SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to <section> 240.14a-11(c) or
<section> 240.14a-12
The Beard Company
(Name of Registrant as Specified in its Charter)
_________________________________
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[ ] No fee required.
[ X ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
_____________________________________________________________
4) Proposed maximum aggregate value of transaction: $22,114,000
5) Total fee paid: $4,423.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount previously paid: _______________________
2) Form, Schedule or Registration Statement No.: _____________
3) Filing Party: _______________________
4) Date Filed: ___________________.
<PAGE>
NOTICE OF
ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD
AUGUST ____, 1997
AND PROXY STATEMENT
THE BEARD COMPANY
<PAGE>
THE BEARD COMPANY
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, Oklahoma 73112
July __, 1997
Dear Stockholders:
We invite you to attend the annual meeting of stockholders of The
Beard Company (the "Company") which will be held in Oklahoma City on
Monday, August ___, 1997. The matters to be considered at the meeting are
described in the formal notice and proxy statement on the following pages.
After completing the business of the meeting, including election of
directors, we will discuss the current outlook for the Company. There will
be a period for questions and for discussion with your directors and
officers.
If you plan to be present, please notify the Secretary of the Company
so that the necessary arrangements can be made for your attendance.
Regardless of whether you plan to personally attend, it is important that
your shares be represented at this meeting. Please date, sign and return
your proxy card in the enclosed envelope at your earliest convenience.
W. M. BEARD HERB MEE, JR.
Chairman President
<PAGE>
THE BEARD COMPANY
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, Oklahoma 73112
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Monday, August ___, 1997
TO THE STOCKHOLDERS OF THE BEARD COMPANY:
You are hereby notified that the Annual Meeting of Stockholders of The
Beard Company (the "Company") will be held on Monday, August ___, 1997 at
10:00 a.m. in the Board Room of the Liberty Bank and Trust Company of
Oklahoma City, N. A. in the Liberty Tower, 100 North Broadway, Oklahoma
City, Oklahoma, for the purpose of considering and voting upon the
following matters:
(1) To approve the sale of substantially all of the assets of
Carbonic Reserves pursuant to an Asset Purchase Agreement, a copy
of which is attached to the accompanying Proxy Statement as
Exhibit "A".
(2) To approve the Merger of the Company into The NBC Company
pursuant to the Plan and Agreement of Merger and Reorganization,
a copy of which is attached to the accompanying Proxy Statement
as Exhibit "B".
(3) The election of two (2) directors of the Company for three year
terms.
(4) To consider and act upon a proposal to amend The Beard Company
Deferred Stock Compensation Plan (the "Plan") to increase the
number of common shares authorized for issuance thereunder from
50,000 to 100,000. A copy of the Plan is attached to the
accompanying Proxy Statement as Exhibit "D".
(5) The approval of the appointment of KPMG Peat Marwick LLP as
independent auditors of the Company for fiscal year 1997.
(6) Such other business as may properly come before the meeting or
any adjournment thereof.
The transfer books will not be closed, but only stockholders of record
at the close of business on June 30, 1997 will be entitled to notice of and
to vote at the meeting. A complete list of the stockholders entitled to
vote at the meeting shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for
ten days prior to the meeting, at the offices of the Company, Enterprise
Plaza, Suite 320, 5600 North May Avenue, Oklahoma City, Oklahoma.
You are cordially invited to attend the meeting. Even if you plan to
attend, you are requested to date, sign and return the enclosed proxy at
your earliest convenience in the enclosed envelope. You may revoke your
proxy at any time prior to exercise.
By Order of the Board of Directors
Rebecca G. Witcher
Secretary
Oklahoma City, Oklahoma
Dated July __, 1997
<PAGE>
THE BEARD COMPANY
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, Oklahoma 73112
PROXY STATEMENT
This Proxy Statement is furnished to the stockholders of The Beard
Company ("Beard" or the "Company") in connection with the solicitation of
proxies to be used in voting at the Annual Meeting of Stockholders to be
held August ___, 1997. It is first being mailed to stockholders on or
about July __, 1997. THE ENCLOSED PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE COMPANY.
A person giving the enclosed proxy has the power to revoke it by giving
notice to the Secretary in person, or by written notification actually
received by the Secretary, or by subsequently granting a later dated proxy
relating to the same shares, at any time prior to its being exercised.
The Company will bear the cost of soliciting proxies, including the
charges and expenses of brokerage firms and others for forwarding
solicitation material to beneficial owners of stock. It is possible that
further solicitation of proxies will be made by telephone or oral
communication with some stockholders of the Company following the original
solicitation. All such further solicitations will be made by regular
employees of the Company who will not be additionally compensated therefor,
and the cost will be borne by the Company.
VOTING SECURITIES OUTSTANDING
As of June 30, 1997, 2,799,074 shares of common stock and 90,155.86
shares of preferred stock of the Company had been issued and were
outstanding. Each share of common stock is entitled to one vote on all
matters presented at the meeting. Each share of preferred stock is
entitled to one vote for each full share of common stock into which it
would have been convertible had it been convertible on the record date
(5.129425 shares). Accordingly, a total of 3,261,518 votes are entitled to
be cast at the meeting, and the holders of the preferred stock are entitled
to cast 14.18% of such votes. Only holders of common stock and preferred
stock of record at the close of business on June 30, 1997, will be entitled
to vote at the meeting.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table 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 June 30, 1997. Unless otherwise noted, the
person named has sole voting and investment powers over the shares
reflected opposite his name.
<TABLE>
<CAPTION>
Number of Number of Combined
Preferred Common 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
Insurance Company ("Hancock") 42,427.10 47.06% 312,040(1)(2) 11.15% 16.24%(3)
57th Floor (2)
200 Clarendon Street
Boston, Massachusetts 02117
The Beard Group 401(k) Plan
("Plan")
c/o The Liberty Bank and None 0.00% 330,627(4) 11.81% 10.14%
Trust
Company, Trustee
100 N. Broadway Avenue
Oklahoma City, OK 73102
W. M. Beard None 0.00% 810,229(5) 28.69% 24.65%
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% 218,399(7) 7.73% 6.65%
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 652,084 common shares and
1,114,528 common equivalent shares (34.17%), 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 97,424.40, 116,951.99 and 27,639.12
shares held for the accounts of Messrs. Beard, Mee and Collen,
respectively, and 1,631.32 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; 97,424.40 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 as to
which Mr. Beard disclaims beneficial ownership.
(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 6,450 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 116,951.99 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 June 30, 1997.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Name and Address Ownership of Class
- ---------------------------- ----------- -----------
<S> <C> <C>
W. M. Beard 810,229(1) 28.69%
Herb Mee, Jr. 218,399(2) 7.73%
Allan R. Hallock 40,458(3) 1.45%
Michael E. Carr 28,643 1.02%
Ford C. Price 13,665(4) ---(8)
W. R. Plugge 2,000 ---(8)
C. H. Collen, Jr<ellipsis> 44,689(5) 1.60%
Marc A. Messner 50,000 1.79%
Philip R. Jamison 1,299(6) ---(7)(8)
All directors and executive
officers as a group (11 in 1,165,291(7) 40.76%
number)
</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, 3,266 shares held by an IRA for the
benefit of Mr. Price as to which he has sole voting and investment
power and 5,000 shares held by the FCP Trust as to which he has shared
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 27,639.12 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 shares owned for Mr. Jamison's account in the 401(k) Trust;
Mr. Jamison has sole voting and investment power, but only has a 20%
vested interest, as to such shares.
(7) Includes 803,817 shares as to which directors and executive officers
have sole voting and investment power and 344,364 shares as to which
they share voting and investment power with others.
(8) Reflects ownership of less than one (1) percent.
<PAGE>
SALE OF SUBSTANTIALLY ALL OF THE ASSETS OF
CARBONIC RESERVES
(Proposal No. 1)
For the reasons herein set forth, the Board of Directors is
recommending that the Company's stockholders adopt and approve an Asset
Purchase Agreement (the "Agreement"), by and among Airgas Carbonic
Reserves, Inc. ("Airgas"), and Carbonic Reserves ("Carbonics"), the Company
and Clifford H. Collen, Jr. ("Collen") (collectively, the "Shareholders"),
pursuant to which Airgas will acquire substantially all of Carbonics'
assets for cash and the assumption of certain liabilities as set forth
below (the "Asset Sale"). In connection with the Asset Sale, Collen will
enter into noncompetition and employment agreements with Airgas. Airgas is
a second tier subsidiary of Airgas, Inc. U.S. Airgas, Inc., a subsidiary
of Airgas, Inc. has agreed to guaranty the obligations of Airgas under the
Agreement.
The following description of the Asset Sale contains, among other
information, summaries of certain provisions of the Agreement, a copy of
which is attached to this Proxy Statement as Exhibit A and incorporated
herein by reference. The Agreement sets forth the representations and
warranties of Carbonics, the Shareholders and Airgas, the description of
the assets to be acquired and the conditions to the consummation of the
Asset Sale, including approval of the Agreement by the shareholders of
Beard. The information in this Proxy Statement with respect to the
Agreement is qualified in its entirety by reference to the complete text of
the Agreement.
The Transaction
In consideration of the Asset Sale, Carbonics will receive cash at
closing in the amount of $18.5 million. In addition, 150 days after the
closing date Carbonics will receive an additional amount equal to the
difference between $1 million and the sum of (i) uncollected accounts
receivable in excess of Carbonics' allowance for bad debts, (ii) the
amount, if any, by which notes payable to third parties which are assumed
by Airgas exceeds the increase in the value of fixed assets between
December 31, 1996 and closing, and (iii) any other indemnity claims that
arise during the 150 day period. Carbonics maintains insurance coverage
for its largest accounts receivable and does not expect any substantial
deductions for uncollected accounts receivable or indemnity claims. Also,
Airgas will assume liabilities of Carbonics for (i) trade accounts payable
and accrued expenses incurred in the ordinary course of business (other
than those specifically excluded), (ii) notes payable to third parties as
reflected on Carbonics' December 31, 1996 balance sheet and those incurred
thereafter in the ordinary course and in a manner consistent with past
practice, and (iii) the obligations of future performance under the
contracts and liabilities being assumed under the Agreement, to the extent
such liabilities have arisen in the ordinary course of Carbonics' business.
Airgas will not assume any liabilities for employee matters, including
payroll taxes; debt or other balances payable to the Shareholders or other
related parties; tax liabilities of Carbonics for the Shareholders; or
environmental liabilities. Carbonics will retain all cash and cash
equivalents; notes receivable from the Company or related parties; and tax
refunds relating to periods prior to the closing date.
The Company owns 85% of the outstanding common stock of Carbonics and
Collen owns 15%. In addition, the Company owns 14,859 shares of Carbonics'
redeemable preferred stock, $1,000 redemption value per share, which
constitutes all of the issued and outstanding preferred stock of Carbonics.
Background of the Asset Sale
In May 1996 Carbonics engaged an investment banking firm to secure
financing to enable Carbonics to pursue the acquisition of, and to provide
additional working capital for, three dry ice companies for approximately
$13 million. The investment banking firm obtained indications of interest
from several entities; however, all of the interested parties wanted to see
executed letters of intent from the target companies prior to making a
final commitment, and were unwilling to provide the financing without the
letters of intent.
Carbonics had preliminary conversations with the potential target
companies, and was actively negotiating for the purchase of two of the
companies when Airgas announced, in October 1996, that it had signed (i) a
letter of intent to acquire Carbonic Industries Corporation ("CIC"), the
fourth largest producer of CO{2} and largest manufacturer of dry ice in the
United States, and (ii) an agreement to acquire Shell Land & Energy
Company's controlling interest in the Northeast Jackson Dome Field, which
is the largest naturally occurring CO{2} field east of the Mississippi.
The consideration for the CIC acquisition was announced as a combination of
common stock and cash. At the time Airgas announced these acquisitions, it
stated its intention to pursue additional acquisitions of CO{2} companies.
Because Airgas is in a financial position to pay higher prices for its
acquisitions, and to offer registered common stock as consideration, and
because Carbonics would be limited to offering a combination of cash,
preferred stock and notes so that it can remain part of Beard's
consolidated tax group and take advantage of Beard's net operating loss
carryforwards, the Airgas announcement put an end, for all practical
purposes, to Carbonics' acquisition strategy.
In April 1997 Airgas continued its strategy by announcing the
acquisition of the assets of American Dry Ice Corp., a distributor of
liquid CO{2}, dry ice and other related products and services. Immediately
thereafter Airgas contacted Carbonics and Beard about purchasing the assets
of Carbonics.
During the same timeframe, Beard was independently contacted by a large
New York Stock Exchange listed industrial gas company, and by a West Coast
venture capital company which had financed a company to build a major
national liquid CO{2} business with plans to acquire existing manufacturers
and distributors of liquid CO{2} and dry ice. Both of these companies
expressed interest in acquiring Carbonics. Following discussions with the
three interested parties, Beard furnished each with a confidential
memorandum in May 1997, and asked for formal proposals by June 6, 1997.
Proposals were received from all three parties in the first two weeks of
June. The offer from Airgas was the highest. On June 20, 1997, Airgas and
the Company executed a letter of intent and began negotiating the terms of
the agreement. On July 7, 1997, Airgas began performing a due diligence
review of Carbonics.
Reasons for the Asset Sale
The terms of the Agreement are the result of arms-length negotiations
between representatives of the Company and Airgas. The Company believes
that consummation of the Asset Sale will allow the Company to sell
Carbonics' assets at a favorable price and reduce its outstanding debt,
redeem a substantial portion of its outstanding preferred stock (see "Pro
Forma Condensed Financial Statements") and provide working capital to
permit the reasonable exploitation of the Company's remaining assets.
