies. The Bank shall have
received copies of all policies of Credit Insurance (including
all endorsements thereto) in effect as of the Effective Date.
As to each of such policies, the Borrower shall have caused
endorsements to be issued with respect thereto in order to add
the Bank as an additional insured.
4.2.12 Other Matters. The Borrower shall have
provided the Bank with such reports, information, financial
statements, and other documents as the Bank has reasonably
requested to evidence the Borrower's compliance with the terms
and conditions of this Agreement and the Loan Documents.
4.2.13 Legal Matters. All legal matters incident to
the Loan Documents and the Revolving Loan shall be
satisfactory to the Bank and its counsel.
4.3 Conditions to Revolving Advances. The obligation of the
Bank to make any Revolving Advance on or after the Effective Date
is subject to the Borrower's satisfaction of the following
additional conditions precedent:
4.3.1 Disbursement Request. The Borrower shall have
submitted a properly executed Disbursement Request for such
Revolving Advance in accordance with the provisions of
Subsection 2.3 hereof.
4.3.2 Borrowing Base. The making of such Revolving
Advance shall not cause the total Revolving Advances
outstanding under the Revolving Note to exceed the Borrowing
Base then in effect.
4.3.3 Representations and Warranties. The
representations and warranties set forth herein and in the
other Loan Documents shall be true and accurate (except to the
extent any representations or warranties as to the financial
condition of the Borrower relate solely to an earlier
specified date).
4.3.4 No Defaults. There shall not have occurred and be
continuing any Default or Event of Default, and the Loan
Documents shall be in full force and effect.
4.3.5 No Violation. The making of such Revolving Advance
shall not cause the Bank to be in violation of any statute or
regulation or any order or decree of any Governmental
Authority.
5. REPRESENTATIONS AND WARRANTIES. In addition to the other
representations and warranties made herein, the Borrower and the
Guarantor jointly and severally represent and warrant to the Bank
as follows:
5.1 Existence and Capitalization. Each of the Borrower and
the Guarantor is a corporation, duly organized, validly existing
and in good standing under the Laws of the state of its organization,
is duly qualified or registered to conduct business and in good
standing under the Laws of all other states in which it does business,
and is duly authorized, qualified and licensed under all applicable Laws
to carry on its business as currently conducted and as contemplated to be
conducted. The Borrower's capital stock consists of 1,000,000 authorized
shares of common stock, par value $0.10 per share, of which 160,000 shares
are issued and outstanding, and 15,400 authorized shares of Preferred Stock,
of which 14,859 shares are issued and outstanding. The Guarantor is
the sole owner of 85.0% of the Borrower's outstanding shares of
common stock and all of the outstanding shares of Preferred Stock.
5.2 Authority. Each of the Borrower and the Guarantor has
full power and authority to execute, deliver and perform its
obligations under this Agreement and other Loan Documents to which
it is a party. The execution, delivery and performance of this
Agreement and the other Loan Documents to which the Borrower or the
Guarantor is a party have been duly authorized by all necessary
corporate action on its behalf.
5.3 Validity and Binding Nature. The Loan Documents to which
the Borrower and the Guarantor, as the case may be, is a party
constitute (or upon execution and delivery will constitute) its
valid and legally binding obligations, enforceable in accordance
with their respective terms (subject to any applicable bankruptcy,
insolvency and similar Laws affecting the enforcement of creditors'
rights generally and subject to general principles of equity).
5.4 Conflicting Agreements and Restrictions. Neither the
execution and delivery by the Borrower or the Guarantor of the Loan
Documents to which it is a party, nor fulfillment or compliance
with the terms and provisions thereof, will: (i) conflict with, or
result in a breach of the terms, conditions or provisions of, or
constitute a default under, or result in any violation of any
agreement, instrument, undertaking, judgment, decree, order, writ,
injunction, statute, law, rule or regulation to which it is subject
or by which its Properties are bound; (ii) result in the creation
or imposition of any Lien on any of its Properties pursuant to the
provisions of any mortgage, indenture, security agreement,
contract, undertaking or other agreement, except for security
interests created in favor of the Bank; or (iii) require any
authorization, consent, license, approval or authorization of or
other action by, or notice or declaration to, or registration with,
any Governmental Authority, or, to the extent that any such consent
or other action may be required, such consent or other action has
been validly procured or duly taken.
5.5 Actions and Proceedings; Contingent Debt. There is no
action, investigation or proceeding against the Borrower or the
Guarantor, pending or threatened, which questions the validity of
any of the Loan Documents or which is likely to have a Material
Adverse Effect. The Borrower does not have any material Contingent
Debt or contingent liabilities not provided for or disclosed in the
financial statements referred to in Subsection 5.6 hereof.
5.6 Financial Statements. The audited financial statements
of the Borrower for the fiscal year ended December 31, 1995, and
the unaudited interim financial statements of the Borrower for the
fiscal quarter ended September 30, 1996, copies of which have been
provided to the Bank, were prepared in conformity with GAAP (except
for the absence of footnotes and subject, however, to normal year-
end adjustments in the case of the financial statements for the
fiscal quarter ended September 30, 1996), and fairly present the
financial position of the Borrower as of the respective dates
thereof and for the periods stated. There has occurred no material
adverse change, either separately or in the aggregate, in the
financial position of the Borrower since September 30, 1996. The
Borrower does not have (i) any Debt which is not reflected in such
financial statements, but which, under GAAP, was required to be so
reflected, or (ii) any unusual or long-term commitments or any
unrealized or anticipated losses from any commitments which are not
reflected in such financial statements.
5.7 Ownership of Properties; Liens. The Borrower has good
title to all of its Receivables and has good title to or valid
leasehold interests in all of its other Properties, free and clear
of any Liens (other than Permitted Liens).
5.8 No Subsidiaries. The Borrower (i) does not own any
subsidiaries nor any stock in any other corporation, and (ii) is
not a partner or joint venturer in or equity owner of any
partnership, joint venture or other business association.
5.9 Permits. The Borrower has all Permits and has made all
filings, registrations and notifications with or to all
Governmental Authorities which are necessary for it to carry on its
business as now being conducted and as contemplated to be
conducted. All such Permits are valid and subsisting, and the
Borrower is in compliance with the terms of all such Permits.
5.10 No Defaults. Neither the Borrower nor the Guarantor is in
default of or in breach under any material contract, agreement or
instrument to which it is a party or by which it or any of its
Properties may be bound.
5.11 ERISA. Neither the Borrower nor the Guarantor maintains
any employee pension or other benefit plan or trust that is subject
to Title IV of ERISA.
5.12 No Violation of Applicable Law. Each of the Borrower and
the Guarantor is in compliance in all material respects with all
Laws relating to its business and operations in all states and
jurisdictions where it is currently doing business, including
Environmental Laws and Laws pertaining to equal employment
practices, labor relations and civil rights. The Borrower has not
received notice of any claimed violation of any Environmental Law
which has or is likely to have a Material Adverse Effect.