Board of Directors Recommendation
In reaching its decision to approve the Agreement and to make its
recommendation, the Board of Directors considered a number of factors,
including, but not limited to, (i) preliminary offers or indications by
third parties, (ii) the Company's present financial condition and its
requirement for working capital to exploit other assets, and (iii) the
terms and conditions set forth in the Agreement. The Company's Board of
Directors believes that the Asset Sale is in the best interests of the
Company and has unanimously approved the Asset Sale. THE BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ASSET SALE.
Property Subject to the Asset Sale
The assets of Carbonics subject to the Asset Sale are all of the
operating assets of Carbonics which are used in the production and
distribution of dry ice including, but not limited to, the following:
(a) the tangible assets of Carbonics, all accounts receivable,
notes receivable, deposits, prepaid expenses, inventories, fixed assets,
real property and intangible properties;
(b) all contract rights, causes of action, claims, refunds and
demands of whatever nature;
(c) all books and records relating to the business of Carbonics
(except minute books and stock record books);
(d) all rights of Carbonics in and to all of seller's trademarks
and trade names, including without limitation, the name "Carbonic
Reserves," and all intellectual property and proprietary information of
Carbonics; and
(e) all of Carbonics' intangibles and goodwill.
Excluded from the Asset Sale are cash and cash equivalents, notes
receivable from the Company and affiliates and tax refunds for periods
prior to closing.
Conduct of Business
The Company has agreed that it will cause Carbonics to, and Carbonics
has agreed that it will, carry on the business of Carbonics in the ordinary
course of business consistent with past practice, use their commercially
reasonable efforts to preserve Carbonics' reputation and the goodwill of
Carbonics' suppliers, customers and others having business relationships
with Carbonics, use their reasonable best efforts to preserve intact
Carbonics' current business organization, keep available the services of
present employees and maintain the assets of Carbonics in good condition
and repair.
Carbonics, the Company and Collen have agreed that, except as
contemplated by the Agreement or disclosed in the schedules to the
Agreement, Carbonics shall not, without the prior written consent of
Airgas:
(a) enter into any material contract other than in the ordinary
course of business;
(b) make any bonus or salary or wage increases nor any
contributions to any profit sharing or pension plan other than in the
ordinary course of business;
(c) reorganize, declare, set aside or pay any dividend or other
distribution in respect to Carbonics' capital stock, or any direct or
indirect redemption, purchase or other acquisition of any such stock;
(d) pay, loan or advance any amount to the Shareholders or any
family member thereof, except payments to the Company for Carbonics' pro
rata share of corporate insurance and employee benefit costs and expenses;
(e) enter into any agreement with the Shareholders or any family
member thereof;
(f) sell or lease any of its assets or properties, tangible or
intangible, except in the ordinary course of business;
(g) grant a security interest or encumber in any manner any of
its assets or properties;
(h) incur any indebtedness for borrowed money except in the
ordinary course of business pursuant to its existing credit agreement;
(i) make any capital expenditures in excess of $50,000.
However, nothing in the Agreement requires Carbonics to reduce
indebtedness for borrowed money owed to third parties other than such
reductions as are required by the instruments evidencing such indebtedness,
with the exception that any proceeds from the sale of fixed assets in the
ordinary course of business shall be applied to reduce such indebtedness
over and above the normal required reductions referred to above.
Conditions to the Asset Sale
In addition to the approval of the Agreement and the Asset Sale by the
Company's stockholders, consummation of the Agreement is conditioned upon,
among other things:
(a) the continuing accuracy, in all material respects, of the
representations and warranties of Carbonics and the Shareholders, and
Airgas contained in the Agreement;
(b) the performance, in all material respects, by Carbonics and
the Shareholders, and Airgas of all covenants contained in the Agreement;
(c) the receipt of all third party consents;
(d) the completion of due diligence by Airgas;
(e) expiration of applicable waiting periods without formal
protest under the Hart-Scott-Rodino Antitrust Improvements Act of 1978, as
amended; and
(f) approval of the Agreement and the Asset Sale by the
respective Board of Directors.
Representations and Warranties
In the Agreement, Carbonics, the Company and Collen have made customary
representations and warranties to Airgas, including, but not limited to,
representations and warranties relating to the organization, good standing
and qualification of Carbonics; authority to enter into the Agreement and
carry out related actions; capitalization; absence of undisclosed
liabilities; title and condition of assets; inventories; accounts
receivable; material contracts and commitments; required consents and
approval; compliance with laws; and patent, employee benefit plans, tax and
environmental matters.
Airgas has also made customary representations and warranties to the
Company and Carbonics, including, but not limited to, representations and
warranties relating to Airgas' organization, authority to enter into the
Agreement and carry out related actions, and required consents and
approvals.
Closing
The transaction is expected to be consummated on August 28, 1997,
subject to the satisfaction or waiver of the conditions set forth under "-
Conditions to the Asset Sale."
Parties Interested in the Asset Sale
Immediately prior to the closing of the Asset Sale, Beard will purchase
all of the capital stock of Carbonics owned by Collen for $900,000.
Immediately after the closing, Carbonics will pay Collen $100,000 for
termination of his employment agreement. Concurrently with the closing,
Airgas will pay Collen $300,000, and agree to pay him an additional
$200,000 in 1998, under a noncompetition agreement to be entered into
between Collen and Airgas.
Regulatory Approvals
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act") and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), certain transactions, including the Asset
Sale, may not be consummated unless certain waiting period requirements
have been satisfied. The Company and Airgas filed the notification and
report forms required pursuant to the HSR Act with the Antitrust Division
of the Department of Justice (the "Antitrust Division") and the FTC for
review in connection with the Asset Sale. At any time before or after the
closing, the FTC, the Antitrust Division or others could take action under
the Antitrust laws with respect to the Asset Sale, including seeking to
enjoin the consummation of the Asset Sale or seeking divestiture by Airgas
of all or any part of the assets acquired.
Effects on Listing of Common Stock
Based upon guidelines published in the American Stock Exchange Company
Guide, the Company believes that the listing of the Company's common stock
on the American Stock Exchange will not be affected by the consummation of
the Asset Sale.
Accounting Treatment; Tax Effects
The Asset Sale will be accounted for by the Company as a sale of
assets. See "Pro Forma Condensed Financial Statements" regarding the
accounting effects of consummation of the Asset Sale.
The Asset Sale will be taxable to the Company. It is presently
estimated that the Asset Sale will result in taxable gain to the Company
for federal income tax purposes of approximately $11,800,000; however, the
Company believes that the entire regular federal income tax gain can be
offset by the Company's net operating loss carryforwards. However, the
Company expects that it will incur alternative minimum tax liability as a
result of the Asset Sale. See "Pro Forma Condensed Financial Statements"
and the discussion of the Company's net operating loss under "PROPOSAL TO
REORGANIZE."
The Asset Sale will have no direct federal income tax consequences to
the stockholders of the Company.
Dissenters Rights
The stockholders of the Company will not be entitled to dissenter or
appraisal rights under Oklahoma law in connection with the transaction.
Description of Future Business
Following the sale of substantially all of the assets of Carbonics,
Beard's continuing operations will consist primarily of its environmental
services and resource recovery activities. It will also continue to own a
working and overriding royalty interest in the McElmo Dome Field in
southwest Colorado, and a very small working interest in the Bravo Dome
Field in northeast New Mexico. McElmo Dome and Bravo Dome are believed to
be the two largest producing CO{2} fields in the world. In addition, Beard
will continue to hold (i) a minority interest in a joint venture involved
in the extraction, production and sale of crude iodine; and (ii) scattered
small real estate holdings, interests in two real estate limited
partnerships, and other miscellaneous investments.
Beard anticipates that immediately after the consummation of the Asset
Sale, it will (i) concentrate its efforts on the commercial development of
its Mulled Coal technology which is believed to have significant profit
potential but which is as yet untested on a commercial scale, and (ii)
pursue as the sole U.S. licensee the commercial development of a process
and composition patent which is pending for the remediation of creosote and
PAH contamination. The Company's continuing operations also include its
environmental services activities which are conducted through Whitetail
Services, Inc. and Horizontal Drilling Technologies, Inc. Complete details
concerning these activities and operations are discussed in the Company's
1996 Annual Report on Form 10-K, pages 10-15, which is attached hereto as
Appendix A.
Beard's environmental/resource recovery activities were not profitable
in 1996 or in the first quarter of 1997 (see - "Pro Forma Condensed
Financial Statements"), so it is critical to the Company's future viability
that it achieve a successful turnaround of its environmental/resource
recovery activities or that it supplement these activities with the
acquisition of profitable companies in the future. Management of the
Company has considerable expertise and has demonstrated success in the
environmental field as a result of their activities as the founder,
officers and directors, and as the principal shareholder of USPCI, Inc.
(NYSE) from 1968 until its acquisition by Union Pacific Corporation in
1988.
Vote Required
Under the Oklahoma General Corporation Act (the "Oklahoma Act"), the
Asset Sale may be deemed to constitute the sale of all or substantially all
of the assets of Beard. Accordingly, Beard is requesting shareholder
approval. Pursuant to the Oklahoma Act, the affirmative vote of the
holders of a majority of the outstanding shares of the Company's common
stock and preferred stock (voting on an as if converted basis) is required
for approval of the Agreement and the Asset Sale.
Market Information
Market information is incorporated herein by reference to page 17 of
the Company's Annual Report on Form 10-K (File No. 1-12396).
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth certain selected historical consolidated
financial data of Beard as of the dates and for the periods indicated.
This data should be read in conjunction with the consolidated financial
statements and notes thereto incorporated by reference in this Proxy Statement.
(See "Incorporation of Certain Documents by Reference"). See also "Pro Forma
Financial Statements" and "Description of Future Business" regarding the effects
of the Asset Sale if it is consummated. The selected consolidated financial
data as of March 31, 1997 and 1996 and for the three months ended March 31, 1997
and 1996 have been derived from unaudited consolidated financial statements,
which, in the opinion of management, reflect all adjustments consisting only of
normal recurring accruals, necessary for a fair presentation of the results of
Beard as of those dates and for those periods. Interim results are not neces-
sarily indicative of the results which may be expected for any other period or
for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Operating revenues from
continuing operations $ 4,122 $ 3,146 $16,683 $15,012 $14,123 $13,281 $10,849
Interest income 3 2 18 25 20 21 110
Interest expense (88) (46) (259) (166) (116) (92) (210)
Earnings (loss) from
continuing operations (424) 103 (140) (478) 503 (893) (6,622)
Earnings (loss) from
discontinued operations - (8) (175) 75 214 (11,183) (25,871)
Gain on debt restructuring - - - - - 46,928 -
Net earnings (loss) (424) 95 (315) (403) 717 34,852 (32,493)
Earnings (loss) from con-
tinuing operations per share:
(primary EPS) (0.15) 0.03 (0.05) (0.20) 0.17 (0.42) (3.33)
(fully diluted EPS) (0.15) 0.03 (0.05) (0.20) 0.14 (0.41) (3.33)
Net earnings (loss) per share:
(primary EPS) (0.15) 0.03 (0.11) (0.17) 0.25 16.51 (16.34)
(fully diluted EPS) $ (0.15) $ 0.03 $ (0.11) $ (0.17) $ 0.21 $ 15.86 $(16.34)
Weighted average common
and common equivalent
shares outstanding:
Primary 2,799 2,752 2,756 2,662 2,652 2,111 1,989
Fully diluted 2,799 3,219 2,756 2,662 3,117 2,197 1,989
BALANCE SHEET DATA:
Working capital $ 1,381 $ 2,117 $ 1,745 $ 1,989 $ 2,427 $ 1,765 $ 1,830
Properties, net 8,823 7,624 8,699 7,158 6,834 6,312 6,607
Total assets 15,419 15,243 16,473 14,615 13,856 14,966 15,441
Long-term debt (excluding
current maturities) 3,067 1,828 2,911 1,454 982 1,137 947
Redeemable preferred stock 1,200 1,200 1,200 1,200 1,200 1,200 1,200
Common shareholders'
equity (deficit) $ 8,232 $ 8,893 $ 8,656 $ 8,788 $ 9,066 $ 8,407 $(27,743)
</TABLE>
<PAGE>
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements (the "Pro
Forma Financial Statements") of Beard are based upon and should be read in
conjunction with the historical financial statements of Beard which are
included in Beard's Annual Report on Form 10-K for the year ended December 31,
1996 and Form 10-Q for the three months ended March 31, 1997 which are attached
hereto as Appendices "A" and "B," respectively. The Unaudited Pro Forma Con-
densed Balance Sheet is presented as if the sale of substantially all the
assets and certain liabilities related to the dry ice manufacturing and distri-
bution operations of Carbonic Reserves (the "Asset Sale") had occurred on
March 31, 1997. The Unaudited Pro Forma Condensed Statements of Operations for
the year ended December 31, 1996 and three months ended March 31, 1997 give
effect to the Asset Sale as if it had occurred on January 1, 1996 and
January 1, 1997, respectively.
The unaudited pro forma condensed financial statements and the
accompanying notes are intended for informational purposes only, have been
prepared based on estimates and assumptions deemed by Beard to be appropriate,
and are not necessarily indicative of the financial condition or results of
operations had the Asset Sale occurred as of the dates indicated and are not
intended to be indicative of future results of operations.
<PAGE>
THE BEARD COMPANY AND SUBSIDIARIES
Pro Forma Condensed Balance Sheet
March 31, 1997
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
BEARD BEARD
ASSETS HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 240 $ 19,500 (a) $ 19,740
Accounts receivable, net 2,396 (1,251) (a) 1,145
Other current assets 1,522 (849) (a) 673
---------- ---------- ----------
Total current assets 4,158 17,400 21,558
Investments and other assets 1,679 (127) (a) 1,552
Property, plant and equipment, net 8,823 (6,521) (a) 2,302
Intangible assets, net 759 (258) (a) 501
---------- ---------- ----------
$ 15,419 $ 10,494 $ 25,913
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable and other liabilities $ 2,001 $ (1,301) (a) $ 2,402
452 (b)
1,250 (c)
Current maturities of long-term debt 776 (252) (a) 524
---------- ---------- ----------
Total current liabilities 2,777 149 2,926
Long-term debt less current maturities 3,067 (1,061) (a) 2,006
Minority interest in consolidated subsidiaries 143 - 143
Redeemable preferred stock 1,200 3,500 (d) 4,700
Total common shareholders' equity 8,232 13,108 (a) 16,138
(452) (b)
(1,250) (c)
(3,500) (d)
---------- ---------- ----------
$ 15,419 $ 10,494 $ 25,913
========== ========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
<PAGE>
THE BEARD COMPANY AND SUBSIDIARIES
Pro Forma Condensed Statement of Operations
Three Months Ended March 31, 1997
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
BEARD BEARD
HISTORICAL ADJUSTMENTS (e) PRO FORMA
---------- --------------- ---------
<S> <C> <C> <C>
REVENUES:
Carbon dioxide $ 2,918 $ (2,800) $ 118
Environmental/resource recovery 1,169 - 1,169
Other 35 - 35
--------- -------- ---------
4,122 (2,800) 1,322
EXPENSES:
Carbon dioxide 2,053 (2,026) 27
Environmental/resource recovery 995 - 995
Selling, general and administrative 1,031 (518) 513
Depreciation, depletion and amortization 361 (262) 99
Other 7 - 7
--------- -------- ---------
4,447 (2,806) 1,641
OPERATING PROFIT (LOSS):
Carbon dioxide 79 6 85
Environmental/resource recovery (175) - (175)
Other (229) - (229)
--------- -------- ---------
(325) 6 (319)
OTHER INCOME (EXPENSE):
Interest expense (88) 30 (58)
Other (11) (4) (15)
--------- -------- ---------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (424) 32 (392)
INCOME TAXES - - -
--------- -------- ---------
LOSS FROM CONTINUING OPERATIONS $ (424) $ 32 $ (392)
========= ======== =========
LOSS FROM CONTINUING OPERATIONS PER COMMON SHARE $ (0.15) $ (0.14)
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,799,074 2,799,074
========= =========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
<PAGE>
THE BEARD COMPANY AND SUBSIDIARIES
Pro Forma Condensed Statement of Operations
Year Ended December 31, 1996
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
BEARD BEARD
HISTORICAL ADJUSTMENTS (e) PRO FORMA
------------- --------------- ------------
<S> <C> <C> <C>
REVENUES:
Carbon dioxide $ 13,608 $ (13,307) $ 301
Environmental/resource recovery 3,009 - 3,009
Other 66 - 66
------------- ------------- ------------
16,683 (13,307) 3,376
EXPENSES:
Carbon dioxide 9,478 (9,381) 97
Environmental/resource recovery 2,642 - 2,642
Selling, general and administrative 4,079 (2,215) 1,864
Depreciation, depletion and amortization 1,309 (1,008) 301
Other 77 - 77
------------- ------------- ------------
17,585 (12,604) 4,981
OPERATING PROFIT (LOSS):
Carbon dioxide 887 (703) 184
Environmental/resource recovery (757) - (757)
Other, principally corporate (1,032) - (1,032)
------------- ------------- ------------
(902) (703) (1,605)
OTHER INCOME (EXPENSE):
Interest expense (259) 118 (141)
Gain on sale of assets 171 (6) 165
Gain on take-or-pay contract settlement 939 (939) -
Other (89) (5) (94)
------------- ------------- ------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (140) (1,535) (1,675)
INCOME TAXES - - -
------------- ------------- ------------
LOSS FROM CONTINUING OPERATIONS $ (140) $ (1,535) $ (1,675)
============= ============= ============
LOSS FROM CONTINUING OPERATIONS
PER COMMON SHARE $ (0.05) $ (0.61)
============= ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,756,094 2,756,094
============= ============
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
<PAGE>
THE BEARD COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA
CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(a) Pursuant to the Asset Purchase Agreement (the "Agreement"), Airgas
is purchasing substantially all of the assets (excluding cash and cash
equivalents, notes receivable from Beard or related parties, and deferred tax
assets) of Carbonic Reserves ("Carbonics"), an 85%-owned subsidiary of Beard,
and will assume certain liabilities of Carbonics as stated on its December 31,
1996 financial statements or incurred in the ordinary course of business
thereafter (excluding any tax liabilities, employee related liabilities,
indebtedness to Beard or related parties, or environmental liabilities of
Carbonics).
Accordingly, the following adjustments have been made to Beard's
historical March 31, 1997 balance sheet to reflect the sale of the assets as if
the sale had occurred on March 31, 1997 as follows (in thousands):
Cash Proceeds: $ 19,500
Liabilities to be assumed:
Trade accounts payable 1,301
Current maturities of
long-term debt 252
Long-term debt 1,061
------
Total Sales Price 22,114
Accounts receivable, net (1,251)
Other current assets (849)
Investments and other assets (127)
Property, plant and equipment, net (6,521)
Intangible assets, net (258)
------------
Proceeds greater than costs $ 13,108
============
The Agreement provides that $1 million of the purchase price (the
"Holdback") will be held back for a maximum of 150 days after closing of the
transaction. The Holdback is subject to offset for any accounts receivable
that have not been collected within 120 days of the closing to the extent
such receivables exceed the amount of the allowance for uncollectible
accounts on Carbonics' balance sheet. Beard expects that little, if any, of
such amount will be ultimately held back since Carbonics' collection
experience in recent years has been excellent and since Carbonics also has
most of its larger accounts insured.
(b) For income tax purposes, the consummation of the Asset Sale will
result in taxable income to Beard. The sale of assets to Airgas will result in
a taxable gain equivalent to the difference between the fair market value of
the assets transferred and the tax basis of those assets. In addition, the
assumption by Airgas of certain liabilities will result in taxable income
equivalent to the total liabilities assumed by Airgas. Beard's net operating
loss carryforwards will offset such taxable income. Accordingly, Beard expects
that (i) there will be no regular Federal income tax liability; (ii) there will
be alternative minimum tax liability; and (iii) there will be state income and
sales tax liabilities resulting from the Asset Sale. Pro forma adjustment
(b) reflects estimated state income and sales taxes of approximately $242,000
of Carbonics and Federal alternative minimum tax of Beard of approximately
$210,000 as a result of the Asset Sale.
(c) Reflects the accrual of (i) $1 million to Collen for his 15% common
stock ownership in Carbonics plus bonuses and termination fees due, (ii)
$200,000 to other key employees of Carbonics and (iii) $50,000 to cover costs
related to the Proxy Statement.
(d) Reflects the expected redemption in March of 1998 of approximately
$3,500,000 of Beard mandatorily redeemable preferred stock as a result
of the gain to Beard on the Asset Sale. Assuming a redemption in such amount
there would be 55,156 shares of Beard preferred stock outstanding. The Beard
preferred stock has a redemption value of $9,015,586 and is mandatorily
redeemable from one-third of Beard's consolidated net income. To the
extent not redeemed by December 31, 2002, the Beard preferred stock would be
convertible by the holders thereof into as much as 14.18% of the common
stock of Beard on a fully diluted basis on January 1, 2003. For purposes of
the pro forma presentation the Beard preferred stock has been recorded at the
estimated fair market value at December 31, 1996 plus the estimated redemption
amount of $3,500,000 expected to be paid in March of 1998.
(e) Reflects the elimination of operations of Carbonics for the year
ended December 31, 1996 and for the three months ended March 31, 1997.
(f) The unaudited pro forma condensed balance sheet includes, and the
unaudited pro forma condensed statements of operations exclude the gain
from the Asset Sale, estimated to be $12,656,000, and the accretion in
the carrying value of the Beard mandatorily redeemable preferred stock of
$3,500,000 ($1.27 and $1.25 per share, respectively, increase in the net loss
per share attributable to common shareholders), reflecting the one-third
of consolidated net income that accretes directly to preferred
shareholders, and the one-time charges of $1,250,000 for Collen's 15% common
stock ownership in Carbonics, bonuses, termination fees and transaction costs.
The gain, the dilutive effect of the accretion in the carrying value of the
Beard mandatorily redeemable preferred stock and the one-time charges will be
included in Beard's consolidated financial statements for the year ending
December 31, 1997.
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain unaudited historical and pro
forma per share financial information as of and for the three months ended
March 31, 1997 and for the fiscal year ended December 31, 1996. The
following information should be read in conjunction with and is qualified
in its entirety by the consolidated financial statements and notes thereto
incorporated by reference in the Proxy Statement (see "Incorporation of
Certain Documents by Reference") and by the pro forma condensed financial
statements and notes thereto set forth under "Pro Forma Condensed Financial
Statements."
<TABLE>
<CAPTION>
MARCH 31, 1997
<S> <C>
Book value per common share at period end:
Historical $2.94
Pro forma $5.77
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS YEAR
ENDED ENDED
MARCH 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Loss from continuing operations
per common share:
Historical $(0.15) $(0.05)
Pro forma $(0.14) $(0.61)
The Company has not paid dividends on its Common Stock nor does it
have any plans to do so. See "Dividend Policy."
PROPOSAL TO REORGANIZE
(Proposal No. 2)
For the reasons explained below under the caption "Purposes for the
Merger," the Board of Directors is proposing that the Company merge (the
"Merger") into its newly formed Oklahoma subsidiary, The NBC Company
("NBC"). The details of this change are set out in the Plan and Agreement
of Merger and Reorganization which is attached to this proxy statement as
Exhibit B (the "Merger Agreement"). The Board of Directors has unanimously
approved the Merger, subject to shareholder approval.
NBC will immediately be renamed The Beard Company and continue
conducting business as the successor to the Company. If the Company's
stockholders adopt and approve the Merger, the Merger will take effect on
the date on which a certificate of merger is filed with the Secretary of
State of the State of Oklahoma (the "Effective Date"). This filing is
expected to be made within 48 hours after adoption and approval of the
Merger at the meeting.
The Merger will not result in any change in the number of shares owned
or percentage of ownership of any stockholder of the Company. On the
Effective Date each outstanding share of the Company's Common Stock will be
converted automatically into the right to receive one share of NBC common
stock, par value $0.001 per share ("NBC Common Stock").
Each outstanding certificate representing shares of Company Common
Stock will represent the same number of shares of NBC Common Stock. On and
after the Effective Date the NBC Common Stock will be traded on the AMEX in
full substitution for the shares of Company Common Stock under the same
stock symbol "BOC."
The Merger of the Company will not result in any change in the
business, management, location of the principal executive offices, assets,
liabilities or stockholders' equity of the Company. NBC will possess all
of the assets and be responsible for all of the liabilities of the Company.
The Merger will not change the financial condition of the Company.
The Company is currently governed, and the shareholders rights are
defined, by the laws of the State of Oklahoma, the Board of Directors and
officers, its certificate of incorporation, its Bylaws, and its preferred
stock designation. In addition, the Company has adopted a 401(k) Plan, a
Stock Option Plan, a Phantom Stock Units Plan and a Deferred Stock
Compensation Plan. All of these instruments will be substantially the same
for NBC as they were for the Company.
Specifically, the officers and directors of NBC will be the same
people who currently serve as officers and directors of the Company. The
NBC Bylaws will be the same as the Bylaws of the Company in all respects,
as will the common stock and preferred stock, the 401(k) Plan, the Stock
Option Plan, the Phantom Stock Units Plan and the Deferred Stock
Compensation Plan. The certificate of incorporation for NBC will be
changed to reflect the Section 382 Restrictions discussed below. See
Exhibit C.
Purposes for the Merger
The Board of Directors believes that the best interests of the Company
and its stockholders will be served by attempting to preserve the Company's
available net operating loss carryforwards ("NOLs") as discussed below.
The Merger will impose certain stock transfer restrictions on the Company's
preferred and common stock which are designed to prevent elimination or
limitation on the usage of the NOLs.
Section 382 Stock Transfer Restrictions
At March 31, 1997, Beard and its consolidated subsidiaries had
available federal income tax net NOLs of approximately $66.1 million. The
NOLs, which will expire between 2001 and 2010, can be used by Beard to
offset future taxable income and capital gains and therefore constitute a
valuable asset.
However, the NOLs are valuable only if Beard has substantial taxable
income in years after the Merger. Management believes that it is unlikely
that Beard will be able to realize the full benefit of the NOLs before they
begin to expire in 2001. Even so, Beard desires to retain as much of the
NOLs for future use as possible.
If an "ownership change," as defined in Section 382 of the Code
("Section 382"), occurs, Beard's ability to use its NOLs would be limited
or eliminated. Basically, the amount of NOLs which Beard could use to
offset future taxable income would be limited to an amount determined by
multiplying the fair market value of Beard's outstanding capital stock
immediately before the "ownership change" by the "long-term tax exempt
rate" which is published monthly by the Internal Revenue Service.
Moreover, if a corporation has substantial non-business assets on the date
of an ownership change, the fair market value of its capital stock for this
purpose would be reduced by all or a substantial portion of its non-
business assets.
As discussed below, the Company desires to impose restrictions on the
Beard stock to prevent inadvertent application of Section 382 in the
future. The limitations imposed by Section 382 should have no effect on an
individual shareholder of Beard.
Application of Section 382
The limitations imposed by Section 382 only apply when an "ownership
change" occurs with respect to the stock of a corporation. An "ownership
change" will occur if the ownership of one or more 5% shareholders
(accounting for all shareholders owning less than 5% as a single
shareholder) has increased by more than 50 percentage points over the
lowest percentage of stock owned by such 5% shareholders during the three
year period ending on the date of change. For this purpose, Section 382
generally defines stock to include all issued and outstanding stock, except
certain preferred stock, and all stock that may be acquired pursuant to
warrants, options, rights to purchase stock, rights to convert other
instruments into stock and options or other rights to acquire any such
interests. Ownership of stock is generally attributed to the ultimate
individual beneficial owner.