5.13 Compliance with Board Regulations. No part of the
proceeds of any Revolving Advance will be used, and no part of any
loan repaid or to be repaid with the proceeds of any Revolving
Advance was or will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or margin
stock within the meaning of Regulation G or U of the Board of
Governors of the Federal Reserve System. The assets of the Borrower
do not include any margin securities or margin stock, and the
Borrower does not have any present intention of acquiring any
margin securities or margin stock.
5.14 Investment Company Act; Public Utility Holding Company
Act. The Borrower is not (i) an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or (ii) a "holding
company," a "subsidiary company" thereof or an "affiliate" of a
"holding company" or of such a "subsidiary company," each within
the meaning of the Public Utility Holding Company Act of 1935, as
amended.
5.15 Solvency. Each of the Borrower and the Guarantor (i) is
solvent with saleable assets of a value that exceeds the amount of
its respective Debt, (ii) is able to and anticipates that it will
be able to meet its respective Debts as they mature, and (iii) has
adequate capital to conduct the business in which it is engaged.
5.16 Survival of Representations. All representations and
warranties made herein or in any other Loan Documents shall survive
the Effective Date, and any investigation at any time made by or
on behalf of the Bank shall not diminish its right to rely thereon.
All statements contained in any certificate or other instrument
delivered by or on behalf of the Borrower or the Guarantor under or
pursuant to this Agreement or any other Loan Documents or in
connection with the transactions contemplated hereby or thereby
shall constitute representations and warranties made hereunder.
6. AFFIRMATIVE COVENANTS. Until the Indebtedness has been paid
in full and all of the Bank's obligations hereunder have been
terminated, the Borrower and the Guarantor agree that, unless the
Bank shall otherwise consent in writing:
6.1 Financial Statements.
6.1.1 Annual Statements. Within ninety (90) days after
the end of each fiscal year of the Borrower, the Borrower will
furnish to the Bank a copy of its audited balance sheet as of
the end of such year and its audited statements of income,
retained earnings and cash flows for such fiscal year, each
prepared in conformity with GAAP and setting forth in each
case, in comparative form, corresponding figures from the
preceding fiscal year, all in reasonable detail and
satisfactory in scope to the Bank. Such audited financial
statements will be certified as to fairness of presentation,
compliance with GAAP and consistency by independent certified
public accountants of recognized standing selected by the
Borrower and acceptable to the Bank.
6.1.2 Monthly Statements. Within thirty (30) after the
end of each calendar month, the Borrower will furnish to the
Bank a copy of its unaudited interim financial statements
(including a balance sheet, statement of income and any other
information which may be requested by the Bank), prepared in
conformity with GAAP and, except for the absence of footnotes,
presented in a manner consistent with the audited financial
statements required under Subsection 6.1.1 hereof and
certified (subject to normal year-end adjustments) as to
fairness of presentation, compliance with GAAP and consistency
by the chief financial officer of the Borrower.
6.1.3 Guarantor Statements. Within ninety (90) days
after the end of each fiscal year of the Guarantor, the
Guarantor will furnish to the Bank a copy of its audited
consolidated balance sheet as of the end of such year and its
audited consolidated statements of income, retained earnings
and cash flows for such fiscal year, each prepared in
conformity with GAAP and setting forth in each case, in
comparative form, corresponding figures from the preceding
fiscal year, all in reasonable detail and satisfactory in
scope to the Bank. Such audited financial statements will be
certified as to fairness of presentation, compliance with GAAP
and consistency by independent certified public accountants of
recognized standing selected by the Guarantor and acceptable
to the Bank.
6.2 Reports.
6.2.1 Borrowing Base Certificates. Within thirty (30)
days after the end of each calendar month, the Borrower will
furnish to the Bank a completed Borrowing Base Certificate,
prepared as of the end of such month and certified by the
chief financial officer of the Borrower, showing the
Borrower's calculation (which shall not be binding on the
Bank) of its Eligible Insured Receivables and Eligible
Uninsured Receivables (stated separately), and the Borrowing
Base.
6.2.2 Compliance Certificates. Within thirty (30) after
the end of each calendar quarter, the Borrower will furnish to
the Bank a completed Compliance Certificate, signed by the
chief financial officer of the Borrower, (i) stating that no
Default or Event of Default has occurred and is then
continuing (or, if any Default or Event of Default has
occurred and is then continuing, setting forth the remedial
steps being taken by the Borrower), and (ii) demonstrating the
Borrower's compliance with the financial covenants set forth
in Subsection 7.8 hereof.
6.2.3 Aging Reports. Within thirty (30) days after the
end of each calendar quarter, the Borrower will furnish to the
Bank a completed aging report: (i) listing or identifying the
Receivables of the Borrower and the unpaid balance of each;
(ii) showing as to each Receivable, (A) the name of the
account debtor, (B) the total amount owing, (C) the status of
payments, (D) the current amount owing, (E) the amounts past
due in relation to the contractual due date (including the
aging thereof), and (F) whether such Receivable is an Insured
Receivable or an Uninsured Receivable.
6.3 Other Information and Notifications.
6.3.1 Financial Information. Within ten (10) days after
each request (or as soon thereafter as is practical under the
circumstances), the Borrower will furnish the Bank with such
other information concerning its business, operations and
financial condition as may be reasonably requested from time
to time by the Bank.
6.3.2 Credit Insurance. The Borrower will promptly notify
the Bank if any policy of Credit Insurance is cancelled or
terminated, of if the rating of the Insurance Provider, as
published by A.M. Best Company, falls below the level of "A,"
or if the Insurance Provider fails to pay any claims submitted
by the Borrower with respect to any Insured Receivable in
excess of $50,000.00.
6.3.2 Litigation. The Borrower will promptly notify the
Bank, but in any event within seven (7) days, after it knows
of any pending suit, action, investigation or administrative
proceeding against or affecting the Borrower or any of its
Properties, if the amount sued for or the value of the
Property involved (notwithstanding any insurance coverage
therefor) is $100,000.00 or more.
6.3.4 Notification of Liens. The Borrower will promptly
notify the Bank, but in any event within seven (7) days, after
it knows of the existence or asserted existence of any Lien on
any of its Properties (excluding only Permitted Liens).
6.3.5 Other Notifications. The Borrower will promptly
notify the Bank, but in any event within seven (7) days, after
it knows that any of the following has occurred: (i) a
Default or an Event of Default; (ii) any change in the assets,
liabilities, financial condition, business, operations,
affairs or circumstances of the Borrower which might have a
Material Adverse Effect; or (iii) any material change in the
accounting practices and procedures of the Borrower, including
a change in fiscal year.
6.4 Books and Records. The Borrower will maintain books and
records and administer a system of accounting in accordance with
sound business practices sufficient to permit the preparation of
financial statements in conformity with GAAP. The Bank will have
the right to examine and copy such books and records at its
expense, and to discuss the affairs, operations, finances and
accounts with the Borrower's officers, during normal business hours
and upon reasonable notice.
6.5 Field Audits; Inspection. The Borrower will permit the
Bank, at the Bank's sole expense, through its authorized agents and
representatives (who need not be employees of the Bank), to conduct
periodic field audits of the Borrower and to review the Borrower's
operations, books and records, accounts receivable methods and
controls, credit policies, charge-off policies, collection
procedures, compliance with applicable Laws, maintenance of Credit
Insurance, and other matters relating to the value and maintenance
of the Collateral and the Borrower's financial reporting.