As a result of a transfer of stock by holders of a portion of the
common stock and the Series A Preferred Stock in January, 1997, the Company
had an ownership change of approximately 27%.
Section 382 Restrictions
If the Merger is approved, the stockholders of Beard will become
stockholders of NBC. In an attempt to preserve the value of the NOLs to
Beard, provisions in the Certificate of Incorporation of NBC restrict the
transfer of shares for 13 years after the Effective Date of the Merger to
any person if that person is, or would thereby become, a holder of 5% or
more of the fair market value of Beard's outstanding capital stock without
the Board of Directors' consent (the "Section 382 Restrictions").
For purposes of the Section 382 Restrictions, the terms "person" and
"transfer" are broadly defined to reach virtually any transaction that
might result in a transfer of any interest in shares of the Beard Common
and Preferred Stock. The calculation of the percentage of capital stock
actually or constructively owned by a transferee will be determined in
accordance with Section 382. The transfer restriction will expire on the
earliest of 13 years after the Effective Date of the Merger, the date on
which Beard no longer has any unutilized NOLs, or the date after which
Section 382 could no longer affect the NOLs. The certificates representing
the Beard Common and Preferred Stock will bear a legend conspicuously
noting the Section 382 Restrictions.
The Section 382 Restrictions operate to make any attempted transfer in
violation thereof ineffective. The purported transferee will not be
recognized by Beard as having an ownership interest, will not have the
right to vote, receive dividends or distributions on liquidation and will
be prevented from realizing any appreciation in the market value of the
stock. The transferor will continue to be treated as the owner of the
Common or Preferred Stock for all purposes. Any purported transferee in
violation of the Section 382 Restrictions may be required by Beard to
deliver any certificate or other evidence of ownership to an agent
designated by Beard for sale of the shares represented thereby. The
proceeds of the sale will be paid to the purported transferee to the extent
of the consideration paid by such person and the balance will be paid to
the transferor, if such person can be identified with reasonable efforts,
or otherwise as provided in Beard's Certificate of Incorporation. If the
purported transferee has resold the shares, Beard may demand, and bring
suit to enforce the collection of, the proceeds for distribution as set
forth above. The Section 382 Restrictions are designed to prevent a
prohibited transferee from receiving or retaining any of the benefits of
ownership.
Under the Section 382 Restrictions, the Board of Directors of Beard is
authorized to establish guidelines as to the application and implementation
of the transfer restrictions. The guidelines will generally conform to the
requirements of Section 382 and may contain various administrative
provisions. However, because Section 382 contains many ambiguities and
uncertainties, and to permit the Board of Directors flexibility in applying
the Section 382 Restrictions in a manner that may not conform to Section
382, the guidelines adopted by the Board of Directors may be more or less
stringent than the specific requirements for Section 382. In addition,
under the terms of the Section 382 Restrictions, the Board of Directors has
the power to make certain exceptions to, or establish guidelines in the
future to include or exclude certain transactions from, the transfer
restrictions. The Board of Directors intends to consider proposed
transfers individually to determine whether the proposed transfer is in the
best interest of Beard. In making its determination, the Board of
Directors will consider all factors believed to be relevant at the time,
including the effect of the transfer on the aggregate percentage increase
in ownership of capital stock by 5% Holders and any benefit or detriment to
Beard resulting from the transfer. Inasmuch as the Board of Directors
intends to consider each transaction individually, there is a possibility
that the proposed restrictions on transfer may be inconsistently applied to
similar transactions.
Transfer Restrictions No Guarantee of the NOLs
Although the Section 382 Restrictions are intended to preserve the
availability of the NOLs, they may not be effective in preventing all
transfers that might result in an ownership change for purposes of Section
382. Section 382 is an extremely complex provision with respect to which
there are many uncertainties. Many issues that may arise under Section 382
have not been definitively addressed by the Internal Revenue Service or the
courts. Section 382, and the Section 382 Restrictions, apply to all
transfers of a company's stock to or from a 5% Holder, whether the transfer
is of record or merely beneficial. Beard has not requested a ruling from
the Internal Revenue Service regarding the effectiveness of the Section 382
Restrictions and, therefore, there can be no assurance that the Internal
Revenue Service will agree that such a prohibition is effective for
purposes of Section 382. Nevertheless, the Board of Directors believes
that the Section 382 Restrictions are in the best interests of Beard,
because they discourage and most likely effectively prevent transfers which
could lead to an ownership change.
An ownership change could also occur in connection with a transfer
approved by the Board of Directors. The Board of Directors is not aware of
any person intending to become a 5% Holder. Nevertheless, if in the future
the Board of Directors determines to permit a transfer to any 5% Holder
because the transfer would be advantageous to Beard and its shareholders
regardless of its impact on the NOLs, that transfer or later transfers
could result in an ownership change that would limit or eliminate the use
of the NOLs. The Board of Directors intends to consider any such potential
transfers individually and determine at the time whether it is in the best
interests of Beard and its shareholders, in view of the circumstances, to
permit any transfers to a 5% Holder or a person who would thereby become a
5% Holder.
Authority for Restrictions; Applicability of Oklahoma Act
Section 1055C of the Oklahoma Act provides, in pertinent part, that
"[a] restriction on the transfer of securities of a corporation is
permitted by the provisions of this section if it...(4) prohibits the
transfer of the restricted securities to designated persons or classes of
persons, and such designation is not manifestly unreasonable." In
addition, Section 1055E of the Oklahoma Act validates other "lawful"
restrictions on the transfer or registration of transfer of securities, and
Section 1055D of the Oklahoma Act provides that "[a]ny restriction on the
transfer of the shares of a corporation for the purpose...of maintaining
any...tax advantage to the corporation is conclusively presumed to be a
reasonable purpose."
Assuming approval of the Merger, the NOLs will constitute a valuable
asset of Beard. The Section 382 Restrictions have been included in NBC's
Certificate of Incorporation for the sole purpose of preserving this tax
advantage. Additionally, Beard believes the 382 Restrictions are not
manifestly unreasonable. Therefore, Beard believes that the Section 382
Restrictions are valid and, to the extent the restrictions are noted
conspicuously on the certificates representing the stock, the terms of the
restrictions will be enforceable under Oklahoma law, subject to applicable
bankruptcy, moratorium or other similar laws and general principles of
equity.
However, under Article 8 of the Uniform Commercial Code in effect in
Oklahoma, a bona fide purchaser for value without notice of a restriction
on transfer would take the security free of such restriction. In order to
prevent transfers of Beard stock that might impair the NOLs, at the
Effective Time of the Merger, the Beard stock will legally cease to exist
but it will not be automatically converted into stock of NBC; instead, the
certificates formerly representing the Beard stock will thereafter
represent non-transferable rights to receive Beard stock in accordance with
the Merger Agreement. The holders of such certificates will not, until
they have exchanged the same for Beard certificates, be entitled to receive
dividends or other distributions in respect thereof, nor will they be
entitled to vote on any matters presented for approval of the shareholders
or any other rights of ownership with respect to Beard stock. The stock of
Beard was subject to restrictions similar to the Section 382 Restrictions
until they expired in October of 1996.
Other Considerations; Potential Anti-takeover Effects of the Transfer
Restrictions
The Board of Directors of Beard has concluded that the potential
benefits of the Section 382 Restrictions outweigh the possible
disadvantages. However, the Section 382 Restrictions may reduce the
marketability of Beard's Common Stock because it will discourage
acquisitions involving large blocks. The Board of Directors of Beard
believes, however, such disadvantage is outweighed by the risk that the
loss of the NOLs would have a severe negative impact on Beard's future
value.
Although the Section 382 Restrictions are being proposed for the sole
purpose of preserving the NOLs, the Section 382 Restrictions may have the
effect of discouraging takeover attempts. The Section 382 Restrictions
specifically prohibit transactions involving acquisitions of Beard Common
or Preferred Stock by a person who is, or would thereby become, a holder of
5% or more of Beard's capital stock, with the result that the Board of
Directors, in its discretion, may be able to prevent any future takeover
attempt. Therefore, some shareholders may find the Section 382
Restrictions disadvantageous to the extent that it might discourage or
prevent tender offers or accumulations of substantial blocks of shares in
which shareholders might receive a premium above market value. Because the
Section 382 Restrictions are intended to operate to prevent change of
control, they may make the removal of incumbent management more difficult.
Although the Section 382 Restrictions limit the accumulation of large
holdings of Beard Common or Preferred Stock, holders of a majority of
Beard's voting shares will continue to have the power to replace any or all
of the directors in accordance with the provisions of the Oklahoma Act and
the Beard Certificate of Incorporation.
Tax Consequences
The Company has received an opinion from its counsel, McAfee & Taft A
Professional Corporation, to the effect that the proposed Merger will be a
tax-free reorganization under the Internal Revenue Law of 1986, as amended.
Accordingly, (i) no gain or loss will be recognized for federal income tax
purposes by the stockholders of the Company as a result of the Merger and
(ii) the basis and holding period for the stock of NBC received by the
stockholders of the Company will be the same as the basis and holding
period of the stock of the Company exchanged therefor. The Merger will
have no federal income tax effect on the Company. State, local or foreign
income tax consequences to stockholders may vary from the federal tax
consequences described above, and stockholders should consult their own tax
advisors as to the effect of the Merger under applicable state, local or
federal income tax laws.
Accounting Consequences
The Merger will not result in any financial accounting consequences.
The existing assets and liabilities of the Company will continue to be
reported at their historical carrying amounts on the books of NBC.
Regulatory Approvals
There are no regulatory approvals required in connection with the
Merger.
Abandonment
Notwithstanding a favorable vote of the stockholders, the Company
reserves the right by action of the Board of Directors to abandon the
proposed Merger prior to the Effective Date of the Merger if it determines
that such abandonment is in the best interests of the Company. The Board
of Directors knows of no circumstances which might prompt abandonment.
Vote Required
Pursuant to the Oklahoma Act, the affirmative vote of the holders of a
majority of the outstanding shares of the Company's Common Stock and the
Preferred Stock on an as converted basis is required for approval of the
Merger Agreement and the merger which will effectuate the Merger. A vote
of approval of the Merger will constitute specific approval of all other
transactions and proceedings relating to the Merger, including the
assumption by NBC of the Company's Stock Option Plan and all other employee
benefit plans and agreements, and the obligations of the Company under such
plans and agreements, and the provisions in NBC's Certificate of
Incorporation which differ from those in the Company's Certificate of
Incorporation.
Dissenters Rights
Under applicable provisions of the Oklahoma Act, there are no
dissenting stockholder appraisal rights available in connection with the
Merger.
Payment of Merger Consideration; Exchange of Beard Certificates
As soon as practicable following the Merger, there will be mailed to
all holders of record of Beard Common Stock and Beard Preferred Stock at
the Effective Time a Letter of Transmittal to be used by such holders in
surrendering to Liberty Bank and Trust Company of Oklahoma City, National
Association (the "Exchange Agent") certificates which, prior to the Merger,
represented shares of Beard Common Stock and to the Company certificates
which, prior to the Merger represented shares of Beard Preferred Stock.
The Letter of Transmittal will contain instructions concerning the
surrender of Beard stock certificates. Beard shareholders should not
surrender their stock certificates until they have received the Letter of
Transmittal.
Each holder of Beard Common Stock or Beard Preferred Stock will be
entitled to receive, upon surrender to the Exchange Agent of his
certificate(s) which prior to the Merger represented shares of Beard Common
Stock or Beard Preferred Stock, respectively, together with a properly
completed and duly executed Letter of Transmittal and any other required
documents, a certificate representing the number of whole shares of NBC
Common Stock or the number of whole and/or fractional shares of NBC
Preferred Stock to which he is entitled pursuant to the Merger Agreement.
If a certificate representing NBC Common Stock or NBC Preferred Stock is to
be issued in the name of a person other than the person in whose name a
surrendered certificate is registered, the certificate so surrendered must
be endorsed and otherwise be in proper form for transfer and the person
requesting such issuance must pay to the Exchange Agent or the Company, as
the case may be, any transfer taxes required by reason of such issuance in
a name other than that of the holder of record or must establish to the
satisfaction of the Exchange Agent or the Company, as the case may be, that
such taxes either have been paid or are not payable. The Exchange Agent
will issue the NBC Common Stock and the Company will issue the NBC
Preferred Stock attributable to any certificate which has been lost or
destroyed only upon receipt of satisfactory evidence of ownership of the
shares of Beard Common Stock or Beard Preferred Stock represented thereby
and after appropriate indemnification.
Following the Merger, holders of certificates formerly representing
shares of Beard Common Stock or Beard Preferred Stock will cease to have
any rights with respect to the shares formerly represented thereby, except
the right to receive the NBC stock in exchange therefor. In addition,
holders of such certificates will not be entitled to receive any dividends
payable to holders of NBC Common Stock or NBC Preferred Stock, or any other
attributes of ownership, until surrender of the certificates to the
Exchange Agent or the Company, as the case may be.
Amendment and Termination
Prior to consummation of the Merger, the Merger Agreement may be
amended at any time, whether before or after the meeting, by a written
instrument executed by Beard and NBC with the approval of their respective
Boards of Directors. The Oklahoma Act provides that the boards of
directors of the constituent corporations in a merger may amend the merger
agreement after shareholder approval has been obtained by a constituent
corporation, provided the amendment does not (i) alter the amount or kind
of shares, securities, cash, property or rights to be received in exchange
for or on conversion of shares of such constituent corporation, (ii) alter
the certificate of incorporation of the surviving corporation or (iii)
alter the terms of the agreement if such alteration would adversely affect
the holders of shares of such constituent corporation. The Merger
Agreement may be terminated by the mutual consent of the Boards of
Directors of Beard and NBC or by either party if (i) there is a material
default by any party in observing or performing any representations,
warranties, agreements or covenants in the Merger Agreement, the other
party has not complied with all closing conditions and such noncompliance
has not been waived by the remaining parties, or (ii) a suit or other
proceeding is pending or threatened seeking to restrain, prohibit or obtain
damages in connection with the consummation of the Merger Agreement.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND THE MERGER
WHICH WILL EFFECTUATE THE PROPOSED MERGER. THE BOARD UNANIMOUSLY
RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER.
ELECTION OF DIRECTORS
(Proposal No. 3)
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") provides for a Board of Directors of not more than nine nor
less than three directors, including one director elected by the preferred
stockholders, as determined from time to time by the Board. The
Certificate also provides that the portion of the Board of Directors which
is elected by the Beard common stockholders shall be divided into three
classes as nearly equal in number as possible, with the term of office of
one class expiring each year.
At the meeting, two directors are to be elected by the common
stockholders for three-year terms expiring at the date of the Annual
Meeting of Stockholders in 2000. The terms of Messrs. Allan R. Hallock and
Ford C. Price expire this year, and they will be the two nominees for terms
expiring in 2000. The Beard preferred stockholders filled the directorship
vacancy which they were entitled to fill in February 1994 by the election
of Michael E. Carr, who will continue to serve in such capacity until his
successor has been elected.
It is the intention of the persons named in the accompanying form of
Proxy to vote Proxies for the election of the two above-named nominees.
Each nominee has served continuously as director of the Company or of its
predecessors since first elected. In the event that any of the nominees
should for some reason, presently unknown, fail to stand for election, the
resulting vacancy would be filled at such time as the board finds a
suitable candidate. Election of each director will be by plurality vote.
The directors elected at the Annual Meeting will serve for three-year terms
and until their respective successors are elected and qualified, in
accordance with the provisions of the Certificate and the Company's By-
Laws.
Certain information with respect to the nominees for director and four
directors whose terms do not expire this year is as follows:
Nominees for Election for Terms of Three Years Expiring in 2000:
Nominee (age), year first became a Director of Beard or Beard Oil.
ALLAN R. HALLOCK (68), 1986
Allan R. Hallock was elected a director of Beard in July 1993. He
served as a director of Beard Oil Company ("Beard Oil"), the predecessor to
Beard, 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.
FORD C. PRICE (60), 1988
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.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE ABOVE
NOMINEES.
Director to Continue in Office with Term Expiring in 1998:
HERB MEE, JR. (69), 1974
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.
Directors to Continue in Office with Terms Expiring in 1999:
W. M. BEARD (68), 1974
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.
W. R. PLUGGE (73), 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. Mr. Plugge is a private investor, and
also serves as a director of Computer Horizons Corporation, a publicly-held
company (OTC).
Director Elected to Represent the Class of Preferred Stockholders
MICHAEL E. CARR (62), 1994
Michael E. Carr was elected in February 1994 by the preferred
stockholders to fill the directorship vacancy which they are entitled to
fill. He served as Senior Vice President of Beard Oil from December 1986
until October 1993. He served as President of Sensor Oil & Gas, Inc. from
October 1993 until August 1996. He presently serves as President of Mica
Energy Corp.
Mr. Carr will serve as a director of the Company until his successor
has been elected and has qualified in such office or until such time as all
of the preferred stock has been converted or redeemed.
There is no family relationship between any of the directors or
executive officers of the Company.
Committees of the Board of Directors
The Company has standing Audit and Compensation Committees. Mr.
Plugge serves as chairman and Messrs. Hallock, Price and Carr serve as
members of the Audit Committee which met twice in 1996. Mr. Hallock serves
as chairman and Messrs. Plugge, Price and Carr serve as members of the
Compensation Committee which met twice in 1996. During 1996, the Board of
Directors met five times. All of the directors attended more than 75% of
the aggregate of all meetings of the Board of Directors and Committees on
which they served during 1996.
The principal functions of the Company's Audit Committee are: (1) to
annually review the selection of independent auditors and to recommend for
Board approval and stockholder ratification the appointment of independent
auditors; (2) to consult with the independent auditors of the Company with
regard to the plan of audit; (3) to review the results of the annual audit
and request additional reviews and audit procedures if necessary; and (4)
to review and approve internal audit objectives, accounting and control
policies and procedures to determine that a reliable system of internal
controls is functioning.
The principal functions of the Company's Compensation Committee are:
(1) to review the objectives, structure, cost and administration of the
Company's major compensation and benefit policies and programs; (2) to
review and make recommendations concerning remuneration arrangements for
senior management, including the specific relationship of corporate
performance to executive compensation; (3) to review the Company's
performance versus the CEO's compensation and establish measures of the
Company's performance upon which the CEO's compensation is based; and (4)
to administer the Company's compensation, benefit and incentive plans.
The Company does not have a Nominating Committee; the Board of
Directors has nominated the directors to stand for election at the annual
meeting. Each of the persons nominated presently serves as a director.
Executive Officers
Certain information concerning the executive officers of the Company
is set forth below:
In addition to W. M. Beard, the Company's Chairman and Chief Executive
Officer, and Herb Mee, Jr., the Company's President and Chief Financial
Officer, the following are considered to be executive officers of the
Company:
Clifford H. Collen, Jr., age 40, has served as President of Carbonics
since he and Beard Oil founded the company in August 1987. Mr. Collen has
been associated with the CO{2} 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. In the event the proposed sale of
substantially all of the assets of Carbonics is approved and the sale is
consummated, it is contemplated that Mr. Collen will become an employee of
Airgas.
Marc A. Messner, age 35, has served as President of Horizontal
Drilling Technologies, Inc. ("HDT") since he and another person founded the
company in July 1993. He was elected President of Whitetail Services, Inc.
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, age 59, has served as President of Beard
Technologies, Inc. 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 sale of coal. From 1993 to 1995 he served as
a consultant to Energy International, Inc. ("EI") in its development of the
Mulled Coal process and installed and operated the process at an Alabama
coal preparation plant in connection with EI's performance of a contract
for the Department of Energy.
Jack A. Martine, age 48, 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 Oil & Gas, Inc. in a similar capacity. Mr. Martine is a
certified public accountant.
Rebecca G. Witcher, age 37, has served as Corporate Secretary of the
Company and Beard Oil since October 1993, and has served as Treasurer of
such companies since July 1997.
All executive officers serve at the pleasure of the Board of
Directors.
Compliance with SEC Reporting Requirements
Section 16 of the Securities Exchange Act of 1934 requires directors
and executive officers of the Company to file reports with the Securities
and Exchange Commission reflecting transactions by such persons in the
Company's common stock. During 1996, to the knowledge of the Company, or
based on information provided by such persons to the Company, all executive
officers and directors of the Company subject to such filing requirements
fully complied with such requirements.
Compensation of Executive Officers
The table on the next page 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 $100,000, for any of the fiscal years ended December 31,
1996, 1995 or 1994:
<PAGE>
</TABLE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Compensation
Annual Compensation AWARDS PAYOUTS
(a) (b) (c) (d) (g) (h) (i)
Securities
Underlying All Other
Name and Salary Salary Options/ LTIP Compen-
Principal (A) (B) SAR's Payouts sation (C)
POSITION YEAR ($) ($) (#) ($) ($)
<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 63,216(E) -0- -0- 5,688
President- 1995 103,134 13,883(E) -0- -0- 5,179
Carbonic
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.
(E) Mr. Collen earned bonuses totaling $63,216 in 1996, of which $500 was
paid in 1996 and $62,716 in 1997. He earned bonuses totaling $13,883
in 1995, of which $633 was paid in 1995 and $13,250 in 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information, with respect to the named
executive officers, concerning the exercise of options during the
Company's last fiscal year and unexercised options held as of the end of
the last fiscal year:
<PAGE>
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name On Exercise (#) Realized($) Unexercisable Unexercisable
---- --------------- ----------- ------------- -------------
<S> <C> <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 each 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 (the "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 of the awards vest over a five year period at the rate of 20%
per year. All awards were based on an award price of $2.00* per share.
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.
Mr. Carr received a cash payment of $3,808 in 1997 for 2,000 Units which
vested on February 22, 1997.
_______
*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.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Board of
Directors (the "Board") establishes the general compensation policies of
the Company. The Committee meets once each year to establish specific
compensation levels for the chief executive officer ("CEO") and the
president ("CFO") and to review the executive officers' compensation
generally. (The compensation for executive officers other than the CEO
and CFO is actually determined by the CEO and CFO).
The Committee's goal in setting executive compensation is to
motivate, reward and retain management talent who support the Company's
goals of increasing shareholder value. This goal is to provide
competitive levels of compensation that relate to the Company's long-term
performance goals and objectives, reward outstanding corporate
performance and recognize individual initiative and achievement. The
Committee endeavors to achieve these objectives through a combination of
base salary, cash bonuses and stock options.
The Committee believes that the total compensation of its CEO, CFO
and other executive officers should be tied to the Company's success in
achieving long-term growth in earnings, cash flow and stock price per
share. The Committee also believes that the total cash compensation of
such officers should, to the extent possible, be similar to the total
cash compensation of similarly situated executives of peer group public
companies. To date neither the Company nor the Committee has been able
to establish a peer group which they feel is comparable enough in size,
financial structure and diversity of operations to establish a valid
comparison. However, the Committee has noted that, through June 30,
1997, the Company's per share stock price has grown at a compound annual
rate of 27% since the Company's common shares commenced trading on
October 27, 1993, following the major reorganization (the "1993
Reorganization") which occurred on October 26, 1993.
No executive officer's compensation for 1996 exceeded the $1 million
deduction limit under Section 162(m) of the Internal Revenue Code, as
amended, and the same result is anticipated for 1997. The Committee does
not anticipate that any executive officer's compensation would approach
the threshold level in the foreseeable future.
Base Salaries. Because of the extremely poor financial results
achieved by the Company during 1990-1992, no salary increases have been
granted to executive officers since September of 1990 (except for
performance increases granted to (i) the president of the Company's
largest subsidiary in March of 1991 and in January of 1995; and (ii) to a
Company vice president in June of 1994. Management totally restructured
the Company in 1993-1996. As a result there was a significant
improvement in financial results which restored the Company to
profitability in 1993 and 1994. 1995 and 1996 were disappointing years
profitwise. Despite the progress that has been made during the past four
years, no increases have been made in the base salaries of the CEO or CFO
since 1990 and no changes are currently under consideration.
Cash Bonuses. All employees of the Company receive a small year-end
bonus depending upon their length of service as employees of Beard or
Beard Oil. Because of the overall financial results, no additional cash
bonuses have been paid to executive officers, except as follows. In
early 1995 the Company's largest subsidiary was financially restructured
in a manner which the Board believed would provide greater incentive to
management of, and improved financial performance by, the subsidiary. As
part of the restructure an incentive bonus arrangement was formalized
which established a Key-Employee Bonus pool (the "Pool") pursuant to
which, in each year that the Pool remains in effect, not less than 5% of
pre-tax net income of the subsidiary will be paid in the following year
to one or more of the employees of the subsidiary selected by the
subsidiary's board of directors (presently consisting of Messrs. Beard,
Mee and Collen). The restructure and incentive arrangement were also
unanimously approved by the Company's Board, including all members of the
Committee who were present. In accordance with the provisions of the
Pool, 5% of the subsidiary's pre-tax 1996 net income was paid as a 1997
bonus to Mr. Collen ($62,716) and one other key employee ($12,500).
Beard Group 401(k) Plan. One of the investment options available
under the Company's 401(k) Plan (the "401(k) Plan") is the option for
each participant to invest all or part of his investment account in
Company common stock ("The Beard Company Stock Fund Investment Option").
Because the bank trustee of this portion of the 401(k) Plan was having
difficulty purchasing sufficient shares of such stock in the open market,
the 401(k) Plan was amended in September of 1995 to permit the bank to
purchase authorized shares of Beard common stock directly from the
Company, and the Company reserved 150,000 shares of its authorized but
unissued common stock for such purpose. The Committee felt that this
step was extremely important because it has enabled key management
members to significantly increase their ownership in the Company, further
aligning their interests with those of the shareholders. Since the
amendment was approved, the bank trustee has purchased 88,300 shares from
the Company, with more than 75% of such shares being purchased for the
accounts of executive officers of the Company.
Stock Options. The Committee desires to reward long-term strategic
management practices and enhancement of shareholder value through the
award of stock options. The Committee believes that stock options
encourage increased performance by the Company's key employees by
providing incentive to employees to elevate the long-term value of the
Company's common stock, thus aligning the interests of the Company's
employees with the interests of its shareholders. Additionally, stock
options build stock ownership and provide employees with a long-term
focus.
The Committee and the Board have placed particular emphasis upon
stock options in structuring the compensation package for senior
management, in the belief that an aggressive program to acquire
profitable companies is essential in order to maximize shareholder value
during the next several years and enable the Company to utilize as much
as possible of its substantial net operating loss carryforwards. Both
management and the Committee fully recognize this goal and are desirous
that the interests of senior management and the Company's shareholders be
as closely aligned as possible.
CEO Compensation
W. M. Beard has been Chairman and CEO of the Company and its
predecessors since 1974. Mr. Beard's 1996 base salary was $132,000, and
has not increased since 1990. He has not received an incentive bonus
since 1990. Moreover, he elected to defer one-fourth of his salary and
all of his year-end bonus beginning in December 1995 pursuant to the
Company's Deferred Stock Compensation Plan. The 1994 stock option grant
of 50,000 shares to Mr. Beard reflected the Committee's desire to provide
significant incentives which link long-term executive compensation to
long-term growth in equity for all shareholders, as described above. The
award also reflected Mr. Beard's position and level of responsibility
within the Company, the Committee's qualitative analysis of his
performance in managing the Company, and the importance of the role he is
expected to play in the Company's future acquisition efforts. In view of
the Company's earnings performance in 1996, the granting of any
additional stock options to Mr. Beard or other key management members was
not considered by the Committee.