6.6 Insurance.
6.6.1 Credit Insurance. The Borrower will maintain
Credit Insurance in full force and effect with an Insurer
Provider having a rating (as published by A.M. Best Company)
of least "A" with respect to each Receivable represented to
the Bank to be an Insured Receivable and will comply with all
terms and conditions set forth in each policy of Credit
Insurance covering any Insured Receivables.
6.6.2 Liability and Casualty Insurance. In addition to
the Credit Insurance referred to in Subsection 6.6.1 hereof,
the Borrower will maintain in full force and effect insurance
policies, in amounts and against risks consistent with
insurance coverage customarily or typically maintained by
similar businesses which are similarly situated. If requested,
the Borrower will furnish the Bank with copies of all
insurance policies in effect and evidence of premium payment
thereon.
6.7 Taxes; Other Liens. The Borrower will pay when due all
taxes, assessments, governmental charges or levies owing or payable
by it, and will pay when due all claims for labor, materials,
supplies, rent and other obligations which, if unpaid, might become
a Lien against its Properties, except to the extent any of the
foregoing are being diligently contested in good faith by
appropriate legal proceedings and against which there are
established adequate reserves in conformity with GAAP.
6.8 Existence. Each of the Borrower and the Guarantor will
maintain its existence as a corporation under the Laws of the state
of its incorporation and will be duly qualified or licensed to
conduct business and in good standing under the Laws of each state
or jurisdiction in which it does business.
6.9 Permits. The Borrower will maintain all Permits which
are necessary for it to carry on its business as now being
conducted or as contemplated to be conducted, or which, if not
obtained, would have a Material Adverse Effect.
6.10 Maintenance of Properties. The Borrower will maintain
all of its Properties in good and workable condition, repair and
appearance, normal wear and tear excepted.
6.11 Compliance with Laws. The Borrower will comply in all
material respects with all Laws applicable to its business and
operations or by which its Properties are bound or affected,
including Environmental Laws and Laws pertaining to equal
employment practices, labor relations and civil rights, except to
the extent that any of the foregoing are being diligently contested
in good faith by appropriate legal proceedings and against which
there are established adequate reserves in conformity with GAAP.
6.12 Further Assurances. The Borrower will, upon request,
cure or cause to be cured any defects or omissions in the execution
and delivery of, or the compliance with, the Loan Documents or the
conditions described in Section 4 hereof.
6.13 Reimbursement of Expenses. The Borrower will pay or
reimburse the Bank, either at the Effective Date (if applicable) or
within ten (10) days after the Bank presents a statement therefor,
for (i) all reasonable and customary out-of-pocket expenses
incurred by the Bank in connection with the negotiation and
preparation of this Agreement and the Loan Documents and the
consummation of the transactions herein contemplated, including
filing fees, recording costs, examinations of and certifications as
to public records, and reasonable attorneys' fees and expenses,
(ii) all reasonable and customary out-of-pocket expenses, including
attorneys' fees and expenses, incurred by the Bank in connection
with (A) any amendment, modification, interpretation, termination,
waiver or consent with respect to this Agreement or the other Loan
Documents, or (B) any action taken by the Bank to protect or defend
its security interest in the Collateral, and (iii) upon the
occurrence of any Event of Default, all amounts reasonably
expended, advanced or incurred by the Bank (A) to satisfy any
obligation of the Borrower under the Loan Documents, or (B) to
collect upon the Revolving Note or any other obligations included
in the Indebtedness, or (C) to enforce the rights of the Bank under
the Loan Documents or to collect, foreclose, or otherwise realize
upon the Collateral, which amounts will include all court costs,
attorneys' fees, fees of auditors and accountants, and
investigation expenses reasonably incurred by the Bank in
connection with any such matters.
6.14 Subordination. The Guarantor will at all times own and
control 100% of the outstanding shares of Preferred Stock. The
Guarantor hereby subordinates its rights to receive payment of
dividends on the outstanding shares of Preferred Stock and its
right to require redemption of outstanding shares of Preferred
Stock to the prior payment in full of the Indebtedness. The
Guarantor will not demand or receive payment of or dividends on or
redemption of any outstanding shares of Preferred Stock if (i) any
Default or Event of Default has occurred and is continuing as of
the date any such dividend or redemption is to be paid or made, or
(ii) the payment of such dividend or the making of such redemption
would create or give rise to a Default or Event of Default under
any other provision of this Agreement (including the financial
covenants set forth in Subsection 7.8 hereof).
7. NEGATIVE COVENANTS. Until the Indebtedness has been paid in
full and all of the Bank's obligations hereunder have been
terminated, each of the Borrower and the Guarantor agrees that,
unless the Bank shall otherwise consent in writing:
7.1 Changes in Structure.
7.1.1 Mergers, Consolidations and Reorganizations. The
Borrower will not: (i) merge or consolidate with any Person
(or enter into any merger or consolidation agreement or plan);
(ii) permit any such merger or consolidation with it; or (iii)
adopt or effect any plan of reorganization or
recapitalization.
7.1.2 Formation of Subsidiaries. The Borrower will not:
(i) form or acquire any subsidiaries or otherwise acquire any
stock in any other corporation; or (ii) become a partner or
joint venturer in or equity owner of any partnership, joint
venture or other business entity.
7.1.3 Changes in Nature of Business. The Borrower will
not: (i) discontinue its business or any material line of
business; (ii) make any material change in the nature of or
manner in which it conducts its business; or (iii) liquidate,
wind-up or dissolve.
7.2 Loans to and Transactions with Affiliates.
7.2.1 Loans. The Borrower will not make or suffer to
exist any loans, advances and other extensions of credit,
directly or indirectly, to or for the benefit of its
Affiliates, other than (i) intercompany receivables due from
Affiliates arising from normal trade activity consistent with
current practice, and (ii) advances of reasonable travel
expenses to employees of the Borrower in the ordinary course
of business.
7.2.2 Other Transactions. The Borrower will not enter
into any other transaction with any Affiliate, including any
purchase, sale or exchange of property or the rendering of any
services, except in the ordinary course of and pursuant to the
reasonable requirements of its business and upon fair and
reasonable terms no less favorable to it than would exist in
a comparable transaction with a Person other than an
Affiliate.
7.3 Restrictions on Debt.
7.3.1 Debt. The Borrower will not create, incur, become
obligated for, guarantee or suffer to exist any Debt, except
for: (i) the Indebtedness; (ii) currently outstanding Debt
reflected in the financial statements referred to in
Subsection 6.5 hereof or disclosed on Schedule II attached
hereto; (iii) current accounts payable arising in the ordinary
course of business which are not past due or in default and
which are not evidenced by any promissory note or other
instrument; and (iv) additional Debt not in excess of $200,000
incurred after the Effective Date.
7.3.2 Contingent Debt. The Borrower will not, directly
or indirectly, create, incur, become obligated for or suffer
to exist any Contingent Debt.
7.4 Restrictions on Dividends. The Borrower will not: (i)
declare, make or pay any dividends on shares of any class of its
capital stock, or set apart any sum of money or any assets for the
payment of dividends, or make any other distribution, by reduction
of capital or otherwise, in respect of any class of its capital
stock; (ii) purchase, redeem, retire, or otherwise acquire, either
directly or indirectly, any shares of any class of its capital
stock, or set apart any sum of money or any of its assets therefor,
or (iii) make any other type of payment or distribution of cash,
property or assets to or among any of its shareholders (in their
capacities as shareholders). Notwithstanding the foregoing, the
Borrower may declare and pay dividends on, and/or redeem shares of,
its currently outstanding Preferred Stock, provided that (A) no
Default or Event of Default has occurred and is continuing as of
the date any such dividend or redemption is to be paid or made, and
(B) the payment of such dividend or the making of such redemption
would not create or give rise to a Default or Event of Default
under any other provision of this Agreement (including the
financial covenants set forth in Subsection 7.8 hereof).
7.5 Insurance.
7.5.1 Credit Insurance. The Borrower will not: (i)
breach or fail to perform any term or condition of any policy
of Credit Insurance if such breach or failure could cause such
policy to be suspended, impaired or defeated with respect to
any Insured Receivables included in the Borrowing Base; (ii)
permit any event or circumstance to occur or exist which would
authorize or entitle the Insurance Provider to terminate or
cancel any policy of Credit Insurance issued by it, or to
refuse payment or coverage under any Credit Insurance, with
respect to any Insured Receivables included in the Borrowing
Base; or (iii) make or permit any material modification or
change in the terms or conditions of any Credit Insurance.
7.5.2 Other Insurance. The Borrower will not commit or
suffer to be committed any act whereby any insurance required
under Subsection 6.7 will or may be suspended, impaired or
defeated, nor suffer or permit its Properties to be used in a
manner not permitted under any insurance policy then in
effect.
7.6 Capital Expenditures. The Borrower will not incur
aggregate Capital Expenditures in any period of four consecutive
quarters ending on a Quarterly Calculation Date in excess of the
Borrower's Excess Cash Flow for the same period.
7.7 Sale-Leaseback Transactions. The Borrower will not make
or permit the occurrence of any sale, transfer or disposition of
any of its Properties followed by the Borrower's leasing or rental
of such Property, or any portion thereof, as lessee.
7.8 Financial Covenants.
7.8.1 Current Ratio. The Borrower will not permit its
current ratio (i.e., the ratio of its current assets to its
current liabilities) to be less than 1.00 to 1.00 (1.00:1.00)
at any time. For purposes of this Subsection 7.8.1, current
liabilities shall include the outstanding Revolving Advances,
but shall exclude (i) the current maturities of long-term
Debt, and (ii) Preferred Stock redemptions payable.
7.8.2 Tangible Net Worth. The Borrower will not at any
time permit its tangible net worth to be less than
$5,000,000.00.
7.8.3 Debt to Net Worth Ratio. The Borrower will not
permit the ratio of its total Debt to its tangible net worth
to exceed 0.85 to 1.00 (0.85:1.00) at any time.
7.8.4 Cash Flow Coverage Ratio. The Borrower will not
permit its Cash Flow Coverage Ratio, determined as of each
Quarterly Calculation Date, to be less than 1.25 to 1.00
(1.25:1.00).
8. EVENTS OF DEFAULT. The occurrence of any of the following
events or existence of any of the following circumstances, unless
waived in writing by the Bank, will constitute an "Event of
Default":
8.1 Nonpayment by Borrower. If the Borrower fails to pay any
principal of or interest on the Revolving Note as and when the same
becomes due and payable (whether at the stated due date, upon a
mandatory prepayment, or otherwise); or if the Borrower fails to
pay any installment of the Non-Use Fee or any other amount due and
payable to the Bank, under the terms of the Loan Documents or
otherwise, within five (5) days after the date such amount becomes
due and payable; or
8.2 Representations and Warranties. If any representation,
warranty, statement, certificate, schedule or report made or
furnished to the Bank by or on behalf of the Borrower or the
Guarantor proves to have been false or erroneous in any material
respect as of the date on which such warranty or representation was
made; or
8.3 Breach of Covenants. If (i) the Borrower or the Guarantor
fails to perform or observe any covenant or agreement contained in
Subsection 6.1, 6.2, 6.6, 6.7, 6.9, 6.10, 6.11 or 6.13 which is
applicable to it and such failure continues for thirty (30) days
after written notice thereof from the Bank to the Borrower or the
Guarantor, as the case may be, or (ii) the Borrower or the
Guarantor fails to perform or observe any covenant or agreement
contained in Subsection 6.3, 6.4, 6.5, 6.8, 6.12, 6.14, 7.1, 7.2,
7.3, 7.4, 7.5, 7.6, 7.7 or 7.8 which is applicable to it; or
8.4 Other Breach of Covenants. If the Borrower or the
Guarantor fails to perform or observe any covenants or agreements
contained in any other Loan Document to which it is a party and
such failure continues beyond the expiration of any applicable
grace period expressly stated therein; or
8.5 Insolvency. If the Borrower or the Guarantor (i) applies
for or consents to the appointment of a custodian, receiver,
trustee or liquidator for itself or any of its Properties, (ii)
admits in writing the inability to pay, or generally fails to pay,
its debts as they become due, (iii) makes a general assignment for
the benefit of creditors, (iv) commences any proceeding relating to
its bankruptcy, reorganization, liquidation, receivership,
conservatorship, insolvency, readjustment of debt, dissolution or
liquidation, or if action is taken for the purpose of effecting any
of the foregoing, (v) suffers any such appointment or commencement
of a proceeding as described in clause (i) or (iv) of this
Subsection 8.5, which appointment or proceeding is not terminated
or discharged within sixty (60) days, or (vi) becomes insolvent; or
8.6 Judgments. If the Borrower or the Guarantor has entered
against it by any court or binding arbitrator a final judgment or
award for an uninsured amount in excess of $500,000.00, or if the
Borrower or the Guarantor enters into a settlement agreement which
obligates the Borrower or the Guarantor to pay an uninsured amount
in excess of $500,000.00; or
8.7 Default on Other Debt. If the Borrower or the Guarantor
fails to pay any principal or interest on any Debt for borrowed
money as and when the same becomes due and payable and such failure
continues beyond the expiration of any applicable grace period
expressly provided, or if any default or event of default shall
occur under the terms of any agreement or other document governing
any such Debt which would entitle the holder or holders thereof to
accelerate the maturity thereof; or
8.8 Changes With Respect to Credit Insurance. If (i) any
policy of Credit Insurance covering any Insured Receivable is
terminated or cancelled, (ii) the rating of the Insurance Provider,
as published by A.M. Best Company, falls below the level of "A" and
the Borrower fails to obtain replacement Credit Insurance from
another Insurer Provider acceptable to the Bank within ninety (90)
days thereafter, or (iii) the Insurance Provider fails to pay
claims filed by the Borrower on account of the Insurance Provider's
insolvency or inability to pay; or
8.9 ERISA Noncompliance. If any employee pension or other
benefit plan or trust sponsored by the Borrower or the Guarantor or
maintained on behalf of employees of the Borrower incurs an
"accumulated funding deficiency" (as such term is defined in
Section 302(a)(2) of ERISA), whether or not waived by the Internal
Revenue Service, or if a "reportable event" (as such term is
defined in Section 4043(b) of ERISA) occurs with respect to any
such plan or trust as a result of which the Borrower could be
obligated to make payments to the Pension Benefit Guaranty
Corporation aggregating in excess of five percent (5%) of its
tangible net worth, or if in connection with the termination of any
such plan or trust, the Borrower incurs a liability to the Pension
Benefit Guaranty Corporation under Sections 4062, 4063 or 4064 of
ERISA.