COMPENSATION COMMITTEE
Allan R. Hallock, Chairman
W. R. Plugge
Ford C. Price
Michael E. Carr
STOCK PERFORMANCE
The following performance graph compares the Company's cumulative
total stockholder return on its common stock against the cumulative total
return of the American Stock Exchange Market Value Index and the SIC Code
Index of Industrial Gases compiled by Media General Financial Services
for the period which commenced on October 27, 1993 (date of initial
trading of the Company's shares) and December 31, 1996. The October 27
date was used since, as a result of the 1993 Reorganization, the
Company's shares were initially distributed to shareholders as of that
date and commenced trading on the Exchange on October 27, 1993. The
performance graph assumes that the value of the investment in the
Company's common stock and each index was $100 on October 27, 1993 and
that any dividends were reinvested. The Company has never paid dividends
on its common stock.
<TABLE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG THE BEARD COMPANY,
AMEX MARKET INDEX AND SIC CODE INDEX
ASSUMES $100 INVESTED ON OCT. 27, 1993
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDED DEC. 31, 1996
<CAPTION>
October December December December December
1993 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
The Beard Company 100.00 87.50 81.25 106.25 143.75
AMEX Market Index 100.00 105.57 115.46 157.43 213.60
Industrial Gases
Industry Index 100.00 102.50 90.55 116.71 123.16
</TABLE>
The Industrial Gases Industry Index consists of four companies: Air
Products & Chemicals, BOC Group PLC ADS, Praxair, Inc. and the Company.
AMENDMENT TO THE BEARD COMPANY
DEFERRED STOCK COMPENSATION PLAN
(Proposal No. 4)
At the Company's 1996 annual shareholder meeting, the shareholders
authorized The Beard Company Deferred Compensation Plan (the "Plan")
which is intended to provide a means to attract and retain highly
qualified persons to serve as directors and officers and promote
ownership of a greater proprietary interest in the Company, thereby
aligning such directors' and officers' interests more closely with the
interests of shareholders of the Company. A copy of the Plan is attached
to this Proxy Statement as Exhibit D and the description contained herein
is qualified in its entirety by reference to the complete text of the
Plan. Capitalized terms used below not otherwise defined herein shall
have the meaning ascribed to them in the Plan.
The Plan enables directors and officers of the Company to defer
Compensation and Fees in cash and to elect payments of such Compensation
and Fees in Beard common stock. All officers and directors are
automatically entitled to participate in the Plan. There are currently
11 individuals eligible for the Plan. Directors may elect to defer a
minimum of 25% of their Compensation and Fees or a greater amount in 25%
increments and officers may elect to defer a minimum of 10% of
Compensation and Fees or a greater amount in 5% increments. All
Compensation and/or Fees deferred under the Plan are credited to the
individual Participant's Stock Unit Account and are converted into Beard
common stock by dividing the amount of Compensation and Fees deferred by
the Fair Market Value of one share of common stock as of the date of the
Compensation or Fees would have otherwise been paid. Once the person
ceases to be an officer or director, their participation in the Plan
automatically terminates. See "Summary Compensation Table."
Upon the recommendation of management, the Board of Directors of the
Company voted on April 3, 1997, subject to stockholder approval, to amend
the Plan to increase the number of shares of common stock authorized for
issuance thereunder from 50,000 to 100,000. Management made this
recommendation in view of the fact that, based upon the directors and
officers presently participating in the Plan and the present price of the
Company's common stock, the remaining available authorized shares will
have been set aside for future settlement of such participants' Stock
Unit Accounts during 1998. The Board believes that this increase in the
number of shares available for issuance under the Plan will enable the
Company to continue its policy of compensating officers and directors by
giving them the opportunity to participate in the future growth of the
Company.
The approval and adoption of this proposed amendment requires the
affirmative vote by a majority of the Company's outstanding common and
preferred stock present in person or represented at the meeting and
entitled to vote.
In the event the stockholders approve the proposed amendment the
Company estimates that there will be adequate shares available to fund
the issuance of shares for all directors and officers presently
participating in the Plan through 2002.
The Board of Directors favors a vote "FOR" the proposal to amend The
Beard Company Deferred Stock Compensation Plan to increase the number of
shares authorized for issuance thereunder from 50,000 to 100,000.
Proxies solicited by the Board of Directors will be so voted unless
stockholders specify in their Proxies a contrary choice. See "Voting
Securities Outstanding," above.
APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
(Proposal No. 5)
KPMG Peat Marwick LLP ("KPMG"), Independent Certified Public
Accountants, have been independent auditors of the Company and Beard Oil
since its incorporation in 1974. Although not formally required,
stockholders' approval of such appointment is requested. To the
knowledge of management, such accountants do not have any direct, or
material indirect, financial interest in the Company and its
subsidiaries, nor have they had any connection during the past three (3)
years with the Company or any of its subsidiaries in the capacity of
promoter, underwriter, voting trustee, director, officer or employee.
Representatives of KPMG are expected to be present at the meeting.
They will have the opportunity to make a statement if they so desire and
are expected to be available to respond to appropriate questions.
The Board of Directors favors a vote "FOR" the proposal to approve
the appointment of KPMG. The shares represented by the enclosed Proxy
will be so voted unless otherwise directed. In the event the appointment
of KPMG should not be approved by the stockholders, the Board of
Directors will make another appointment, to be effective at the earliest
feasible time.
VOTE REQUIRED
The holders of shares entitled to cast a majority of the votes,
present in person or by proxy, constitute a quorum for the transaction of
business at the meeting. The affirmative vote of holders of the
Company's stock entitled to cast a majority of the votes represented at
the annual meeting will be required for the approval of (1) the Asset
Sale, (2) the Reorganization, (3) the amendment to the Deferred
Compensation Plan and (4) the appointment of KPMG as independent auditors
of the Company for 1997. The election of directors shall be by a
plurality of the vote of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors.
The office of the Company's Secretary appoints an inspector of
election to tabulate all votes and to certify the results of all matters
voted upon at the annual meeting. Neither the corporate law of the State
of Oklahoma, the state in which the Company is incorporated, nor the
Company's Certificate of Incorporation or By-Laws have any specific
provisions regarding the treatment of abstentions and broker non-votes.
It is the Company's policy to count abstentions or broker non-votes for
purposes of determining the presence of a quorum at the meeting; to treat
abstentions as votes not cast but to treat them as shares represented at
the meeting for determining results on actions requiring a majority vote;
and to consider neither abstentions or broker non-votes in determining
results of plurality votes. Thus, abstentions and broker non-votes have
the effect of a vote against the Merger and the Carbonics' Asset Sale
because approval of those transactions requires the affirmative vote of
the holders of a majority of the outstanding shares entitled to vote
thereon.
CERTAIN 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, and in October 1996
the credit line was increased to $500,000. Various advances and
repayments have been made under such arrangement, and at year-end 1996
the principal balance due was $455,000. In February 1997 the maturity was
extended to February 1999 and the principal amount of the loan was
increased to $480,000. 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, respectively, to the Company for a period of one year. In March
1996, the Trusts extended the maturity of such notes to October 1997.
Loans of $95,000 and $130,000, respectively, were outstanding pursuant to
such arrangement as of year-end 1996. 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. The loans are
unsecured and bear interest at the rate of 10% per annum.
STOCKHOLDER PROPOSALS
The Board of Directors anticipates that next year's annual meeting
will be held during the first week of June 1998. Any proposals of
stockholders intended to be presented at the 1998 Annual Meeting of
Stockholders must be received by the Company not later than January 30,
1998 in order for the proposals to be included in the proxy statement and
proxy card relating to such meeting. It is suggested that proponents
submit their proposals by certified mail, return receipt requested. No
stockholder proposals were received for inclusion in this Proxy
Statement.
OTHER MATTERS
Management knows of no other matters to be brought before the Annual
Meeting of Stockholders; however, if any additional matters are properly
brought before the meeting, the persons named in the enclosed proxy will
vote the proxies in their discretion in the manner they believe to be in
the best interest of the Company.
The accompanying form of proxy has been prepared at the direction of
the Company, of which you are a stockholder, and is sent to you at the
request of the Board of Directors. The proxies named herein have been
designated by your Board of Directors.
Management urges you, even if you presently plan to attend the
meeting in person, to execute the enclosed proxy and mail it as indicated
immediately. If a proxy is properly signed and is not revoked by the
shareholder, the shares it represents will be voted according to the
instructions of the shareholder; provided, however, if no specific
instructions are given, the shares will be voted as recommended by the
Board of Directors. A shareholder may revoke his or her proxy any time
before it is voted at the meeting. A shareholder who attends the meeting
and wishes to vote in person may revoke his or her proxy at the meeting.
Otherwise, a shareholder must advise the secretary of the Company in
writing of revocation of his or her proxy.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are hereby incorporated by reference into this Proxy Statement
and made a part hereof the Annual Report on Form 10-K of the Company for
the fiscal year ended December 31, 1996, the Quarterly Report on Form 10-
Q of the Company for the quarter ended March 31, 1997, which reports have
been filed by the Company with the Securities and Exchange Commission.
The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 and the Quarterly Report on Form 10-Q of the Company
for the quarter ended March 31, 1997, are attached hereto as Appendices A
and B, respectively.
THE BEARD COMPANY
By Order of the Board of Directors
Rebecca G. Witcher
Secretary
Oklahoma City, Oklahoma
July __, 1997
<PAGE>
PROXY THE BEARD COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR STOCKHOLDERS MEETING ON AUGUST ___, 1997
The undersigned stockholder of The Beard Company, an Oklahoma
corporation, hereby appoints W. M. Beard and Herb Mee, Jr., or either of
them, with full power of substitution, as true and lawful agents and
proxies to represent the undersigned and vote all shares of stock of The
Beard Company owned by the undersigned in all matters coming before the
1997 Annual Meeting of Stockholders (or any adjournment thereof) of The
Beard Company to be held in the Board Room of the Liberty Bank and Trust
Company of Oklahoma City, N.A. in the Liberty Tower, 100 North Broadway,
Oklahoma City, Oklahoma, on Monday, August ___, 1997 at 10:00 a.m., local
time. The Board of Directors recommends a vote "FOR" the following
matters, all as more specifically set forth in the Proxy Statement:
1. Approval of the sale of substantially all of the assets of Carbonics
pursuant to the Asset Purchase Agreement, a copy of which is attached to
the accompanying Proxy Statement as Exhibit "A".
_ FOR _ AGAINST _ ABSTAIN
2. Approval of the merger of the Company into The NBC Company pursuant
to the Plan and Agreement of Merger and Reorganization, a copy of which
is attached to the accompanying Proxy Statement as Exhibit "B".
_ FOR _ AGAINST _ ABSTAIN
3. Election of Directors.
_ FOR all nominees listed below _ WITHHOLD AUTHORITY
to vote for all nominees listed below
Allan R. Hallock - three year term expiring in 2000
Ford C. Price - three year term expiring in 2000
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write the nominee's name in the space provided below.)
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
This Proxy is solicited on behalf of the Board of Directors.
<PAGE>
4. Approval of an amendment to The Beard Company Deferred Stock
Compensation Plan (the "Plan") to increase the number of common shares
authorized for issuance thereunder from 50,000 to 100,000. A copy of the
Plan is attached to the accompanying Proxy Statement as Exhibit "D".
_ FOR _ AGAINST _ ABSTAIN
5. Approval of Appointment of KPMG Peat Marwick LLP as independent
certified public accountants for fiscal 1997.
_ FOR _ AGAINST _ ABSTAIN
6. In their discretion, the Proxies are authorized to vote with respect
to any other matters that may come before the Meeting or any adjournment
thereof, including matters incident to its conduct.
I/WE RESERVE THE RIGHT TO REVOKE THE PROXY AT ANY TIME BEFORE THE
EXERCISE THEREOF. WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN
THE MANNER SPECIFIED ABOVE BY THE STOCKHOLDER. TO THE EXTENT CONTRARY
SPECIFICATIONS ARE NOT GIVEN, THIS PROXY WILL BE VOTED "FOR" ITEMS 1, 2,
4 AND 5, AND "FOR" THE ELECTION OF THE DIRECTORS NOMINATED.
Dated: __________________________________________________, 1997
____________________________________________________________
(Signature)
____________________________________________________________
(Signature if held jointly)
Please sign exactly as your name appears
on your stock certificate, indicating
your official position or representative
capacity, if applicable. If shares are
held jointly, each owner should sign.
IMPORTANT: PLEASE SIGN, DATE AND RETURN
THIS PROXY BEFORE THE DATE OF THE ANNUAL
MEETING IN THE ENCLOSED ENVELOPE.
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit No. Description Method of Filing
- ----------- ------------ ----------------
<S> <C> <C>
2 Agreement and Plan of Merger Filed herewith electronically
3 Certificate of Incorporation Filed herewith electronically
of The NBC Company
13.1 Form 10K for period ended Filed herewith electronically
December 31, 1996
13.2 Form 10Q for period ended Filed herewith electronically
March 31, 1997
99.1 Asset Purchase Agreement by Filed herewith electronically
and between Airgas Carbonic
Reserves, Inc. and Carbonic
Reserves and The Beard Company
and Clifford H. Collen, Jr.
99.2 The Beard Company Deferred Filed herewith electronically
Stock Compensation Plan
</TABLE>
EXHIBIT B
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (the "Plan") dated as of
______________, 1997 by and between The Beard Company, an Oklahoma
corporation ("Beard"), and The NBC Company, an Oklahoma corporation
("NBC"), herein sometimes referred to as the "Surviving Corporation", Beard
and NBC being sometimes hereinafter collectively referred to as the
"Constituent Corporations".