9. REMEDIES UPON DEFAULT.
9.1 Termination of Revolving Commitment. Upon the occurrence
of any Event of Default specified in Subsection 8.5 hereof, the
Revolving Commitment and the obligation of the Bank hereunder to
make Revolving Advances will automatically be terminated. Upon the
occurrence of any other Event of Default, the Bank may, at its
option, without notice or demand, terminate the Revolving
Commitment and its obligation to make further Revolving Advances.
9.2 Acceleration of Indebtedness. Upon the occurrence of any
Event of Default specified in Subsection 8.5 hereof, the Revolving
Note and all other Indebtedness will become immediately due and
payable, without notice or demand. Upon the occurrence of any
other Event of Default, the Bank may, at its option, without notice
or demand, declare the Revolving Note and all other Indebtedness to
be immediately due and payable.
9.3 Remedies. Upon the occurrence and during the
continuation of any Event of Default, the Bank will be entitled to
exercise all remedies available to it under the Loan Documents or
otherwise under applicable law, including (i) exercising any and
all rights under the Security Agreement and the UCC with respect to
the Collateral, and (ii) commencing one or more actions against the
Borrower or the Guarantor and reducing the claims of the Bank to
judgment.
9.4 Cumulative Remedies. No failure on the part of the Bank
to exercise, and no delay in exercising, any right or remedy under
the Loan Documents will operate as a waiver thereof, nor will any
single or partial exercise by the Bank of any right thereunder
preclude any other or further right of exercise thereof or the
exercise of any other right. The remedies provided herein and in
the other Loan Documents are cumulative and not alternative.
9.5 Waiver of Default. The Bank may, by an instrument in
writing, waive any Default or Event of Default and any of the
consequences of such Default or Event of Default, but no such
waiver shall extend to any subsequent or other Default or Event of
Default or impair any consequence of such subsequent or other
Default or Event of Default.
9.6 Deposits; Setoff. Regardless of the adequacy of any
other collateral security held by the Bank, any deposits or other
sums credited by or due from the Bank to the Borrower will at all
times constitute collateral security for the Indebtedness and may
be set off against the Indebtedness at any time, whether or not the
Indebtedness has been declared immediately due and payable. The
rights granted by this Subsection 9.6 are in addition to the rights
of the Bank under any statutory banker's lien or the common law
right of set off. This Subsection 9.6 shall not apply to any
monies of which the Borrower is not the beneficial owner,
regardless of the name in which the money is deposited, or to any
monies which the Borrower is contractually obligated to spend in
whole or in part for the account of others, provided that the
Borrower has established special accounts or given the Bank written
notice that particular funds are beneficially owned by others or
are dedicated for particular expenditures. If the Borrower fails
to establish such special accounts and fails to give such notice,
the Bank may assume that funds on deposit to the account of the
Borrower belong solely to the named depositor and are subject to
this Subsection 9.6.
9.7 Application of Payments. During the continuation of any
Event of Default, all payments received by the Bank with respect to
the Indebtedness, whether from the Borrower, the Guarantor,
recoveries upon the Collateral, or otherwise, may be applied by the
Bank to any liabilities, obligations or indebtedness included in
the Indebtedness selected by the Bank in its sole and exclusive
discretion.
10. GENERAL PROVISIONS. It is further agreed as follows:
10.1 Participating Lender. The Borrower understands that,
although the Revolving Note and the other Loan Documents name the
Bank as the holder thereof, the Bank may from time to time sell one
or more participation interests in the Revolving Loan to one or
more other financial institutions. The Borrower agrees that,
subject to the terms of the agreements of participation, each
participating lender will be entitled to rely on the terms of this
Agreement and the other Loan Documents as fully as if such
participating lender had been named as the holder of the Revolving
Note and the other Loan Documents.
10.2 Hold Harmless. Except for a successful claim against the
Bank by the Borrower, the Borrower will indemnify and hold the Bank
and each participant in the Revolving Note harmless from all
liability, loss, damages or expense, including reasonable
attorney's fees, that the Bank or any such participant may incur in
good faith as a result of entering into the Loan Documents or
establishing the Revolving Loan, or in compliance with or in the
enforcement of the terms of the Loan Documents.
10.3 Notices. All notices, notifications, requests and
demands required or authorized hereunder shall be given in writing
or shall be served in person, delivered by overnight courier for
next day delivery or by certified mail, return receipt requested,
or transmitted by telefacsimile, addressed as follows:
If to the Borrower: Carbonic Reserves
10110 Huebner Road
San Antonio, Texas 78240
Attn: Randy Thacker
Fax: (210) 690-3383
If to the Guarantor: The Beard Company
5600 North May Avenue, Suite 320
Oklahoma City, Oklahoma 73112
Attn: Herb Mee, Jr.
Fax: (405) 842-9901
If to the Bank: Liberty Bank and Trust Company
of Oklahoma City, N.A.
100 N. Broadway
P.O. Box 25848
Oklahoma City, Oklahoma 73125
Attn: Judy Barrett Felder
Fax: (405) 231-6761
or at such other address as any party hereto shall designate for
such purpose in a written notice to the other party hereto.
Notices served in person will be effective and deemed given when
delivered; notices sent by certified mail will be effective and
deemed given three (3) Business Days after being deposited in the
U.S. mail, postage prepaid; notices sent by overnight courier for
next day delivery will be effective and deemed given on the next
Business Day after being delivered to the courier service; and
notices transmitted by telefacsimile will be deemed given when
sent, as indicated by the sender's written confirmation of
transmission.
10.4 Applicable Law. This Agreement and all other Loan
Documents have been delivered to and accepted by the Bank in the
State of Oklahoma, are to be performed in the State of Oklahoma and
shall be deemed contracts made under the Laws of the State of
Oklahoma, and all rights and indebtedness hereunder, including
matters of construction, validity and performance, shall be
governed by the Laws of the State of Oklahoma.
10.5 Construction. Nothing in this Agreement shall be
construed to constitute the Bank as a joint venturer with the
Borrower or to constitute a partnership. The descriptive headings
of the Sections and Subsections of this Agreement are for
convenience only and shall not be used in the construction of the
content of this Agreement.
10.6 Binding Effect. This Agreement and the other Loan
Documents shall be binding on, and shall inure to the benefit of,
the parties hereto and their respective successors and assigns;
provided, that without the prior, written consent of the Bank, the
Borrower will not assign or transfer any of its interest, rights or
obligations arising out of or relating to the Loan Documents.
10.7 Exhibits and Schedules. The exhibits and schedules
attached to this Agreement are incorporated herein for all purposes
and shall be considered a part of this Agreement.
10.8 Entire Agreement; Conflicting Provisions. This Agreement
constitutes the entire agreement of the parties hereto with respect
to the Revolving Loan and all matters arising out of or related
thereto, superseding the Existing Loan Agreement and all prior
negotiations, understandings or communications (written or oral).
In the event of any direct conflict between or among the provisions
of this Agreement and the provisions of any other Loan Documents,
the provisions of this Agreement shall control. All Loan Documents
executed pursuant to the Existing Loan Agreement shall continue in
full force and effect according to their original stated terms,
except to the extent that any Loan Document has been amended and/or
restated in connection with the execution and delivery of this
Agreement.
10.9 Waivers. No act, delay, omission or course of dealing
between or among the parties hereto will constitute a waiver of
their respective rights or remedies under this Agreement or the
other Loan Documents. No waiver, change, modification or discharge
of any of the rights and duties of the parties hereto will be
effective unless contained in a written instrument signed by the
party sought to be bound.
10.10 Jurisdiction and Venue. All actions or proceedings
with respect to this Agreement or any of the other Loan Documents
may be instituted in any state or federal court sitting in Oklahoma
County, Oklahoma, as the Bank may elect.
10.11 Counterpart Execution. This Agreement may be executed
in any number of counterparts, all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this
Agreement to be duly executed in multiple counterparts, each of
which shall be considered an original, effective as of the
Effective Date.
CARBONIC RESERVES,
a Nevada corporation
HERB MEE, JR.
Herb Mee, Jr., Vice President
THE BEARD COMPANY,
an Oklahoma corporation
HERB MEE, JR.
Herb Mee, Jr., President
LIBERTY BANK AND TRUST COMPANY OF
OKLAHOMA CITY, NATIONAL ASSOCIATION
JUDY BARRETT FELDER
Judy Barrett Felder, Vice President
EXHIBITS AND SCHEDULES
Exhibit A - Form of Revolving Note
Exhibit B - Form of Guaranty Agreement
Exhibit C - Form of Disbursement Request
Exhibit D - Form of Borrowing Base Certificate
Exhibit E - Form of Compliance Certificate
Schedule I - Existing Liens
Schedule II - Existing Debt
EXHIBIT 4(q)
AMENDED AND RESTATED
RENEWAL PROMISSORY NOTE
$500,000.00 Oklahoma City, Oklahoma
October 11, 1996
For value received, the undersigned, The Beard Company, an Oklahoma
corporation (the "Maker"), agrees to all of the terms of this Amended and
Restated Promissory Note (this "Note") and promises to pay to the order of
William M. Beard and Lu Beard as Trustees of the William M. Beard and Lu Beard
Charitable Unitrust (individually and collectively called the "Holder"), at
Enterprise Plaza, Suite 320, 5600 N. May, Oklahoma City, Oklahoma 73112, or at
such other place as may be designated in writing by the Holder of this Note, the
principal sum of Five Hundred Thousand Dollars ($500,000.00) or, if less than
such amount, the aggregate unpaid principal amount of all advances or loans made
by the Holder to the Maker, and all interest accruing thereon. THIS NOTE
SUPERSEDES THE PRIOR NOTE BY THE MAKER TO THE HOLDER DATED MARCH 31, 1996. This
Note will be payable as follows:
Interest will accrue on the unpaid principal balance of this Note
at the per annum interest rate of ten percent (10%) (the
"Applicable Rate"). Interest has been paid on the original note
to March 31, 1996 and will continue to accrue from this date and
thereafter until this Note is paid in full. Interest will be
computed for the actual number of days elapsed at a per diem
charge based on a year consisting of three hundred sixty (360)
days. All obligations evidenced by and owing pursuant to the
terms of this Note, including principal and interest, are due and
payable March 31, 1998.
Both principal and interest owing pursuant to the terms of this Note are
payable in the lawful currency of the United States of America and in
immediately available funds. The Holder may disburse the principal of this
Note to the Maker in one or more advances or loans as determined by the Holder
in his sole discretion. All payments made on this Note will be applied to
this Note when received by the Holder hereof in collected funds. Any sum not
paid when due will bear interest at the rate equal to the Applicable Rate plus
five percent (5%) and will be paid at the time of, and as a condition precedent
to, the curing of any "Default", as that term is hereinafter defined in this
Note. During the existence of any Default, the Holder of this Note may
apply payments received on any amount due hereunder or under the terms of
any instrument hereafter evidencing or securing said indebtedness as the Holder
may determine.
The Maker 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, the Maker will pay to the Holder all reasonable attorney's fees and
all expenses incurred by the Holder in connection therewith.
THIS NOTE IS GIVEN BY THE MAKER AND ACCEPTED BY THE HOLDER PURSUANT TO A
LENDING TRANSACTION CONTRACTED, CONSUMMATED, AND TO BE PERFORMED IN OKLAHOMA
CITY, OKLAHOMA COUNTY, OKLAHOMA, AND THIS NOTE SHALL BE CONSTRUED ACCORDING TO
THE LAWS OF THE STATE OF OKLAHOMA. The payment of all indebtedness evidenced by
this Note is unsecured. However, in the event of any Default, the Holder may
request, and the Maker agrees to furnish to the Holder, agreeable collateral and
such security agreements as the Maker may reasonably require to secure the
indebtedness.
At the option of the Holder, the unpaid balance of this Note, and all other
obligations of the Maker to the Holder, whether direct or indirect, absolute or
contingent, now existing or hereafter arising, shall become immediately due and
payable without presentment, protest, notice or demand upon the occurrence or
existence of one or more of the following events or conditions ("Default"):
1. any payment required by this Note or any other note or obligation of
the Maker to the Holder or to others is not made when due in the amount
required; and
2. any default or breach occurs in the performance of any covenant,
obligation, representation, warranty, or provision contained in this Note or in
any other note or obligation of the Maker to Holder or to others;
No waiver of any payment or other right under this Note by the Holder shall
operate as a waiver of any other payment or right. Any payments hereunder may,
at the option of the Holder, be recorded on this Note and shall be prima facie
evidence of such payments and the unpaid balance of this Note.
The Maker has the right to prepay this Note in whole or in part at any time
and from time to time without premium or penalty, but with accrued interest to
the date of the prepayment on the amount prepaid.
The Maker waives presentment for payment, protest and notice of
nonpayment.
IN WITNESS WHEREOF, the Maker has executed this instrument effective on
the date first above written.
ATTEST: THE BEARD COMPANY
REBECCA G. WITCHER HERB MEE, JR.