W I T N E S S E T H :
WHEREAS, NBC is a corporation organized and existing under and by
virtue of the laws of the State of Oklahoma and having an authorized
capitalization of (i) 10 million shares of common stock, par value $.001
(the "NBC Common Stock"), 100 shares of which are currently issued and
outstanding, and (ii) 5 million shares of preferred stock, par value $1.00
(the "NBC Preferred Stock"), of which no shares are currently issued and
outstanding. All outstanding shares of NBC Common Stock have been duly
authorized and validly issued, and are fully paid and non-assessable. All
outstanding shares are held of record and beneficially by Beard; and
WHEREAS, Beard is a corporation organized and existing under and
by virtue of the laws of the State of Oklahoma and having an authorized
capitalization of (i) 10 million shares of common stock, par value $.001
(the "Beard Common Stock"), 2,799,074 shares of which are currently issued
and outstanding, and (ii) 5 million shares of preferred stock, par value
$1.00 (the "Beard Preferred Stock") of which 90,155.86 shares are currently
issued and outstanding. All outstanding shares of Beard Common Stock have
been duly authorized and validly issued, and are fully paid and non-
assessable; and
WHEREAS, the respective boards of directors of each of the
Constituent Corporations deem it advisable and in the best interest of each
such corporation and their respective shareholders that Beard be merged
with and into NBC in the manner contemplated herein and have adopted
resolutions approving this Plan and have recommended that the merger of
Beard with and into NBC (the "Merger") be approved and that this Plan be
approved and adopted by the shareholders of the Constituent Corporations;
and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained and subject to the conditions
herein set forth and for the purpose of stating the terms and conditions of
the Merger, the mode of carrying the same into effect, the manner and basis
of converting the shares of Beard Common Stock and Beard Preferred Stock
and other such details and provisions as are deemed desirable, the parties
hereto have agreed and do hereby agree, subject to the terms and conditions
hereinafter set forth, as follows:
ARTICLE I
The Constituent Corporations shall be merged into a single
corporation by Beard merging into and with NBC, the Surviving Corporation,
which shall survive the Merger, pursuant to the provisions of the Oklahoma
General Corporation Act (the "Merger"). Upon such Merger, the separate
existence of Beard shall cease, and the Surviving Corporation shall become
the owner, without transfer, of all rights and property of the Constituent
Corporations, and shall be subject to all the liabilities of the
Constituent Corporations in the same manner as if the Surviving Corporation
had itself incurred them, all as provided by the Oklahoma General
Corporation Act.
ARTICLE II
A. On the Effective Date of the Merger, which shall be 5:00
p.m., CST, on the date Certificate of Merger is filed with the Oklahoma
Secretary of State (the "Effective Date of the Merger"), the Certificate of
Incorporation of NBC, as currently in effect, shall be the Certificate of
Incorporation of the Surviving Corporation, except that the name of the
Surviving Corporation shall be changed to The Beard Company.
B. On the Effective Date of the Merger, the bylaws of NBC, as
in effect on the Effective Date of the Merger, shall become the bylaws of
the Surviving Corporation. Subsequent to the Effective Date of the Merger,
such bylaws shall be the bylaws of the Surviving Corporation until they
shall thereafter be duly amended.
C. On the Effective Date of the Merger, the directors and
officers of Beard shall become the directors and officers of the Surviving
Corporation until their successors are duly elected and qualified.
ARTICLE III
On the Effective Date of the Merger:
(a) Each share of Beard Common Stock issued and outstanding
immediately prior to the Effective Date of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof, shall be
converted into one share of NBC Common Stock.
(b) Each outstanding share of NBC held by Beard shall be
cancelled and no payment shall be made in respect thereof.
(c) Each share and fraction thereof of Beard Preferred
Stock issued and outstanding immediately prior to the Effective Date of the
Merger, by virtue of the Merger and without any action on the part of the
holder thereof, shall be converted into one share of NBC Preferred Stock.
ARTICLE IV
This Plan shall be submitted to the shareholders of the
Constituent Corporations for approval in the manner provided by applicable
Oklahoma law. After approval by the vote of the holders representing not
less than a majority of the issued and outstanding shares of the respective
Constituent Corporations entitled to vote on the Merger, a Certificate of
Merger containing this Plan shall be filed in the Office of the Secretary
of State of Oklahoma.
ARTICLE V
For the convenience of the parties hereto and to facilitate the
filing and recording of this Plan, any number of counterparts hereof may be
executed, and each such counterpart shall be deemed to be an original
instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Plan to be executed by its respective duly authorized officers as of the
day and year first written above.
THE BEARD COMPANY, an Oklahoma corporation
By: Herb Mee, Jr., President
ATTEST:
Rebecca G. Witcher, Secretary
THE NBC COMPANY, an Oklahoma corporation
By: Herb Mee, Jr., President
ATTEST:
Rebecca G. Witcher, Secretary
EXHIBIT C
CERTIFICATE OF INCORPORATION
OF
THE NBC COMPANY
ARTICLE ONE
The name of the Corporation is:
THE NBC COMPANY
ARTICLE TWO
The address, including street, number, city, county and zip code,
of the registered office of the Corporation in the State of Oklahoma is
Enterprise Plaza, Suite 320, 5600 North May Avenue, Oklahoma City, Oklahoma
County, Oklahoma 73112, and the name of the registered agent at such
address is Herb Mee, Jr.
ARTICLE THREE
The nature of the business and the purpose of the Corporation
shall be to engage in any lawful act or activity for which corporations may
be organized under the Act.
ARTICLE FOUR
The aggregate number of shares which the Corporation shall have
authority to issue is as follows:
CLASS NUMBER OF SHARES PAR VALUE
Preferred Stock 5,000,000 $1.00
Common Stock 10,000,000 $.001
The preferences, qualifications, limitations, restrictions and
special or relative rights in respect of the shares of each class are as
follows:
1.A. PREFERRED STOCK
The board of directors is authorized, subject to limitations
prescribed by law and the provisions hereof, to provide for the issuance of
the shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Oklahoma, to establish from
time to time the number of shares to be included in each such series, and
to fix the designation, powers, preferences and rights of the shares of
each such series and the qualifications, limitations or restrictions
thereof.
The authority of the board with respect to each series shall
include, but not be limited to, determination of the following:
(i) The number of shares constituting that series and the
distinctive designation of that series;
(ii) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of
that series;
(iii) Whether that series shall have voting rights, in addition to
the voting rights provided by law, and if so, the terms of such voting
rights;
(iv) Whether that series shall have conversion privileges, and if
so, the terms and conditions of such conversion, including provisions for
adjustment of the conversion rate in such events as the board shall
determine;
(v) Whether or not shares of that series shall be redeemable, and
if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(vi) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and if so, the terms and
amount of such sinking fund;
(vii) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution and winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of that series; and
(viii) Any other relative rights, preferences or limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or
set apart for payment before any dividends shall be paid or declared or set
apart for payment on the Common Stock with respect to the same dividend
period.
If upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation the assets available for distribution to
holders of shares of Preferred Stock of all series shall be insufficient to
pay such holders the full preferential amount to which they are entitled,
then such assets shall be distributed ratably among the shares of all
series in accordance with the respective preferential amounts (including
unpaid cumulative dividends, if any) payable with respect thereto.
1.B. SERIES A PREFERRED STOCK
Section 1. DEFINITIONS.
(a) As used herein, the following terms shall have the meanings
specified in the sections listed below:
TERM SECTION
Conversion Price 10
NASDAQ 1(b)
NMS 1(b)
Redemption Date 9
Series A Preferred Stock 2
Stated Value 3
(b) As used herein, the following terms shall have the
following meanings:
"Common Stock" shall mean and include the shares of Common Stock par
value $0.001 per share, of the Corporation as constituted on the date of
the original issue of the Series A Preferred Stock and shall also include
any class of shares of capital stock of the Corporation thereafter
authorized that shall not be limited to a fixed sum or percentage in
respect of the right of the holders thereof to receive dividends or to
participate in the assets of the Corporation distributable to shareholders
upon any liquidation, dissolution, or winding up of the Corporation;
provided however, that the shares into which the Series A Preferred Stock
shall be convertible pursuant to Section 10 hereof shall mean and include
the shares of Common Stock, par value $0.001 per share, of the Corporation
as constituted on the date of the original issue of the Series A Preferred
Stock or (i) in the case of any consolidation, merger, sale or conveyance
of the character referred to in section 8 hereof, the shares or other
securities or property deliverable in lieu thereof or (ii) in the case of
any change or reclassification of the outstanding Common Stock issuable
upon conversion of the Series A Preferred Stock as a result of a
subdivision or combination or consisting of a change in par value, or from
par value to no par value, or from no par value to par value, such Common
Stock as so changed or reclassified.
"Market Price" of any security on any day shall mean the average of
the closing prices of such security's sales on all securities exchanges on
which such security may at the time be listed, or on the Nasdaq National
Market ("NNM"), if the securities are included therein, or, if there have
been no sales on any such exchange or the NNM on any day, the average of
the highest bid and lowest asked prices on all such exchanges or NNM at the
end of such day, or, if on any day such security is not so listed or
included in the NNM the average of the representative bid and asked prices
quoted on the Nasdaq SmallCap Market ("SCM") as of 4:00 p.m., New York
time, or, if on any day such security is not quoted on the SCM, the average
of the high and low bid and asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau, Inc.,
or any similar successor organization, in each such ease averaged over a
period of 21 days consisting of the day as of which "Market Price" is being
determined and the 20 consecutive business days prior to such day. If at
any time such security is not listed on any securities exchange or quoted
on Nasdaq or the over-the-counter market, the "Market Price" of such
security shall be the fair value thereof mutually determined by the
Corporation and the holders of two-thirds of the then outstanding shares of
Series A Preferred Stock.
"Redemption Price" shall mean a price per share of Series A Preferred
Stock equal to the greater of (i) the Stated Value per share (as adjusted
for any stock split, reverse stock split, stock dividend, or similar event
resulting in a change in the Series A Preferred Stock), or (ii) the Market
Price per share of the Series A Preferred Stock (if listed on a national
exchange) or of the Common Stock into which the Series A Preferred Stock is
convertible (if the Series A Preferred Stock is not listed on a national
exchange).
Section 2. DESIGNATION AND AMOUNT. The shares of such series shall
be designated as "Series A Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting such series shall be 91,250,
which number may not be increased.
Section 3. STATED VALUE. The stated value for each share of Series A
Preferred Stock (the "Stated Value") shall be $100 per share.
Section 4. RANK. The Series A Preferred Stock shall rank senior to
the Corporation's Common Stock, $.001 par value per share (the "Common
Stock") as to distributions and liquidation to the extent set forth herein.
Except as may be permitted pursuant to Section 6(e)(i) hereof, the
Corporation shall not issue any Preferred Stock pari passu with or senior
to the Series A Preferred Stock.
Section 5. DIVIDENDS AND DISTRIBUTIONS. If the Corporation shall at
any time declare or pay a dividend or other distribution of any kind
(including, without limitation, any distribution of cash, stock, rights,
options or other securities or property, assets or rights or warrants to
subscribe for securities or property or assets or rights or warrants to
subscribe for securities of the Corporation, any of its subsidiaries or
other persons or evidences of indebtedness issued by the Corporation, any
of its subsidiaries or other persons by way of dividend, spinoff or
reclassification) in respect of its Common Stock, then, and in each such
case, the holders of shares of Series A Preferred Stock shall be entitled
to receive from the Corporation, with respect to each share of Series A
Preferred Stock held, the same dividend or distribution received by a
holder of the number of shares of Common Stock into which such share of
Series A Preferred Stock is convertible (or would be convertible if the
Series A Preferred Stock were convertible on such date) on the record date
for such dividend or distribution as if the Series A Preferred Stock were
convertible on such date. Any such dividend or distribution shall be
declared or paid on the Series A Preferred Stock at the same time such
dividend or distribution is declared or paid on the Common Stock.
Section 6. VOTING RIGHTS. The holders of the Series A Preferred
Stock shall have the following voting rights:
(a) In addition to any other rights provided in the
Corporation's Bylaws or pursuant to applicable law, the holders of the
Series A Preferred Stock shall be entitled to vote together with the
holders of the Common Stock as a single class on all matters submitted
to a vote of the holders of the Common Stock (or the taking of action
by consent in lieu thereof), except for the matters set forth below in
this Section 6 on which the Series A Preferred Stock shall have class
voting rights as reflected therein. In any such vote, the holder of
each share of Series A Preferred Stock shall be entitled to one vote
for each share of Common Stock into which such share of Series A
Preferred Stock is convertible (or would be convertible if the Series
A Preferred Stock were convertible on such date) pursuant to the
provisions of Section 10 hereof on the record date for determining the
holders of Common Stock entitled to receive notice of and vote upon
any such matter, or, if no record date is set, the date as of which
the holders of Common Stock entitled to receive notice of and vote
upon any such matter (or to take action by consent in lieu thereof) is
determined.
(b) The holders of Series A Preferred Stock shall have the
exclusive right at all times, notwithstanding anything to the contrary
in the Certificate of Incorporation or Bylaws or herein, voting as a
single class, to nominate and elect one director. The rights of the
holders of Series A Preferred Stock to elect one director pursuant to
the terms of this subsection (b) shall not be adversely affected by
the voting or other rights applicable to any other security of the
Corporation. When voting as a separate class, the holders of the
Series A Preferred Stock shall be entitled to one vote per share of
Common Stock into which the Series A Preferred Stock is (or would be)
convertible. The director nominated and elected pursuant to this
provision shall receive the same compensation and benefits paid by the
Corporation to its outside directors. If the directors of the
Corporation determine that such insurance is obtainable at a
reasonable price for the amount and type of coverage desired, the
Corporation will use its best efforts to obtain directors and officers
liability insurance in such amounts and for such coverage as the
directors determine during the term that any Preferred Shares are
outstanding.