Rebecca G. Witcher, Secretary Herb Mee, Jr., President
EXHIBIT 4(r)
AMENDED AND RESTATED
RENEWAL PROMISSORY NOTE
$500,000.00 Oklahoma City, Oklahoma
February 17, 1997
For value received, the undersigned, The Beard Company, an Oklahoma
corporation (the "Maker"), agrees to all of the terms of this Amended and
Restated Promissory Note (this "Note") and promises to pay to the order of
William M. Beard and Lu Beard as Trustees of the William M. Beard and Lu Beard
Charitable Unitrust (individually and collectively called the "Holder"), at
Enterprise Plaza, Suite 320, 5600 N. May, Oklahoma City, Oklahoma 73112, or at
such other place as may be designated in writing by the Holder of this Note, the
principal sum of Five Hundred Thousand Dollars ($500,000.00) or, if less than
such amount, the aggregate unpaid principal amount of all advances or loans made
by the Holder to the Maker, and all interest accruing thereon. THIS NOTE
SUPERSEDES THE PRIOR NOTE BY THE MAKER TO THE HOLDER DATED OCTOBER 11, 1996.
This Note will be payable as follows:
Interest will accrue on the unpaid principal balance of this Note
at the per annum interest rate of ten percent (10%) (the
"Applicable Rate"). Interest has been paid on the original note
to February 17, 1997 and will continue to accrue from this date
and thereafter until this Note is paid in full. Interest will be
computed for the actual number of days elapsed at a per diem
charge based on a year consisting of three hundred sixty (360)
days. All obligations evidenced by and owing pursuant to the
terms of this Note, including principal and interest, are due and
payable March 31, 1998.
Both principal and interest owing pursuant to the terms of this Note are
payable in the lawful currency of the United States of America and in
immediately available funds. The Holder may disburse the principal of this
Note to the Maker in one or more advances or loans as determined by the Holder
in his sole discretion. All payments made on this Note will be applied to this
Note when received by the Holder hereof in collected funds. Any sum not paid
when due will bear interest at the rate equal to the Applicable Rate plus five
percent (5%) and will be paid at the time of, and as a condition precedent
to, the curing of any "Default", as that term is hereinafter defined in this
Note. During the existence of any Default, the Holder of this Note may apply
payments received on any amount due hereunder or under the terms of any
instrument hereafter evidencing or securing said indebtedness as the Holder may
determine.
The Maker 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, the Maker will pay to the Holder all reasonable attorney's fees and
all expenses incurred by the Holder in connection therewith.
THIS NOTE IS GIVEN BY THE MAKER AND ACCEPTED BY THE HOLDER PURSUANT TO A
LENDING TRANSACTION CONTRACTED, CONSUMMATED, AND TO BE PERFORMED IN OKLAHOMA
CITY, OKLAHOMA COUNTY, OKLAHOMA, AND THIS NOTE SHALL BE CONSTRUED ACCORDING TO
THE LAWS OF THE STATE OF OKLAHOMA. The payment of all indebtedness evidenced by
this Note is unsecured. However, in the event of any Default, the Holder may
request, and the Maker agrees to furnish to the Holder, agreeable collateral and
such security agreements as the Maker may reasonably require to secure the
indebtedness.
At the option of the Holder, the unpaid balance of this Note, and all other
obligations of the Maker to the Holder, whether direct or indirect, absolute or
contingent, now existing or hereafter arising, shall become immediately due and
payable without presentment, protest, notice or demand upon the occurrence or
existence of one or more of the following events or conditions ("Default"):
1. any payment required by this Note or any other note or obligation of
the Maker to the Holder or to others is not made when due in the amount
required; and
2. any default or breach occurs in the performance of any covenant,
obligation, representation, warranty, or provision contained in this Note or in
any other note or obligation of the Maker to Holder or to others;
No waiver of any payment or other right under this Note by the Holder shall
operate as a waiver of any other payment or right. Any payments hereunder may,
at the option of the Holder, be recorded on this Note and shall be prima facie
evidence of such payments and the unpaid balance of this Note.
The Maker has the right to prepay this Note in whole or in part at any time
and from time to time without premium or penalty, but with accrued interest to
the date of the prepayment on the amount prepaid.
The Maker waives presentment for payment, protest and notice of nonpayment.
IN WITNESS WHEREOF, the Maker has executed this instrument effective on
the date first above written.
ATTEST: THE BEARD COMPANY
REBECCA G. WITCHER HERB MEE, JR.
Rebecca G. Witcher, Secretary Herb Mee, Jr., President
EXHIBIT 4(u)
AMENDED AND RESTATED
RENEWAL PROMISSORY NOTE
$140,000.00 Oklahoma City, Oklahoma
February 17, 1997
For value received, the undersigned, The Beard Company, an Oklahoma
corporation (the "Maker"), agrees to all of the terms of this Amended and
Restated Renewal Promissory Note (this "Note") and promises to pay to the order
of William M. Beard as Trustee of the William M. Beard Irrevocable Trust "B"
(the "Holder"), at Enterprise Plaza, Suite 320, 5600 N. May, Oklahoma City,
Oklahoma 73112, or at such other place as may be designated in writing by the
Holder of this Note, the principal sum of One Hundred Forty Thousand Dollars
($140,000.00) or, if less than such amount, the aggregate unpaid principal
amount of all advances or loans made by the Holder to the Maker, and all
interest accruing thereon. This Note will be payable as follows:
Interest will accrue on the unpaid principal balance of this Note
at the per annum interest rate of ten percent (10%) (the
"Applicable Rate"). Interest has been paid on the Note to
February 17, 1997 and will continue to accrue from this date and
thereafter until this Note is paid in full. Interest will be
computed for the actual number of days elapsed at a per diem
charge based on a year consisting of three hundred sixty (360)
days. All obligations evidenced by and owing pursuant to the
terms of this Note, including principal and interest, are due and
payable February 17, 1999.
Both principal and interest owing pursuant to the terms of this Note are
payable in the lawful currency of the United States of America and in
immediately available funds. The Holder may disburse the principal of
this Note to the Maker in one or more advances or loans as determined by
the Holder in his sole discretion. All payments made on this Note will be
applied to this Note when received by the Holder hereof in collected funds.
Any sum not paid when due will bear interest at the rate equal to the
Applicable Rate plus five percent (5%) and will be paid at the time of, and as
a condition precedent to, the curing of any "Default", as that term is herein-
after defined in this Note. During the existence of any Default, the Holder
of this Note may apply payments received on any amount due hereunder or under
the terms of any instrument hereafter evidencing or securing said indebtedness
as the Holder may determine.
The Maker 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, the Maker will pay to the Holder all reasonable attorney's fees and
all expenses incurred by the Holder in connection therewith.
THIS NOTE IS GIVEN BY THE MAKER AND ACCEPTED BY THE HOLDER PURSUANT TO A
LENDING TRANSACTION CONTRACTED, CONSUMMATED, AND TO BE PERFORMED IN OKLAHOMA
CITY, OKLAHOMA COUNTY, OKLAHOMA, AND THIS NOTE SHALL BE CONSTRUED ACCORDING TO
THE LAWS OF THE STATE OF OKLAHOMA. The payment of all indebtedness evidenced by
this Note is unsecured. However, in the event of any Default, the Holder may
request, and the Maker agrees to furnish to the Holder, agreeable collateral and
such security agreements as the Maker may reasonably require to secure the
indebtedness.
At the option of the Holder, the unpaid balance of this Note, and all other
obligations of the Maker to the Holder, whether direct or indirect, absolute or
contingent, now existing or hereafter arising, shall become immediately due and
payable without presentment, protest, notice or demand upon the occurrence or
existence of one or more of the following events or conditions ("Default"):
1. any payment required by this Note or any other note or obligation of
the Maker to the Holder or to others is not made when due in the amount
required; and
2. any default or breach occurs in the performance of any covenant,
obligation, representation, warranty, or provision contained in this Note or in
any other note or obligation of the Maker to Holder or to others;
No waiver of any payment or other right under this Note by the Holder shall
operate as a waiver of any other payment or right. Any payments hereunder may,
at the option of the Holder, be recorded on this Note and shall be prima facie
evidence of such payments and the unpaid balance of this Note.
The Maker has the right to prepay this Note in whole or in part at any time
and from time to time without premium or penalty, but with accrued interest to
the date of the prepayment on the amount prepaid.
The Maker waives presentment for payment, protest and notice of Nonpayment.
IN WITNESS WHEREOF, the Maker has executed this instrument effective on
the date first above written.
ATTEST: THE BEARD COMPANY
REBECCA G. WITCHER HERB MEE, JR.
Rebecca G. Witcher, Secretary Herb Mee, Jr., President
EXHIBIT 4(x)
AMENDED AND RESTATED
RENEWAL PROMISSORY NOTE
$105,000.00 Oklahoma City, Oklahoma
February 17, 1997
For value received, the undersigned, The Beard Company, an Oklahoma
corporation (the "Maker"), agrees to all of the terms of this Amended and
Restated Renewal Promissory Note (this "Note") and promises to pay to the order
of William M. Beard as Trustee of the William M. Beard Irrevocable Trust "C"
(the "Holder"), at Enterprise Plaza, Suite 320, 5600 N. May, Oklahoma City,
Oklahoma 73112, or at such other place as may be designated in writing by the
Holder of this Note, the principal sum of One Hundred Five Thousand Dollars
($105,000.00) or, if less than such amount, the aggregate unpaid principal
amount of all advances or loans made by the Holder to the Maker, and all
interest accruing thereon. This Note will be payable as follows:
Interest will accrue on the unpaid principal balance of this Note
at the per annum interest rate of ten percent (10%) (the
"Applicable Rate"). Interest has been paid on the Note to
February 17, 1997 and will continue to accrue from this date and
thereafter until this Note is paid in full. Interest will be
computed for the actual number of days elapsed at a per diem
charge based on a year consisting of three hundred sixty (360)
days. All obligations evidenced by and owing pursuant to the
terms of this Note, including principal and interest, are due and
payable February 17, 1999.
Both principal and interest owing pursuant to the terms of this Note are
payable in the lawful currency of the United States of America and in
immediately available funds. The Holder may disburse the principal of this
Note to the Maker in one or more advances or loans as determined by the Holder
in his sole discretion. All payments made on this Note will be applied to
this Note when received by the Holder hereof in collected funds. Any sum not
paid when due will bear interest at the rate equal to the Applicable Rate plus
five percent (5%) and will be paid at the time of, and as a condition precedent
to, the curing of any "Default", as that term is hereinafter defined in this
Note. During the existence of any Default, the Holder of this Note may apply
payments received on any amount due hereunder or under the terms of any
instrument hereafter evidencing or securing said indebtedness as the Holder
may determine.
The Maker 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, the Maker will pay to the Holder all reasonable attorney's fees and
all expenses incurred by the Holder in connection therewith.
THIS NOTE IS GIVEN BY THE MAKER AND ACCEPTED BY THE HOLDER PURSUANT TO A
LENDING TRANSACTION CONTRACTED, CONSUMMATED, AND TO BE PERFORMED IN OKLAHOMA
CITY, OKLAHOMA COUNTY, OKLAHOMA, AND THIS NOTE SHALL BE CONSTRUED ACCORDING TO
THE LAWS OF THE STATE OF OKLAHOMA. The payment of all indebtedness evidenced by
this Note is unsecured. However, in the event of any Default, the Holder may
request, and the Maker agrees to furnish to the Holder, agreeable collateral and
such security agreements as the Maker may reasonably require to secure the
indebtedness.
At the option of the Holder, the unpaid balance of this Note, and all other
obligations of the Maker to the Holder, whether direct or indirect, absolute or
contingent, now existing or hereafter arising, shall become immediately due and
payable without presentment, protest, notice or demand upon the occurrence or
existence of one or more of the following events or conditions ("Default"):
1. any payment required by this Note or any other note or obligation of
the Maker to the Holder or to others is not made when due in the amount
required; and
2. any default or breach occurs in the performance of any covenant,
obligation, representation, warranty, or provision contained in this Note or in
any other note or obligation of the Maker to Holder or to others;
No waiver of any payment or other right under this Note by the Holder shall
operate as a waiver of any other payment or right. Any payments hereunder may,
at the option of the Holder, be recorded on this Note and shall be prima facie
evidence of such payments and the unpaid balance of this Note.
The Maker has the right to prepay this Note in whole or in part at any time
and from time to time without premium or penalty, but with accrued interest to
the date of the prepayment on the amount prepaid.
The Maker waives presentment for payment, protest and notice of nonpayment.
IN WITNESS WHEREOF, the Maker has executed this instrument effective on
the date first above written.
ATTEST: THE BEARD COMPANY
REBECCA G. WITCHER HERB MEE, JR.
Rebecca G. Witcher, Secretary Herb Mee, Jr., President
SUBSIDIARIES
The following is a list of the Company's consolidated subsidiaries as of
December 31, 1996:
Percent of
State of Voting Securities
Subsidiary Organization Owned
- ---------- ------------ -----------------
The Beard Company (1) Oklahoma Registrant
Beard Oil Company Delaware 100%
Beard Oilfield Service and Supply Co. (2) Oklahoma 100%
Beard Technologies, Inc. Oklahoma 100%
BSK, Inc. Oklahoma 90%
Carbonic Reserves Nevada 85%
Crescent Well Service, Inc. (2) Oklahoma 100%
Horizontal Drilling Technologies, Inc. Kansas 80%
Reid Supply Company (2) Nevada 100%
The Oaks Venture, Inc. Oklahoma 100%
Whitetail Services, Inc. Delaware 80%
- ---------------
(1) The consolidated financial statements of the Company include accounts of
Registrant and the subsidiaries controlled by the Registrant.
(2) Inactive subsidiary.
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
The Beard Company:
We consent to Incorporation by reference in the Registration Statements
(No. 33-87110, 33-98482, and 333-06757) on Form S-8 of The Beard Company of
our report dated March 19, 1997, relating to the balance sheets of The
Beard Company and subsidiaries as of December 31, 1996 and 1995, and the
related statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996, which
report appears in the December 31, 1996, annual report on Form 10-K of The
Beard Company.
KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Oklahoma City, Oklahoma
March 28, 1997
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