(c) If at any time the directorship to be filled by the holders
of Series A Preferred Stock pursuant hereto has been vacant for a
period of two days, the Secretary, Assistant Secretary or any other
appropriate officer of the Corporation may and shall upon the written
request of the holders of at least 10% of the Series A Preferred
Stock, call a special meeting of the holders of such Series A
Preferred Stock for the purpose of electing a director to fill such
vacancy. Such special meetings shall be held at the earliest
practicable date. If any such meeting shall not be called by the
Secretary, Assistant Secretary or any other appropriate officer of the
Corporation within two business days after service of said written
request on any such officer, the holders of at least 10% of the Series
A Preferred Stock may designate in writing one of their number to call
such meeting at the expense of the Corporation, and such meeting may
be called by such persons so designated and shall be held at such
place as specified in said notice. Any holder of Series A Preferred
Stock so designated shall have access to the stock books of the
Corporation for the purpose of calling a meeting of the holders of
Series A Preferred Stock pursuant to these provisions.
(d) At any meeting held for the purpose of electing directors
at which the holders of Series A Preferred Stock shall have the right
to elect a director, the presence, in person or by proxy, of the
holders of a majority of the Series A Preferred Stock shall be
required to constitute a quorum of such Series A Preferred Stock for
such election. At any such meeting or adjournment thereof, in the
absence of such a quorum of holders of Series A Preferred Stock the
holders of a majority of the voting power present in person or by
proxy of the class of stock which lacks a quorum shall have the power
to adjourn the meeting. A vacancy in the directorship to be elected
by the holders of Series A Preferred Stock may be filled only by vote
or the written consent of two thirds in interest of such Series A
Preferred Stock.
(e) The Corporation shall not without the affirmative vote of
the holders of at least two-thirds of the outstanding Series A
Preferred Stock (unless the vote of a greater percentage shall then be
required by law) given in person or by proxy at a meeting at which the
holders of the Series A Preferred Stock shall vote separately as a
class (or, to the extent permitted by the Oklahoma General Corporation
Act, action taken by written consent in lieu thereof) effect or
validate any of the following:
(i) the authorization or issuance, or any increase in the
authorized amount, of any class of equity securities (including
any security convertible into or exercisable for any equity
security) of the Corporation, having powers, designations,
preferences or relative, participating, optional or other
special rights prior to or on parity with the Series A
Preferred Stock;
(ii) the amendment, alteration, or repeal of any of the
provisions of the Certificate of Incorporation so as to affect
adversely any of the powers, preferences, and rights of the
Series A Preferred Stock; or
(iii) any increase in the authorized amount of the Series A
Preferred Stock.
Section 7. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, no distribution shall
be made to the holders of Common Stock or any other stock ranking
junior (upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of the Series A
Preferred Stock shall have received (i) the Stated Value, plus (ii)
any declared and unpaid dividends thereon to the date fixed for such
liquidation, dissolution or winding up, plus (iii) an amount equal to
the aggregate amount to be distributed per share to holders of Common
Stock (assuming for such purposes conversion of Series A Preferred
Stock into Common Stock). For purposes of the distribution to the
holders of the Series A Preferred Stock pursuant to this Section 7,
the holders of Series A Preferred Stock shall share in distributions
with holders of Series A Preferred Stock ratably in proportion to
their respective holdings of Series A Preferred Stock.
(b) Neither the consolidation, merger or other business
combination of the Corporation with or into any other person or
persons, nor the sale of all or substantially all the assets of the
Corporation shall be deemed to be a liquidation, dissolution or
winding up of the Corporation for purposes of this Section 7.
Section 8. CONSOLIDATION, MERGER, REORGANIZATION, SALE OF ASSETS.
(a) In case the Corporation, (i) shall reorganize, consolidate
with or merge into any other person and shall not bc the continuing or
surviving corporation of such reorganization, consolidation or merger,
or (ii) shall transfer all or substantially all of its properties or
its assets to any other person, then, in each such case, holders of
Series A Preferred Stock shall first receive for each such share of
Series A Preferred Stock, in cash or securities received from the
acquiring corporation or a combination thereof, at the closing of any
such transaction, an amount equal to the Stated Value (as adjusted for
any stock split, reverse stock split, stock dividend, or similar event
resulting in a change in the Series A Preferred Stock) prior to any
distribution to other security holders of the Corporation. In the
event the amount payable in respect of the proposed transaction is not
sufficient to permit payment of the full amount described in the
preceding sentence, then the entire amount payable in respect of the
proposed transaction shall be distributed ratably among the holders of
the Series A Preferred Stock, according to their respective ownership
interests in such stock.
(b) After the distribution required by subsection (a) above,
any remaining consideration to be paid to shareholders of the
Corporation in such transaction shall be made in a manner so that each
share of Series A Preferred Stock then outstanding shall be treated as
if such share had been converted into Common Stock immediately prior
to the consummation of any of the transactions described in subsection
(a) above.
(c) Any securities to be delivered to the holders of the Series
A Preferred Stock pursuant to subsection (a) above shall be valued (i)
with respect to securities that are not (1) "restricted securities" as
defined by SEC Rule 144, (2) subject to agreements with brokers on
transferability, or (3) subject to similar restrictions on free
marketability, at the Market Price per share, or (ii) with respect to
securities subject to investment letter or similar restrictions on
free transferability, the Market Price per share as discounted to
reflect the approximate fair market value thereof, as mutually
determined by the Corporation and the holders of two-thirds of the
outstanding Series A Preferred Stock.
Section 9. REDEMPTION.
(a) Within 90 days after the end of each fiscal year of the
Corporation, each holder's Series A Preferred Stock shall be
mandatorily redeemable at the Redemption Price out of funds legally
available therefor from not less than one-third of the Corporation's
"Consolidated Net Income" (as defined below). For purposes hereof
"Consolidated Net Income" shall be computed in accordance with
generally accepted accounting principles consistently applied as
determined by the Corporation's independent public accountants,
provided that depreciation and amortization shall include, in an
aggregate amount not to exceed $2,000,000, 50% of the amounts which
would have been charged or computed for the applicable fiscal year had
the Writedowns (shown on Schedule A to this Certificate of
Incorporation) taken as of December 31, 1992 not occurred, and shall
be charged against income based on the amortization schedule set forth
in Schedule A subject to the above maximum amount. The Corporation
shall pay the Redemption Price for the Series A Preferred Stock
required to be redeemed hereunder in cash. Such mandatory redemptions
pursuant to this subsection (a) shall cease following the fiscal year
ending December 31, 2002.
(b) The Corporation shall have the right at any time to redeem
all outstanding shares of Series A Preferred Stock by paying therefor
the Redemption Price per share in cash without regard to any
subsequent or anticipated transaction.
(c) In the event that the Corporation shall redeem, repurchase,
exchange any security or property for, or otherwise acquire for
consideration any shares of Common Stock (excluding any transaction to
which Section 10 applies) at a price equal to or greater than the
Conversion Price, then, and in each such case, any holder of shares of
Series A Preferred Stock may require the Corporation, at the sole
option and election of the holder, to redeem a number of shares of
such holder's Series A Preferred Stock which does not exceed the
product of (A) the percentage of the Corporation's Common Stock
outstanding immediately prior to the acquisition that the Corporation
acquired through redemption, repurchase, exchange or otherwise,
multiplied by (B) the total number of shares of Series A Preferred
Stock held by such holder, at the Redemption Price.
(d) Written notice of an election by the Corporation to redeem
shares of Series A Preferred Stock pursuant to subsection (b) above,
shall be given, by telecopy, telex or other written notice, to the
holders of the Series A Preferred Stock not less than 30 days prior to
the redemption date. Notice of an event or circumstances which,
pursuant to Section 9(c), gives the holder or holders of shares of
Series A Preferred Stock the right to require the Corporation to
redeem any of such shares, shall be given to the holders of the Series
A Preferred Stock as promptly as possible. Any election by a holder
to redeem pursuant to Section 9(c), specifying the number of shares to
be redeemed, must be made in writing (which may be telexed,
telecopied, or otherwise delivered) within 30 business days following
receipt by the holder of the notice required by this subparagraph and
the Redemption Date shall be within 30 business days of the day
following receipt by the Corporation of such election (the "Redemption
Date"). All elections hereunder shall be irrevocable. Failure of the
Corporation to give any notice required by this subsection (d), or the
formal insufficiency of any such notice, shall not prejudice the
rights of any holders of Series A Preferred Stock to cause the
Corporation to redeem any such shares held by them.
(e) In the event the Series A Preferred Stock to be redeemed in
any redemption pursuant to subsection (a), (b) or (c) is less than all
the Series A Preferred Stock then outstanding, the number of Series A
Preferred Stock to be redeemed from each holder thereof shall be
determined by multiplying the total number of Series A Preferred Stock
to be redeemed by a fraction of which (i) the numerator shall be the
number of Series A Preferred Stock held by such holder and (ii) the
denominator shall be the total number of Series A Preferred Stock then
outstanding; provided that, if some but not all of the holders of
Series A Preferred Stock have submitted a direction to cause a
redemption pursuant to subsection (b), then only the Series A
Preferred Stock held by such holders shall be redeemed and the Series
A Preferred Stock owned by the holders that did not submit such a
direction shall not be treated as outstanding for purposes of clause
(ii) of the foregoing calculation.
(f) Notwithstanding paragraph (a) above, the calculation of
Consolidated Net Income for purposes of redemption of the Series A
Preferred Stock shall be subject to the following provisions:
(i) If the Corporation or any of its affiliates or
subsidiaries acquires all or substantially all of the equity
interests in or assets of any corporation, partnership or other
entity (herein called an "Acquisition") and in connection with
such Acquisition the Corporation or any of its affiliates or
subsidiaries incurs debt ("Acquisition Debt") or issues shares
of any class of redeemable preferred stock ("Acquisition
Stock") to finance all or a portion of the purchase price of
such Acquisition, that portion of Consolidated Net Income, if
any, of the Corporation attributable to the acquired entity or
assets, to the extent such net income is susceptible to being
segregated from Consolidated Net Income of the Corporation and
fairly allocated to the operations of such entity or assets
under generally accepted accounting principles (herein called
"Acquisition Net Income"), shall be reduced by (A) the
principal amount of any repayments of Acquisition Debt, (B)
dividends paid on the Acquisition Stock, (C) the principal
amount of redemptions of Acquisition Stock and (D) the
principal amount of redemptions of Series A Preferred Stock
from Acquisition Cash Flow made pursuant to paragraph (h) below
(herein collectively called "Required Payments") actually made
by the obligor thereon or issuer thereof with respect to the
fiscal year for which such Acquisition Net Income is being
calculated before including such Acquisition Net Income in the
calculation of Consolidated Net Income under paragraph (a)
above. (For example, if a Subsidiary of the Corporation incurs
Acquisition Debt and issues Acquisition Stock in connection
with an Acquisition and the acquired entity has Acquisition Net
Income of $1,000,000 in a fiscal year and repays $250,000 of
the principal of the Acquisition Debt and redeems $250,000 of
the stated value of Acquisition Stock from income generated in
such fiscal year, only $500,000 ($1,000,000 - $500,000) of
Acquisition Net Income shall be included in Consolidated Net
Income for purposes of redemption of Series A Preferred Stock
under paragraph (a) above.) Such Required Payments shall be
deducted from Acquisition Net Income until the repayment of the
original principal amount of the Acquisition Debt or the
redemption in full of the original stated amount of the
Acquisition Stock issued in connection with such Acquisition.
(ii) To the extent the Corporation consummates an
Acquisition and Required Payments in connection therewith are
made in an amount that exceed the related Acquisition Net
Income, the Corporation shall not have the right to deduct the
excess of such Required Payments over Acquisition Net Income
from the calculation of Consolidated Net Income for purposes of
redemption of the Series A Preferred Stock under paragraph (a)
above.
(iii) To the extent the Corporation consummates an
Acquisition and incurs a net loss (an "Acquisition Loss") in
any fiscal year, Consolidated Net Income shall be increased by
the amount of such Acquisition Loss for purposes of calculating
Consolidated Net Income for redemption of the Series A
Preferred Stock under paragraph (a) above.
(iv) Notwithstanding the foregoing, Consolidated Net Income
for a fiscal year shall be increased by the amount of any
Required Payments made to the Corporation or any of its
affiliates or subsidiaries in such fiscal year from income
attributable to an Acquisition for purposes of calculating
Consolidated Net Income under paragraph (a) above.
(g) The Corporation shall have the right from time to time to
redeem shares of the Series A Preferred Stock in accordance with the
terms of that certain Settlement Agreement dated April 13, 1995 among
the Corporation, Beard Oil Company, New York Life Insurance Company,
New York Life Insurance and Annuity Corporation, John Hancock Mutual
Life Insurance Company, M D Co., as Nominee for Memorial Drive Trust.
(h) Notwithstanding the limitation on redemption in the last
sentence of paragraph (a) above, within 90 days after the end of the
fiscal year in which Acquisition Debt incurred and Acquisition Stock
issued in connection with an Acquisition has been paid or redeemed in
full, each holder's Series A Preferred Stock shall be mandatorily
redeemable on a pro rata basis at the Redemption Price out of funds
legally available therefor from "Acquisition Cash Flow." For purposes
of this paragraph (h), "Acquisition Cash Flow" shall mean Acquisition
Net Income with respect to an Acquisition for the fiscal year in
question calculated in accordance with generally accepted accounting
principles MINUS all Required Payments under clauses (A), (B) and (C)
of subparagraph (f)(i) above and capital expenditures made in such
fiscal year PLUS the sum of depreciation, amortization and other
non-cash charges against earnings attributable to such fiscal year.
Section 10. CONVERSION. Each share of the Series A Preferred Stock
shall be convertible into shares of Common Stock of the Corporation on the
terms and conditions set forth below in this Section 10:
(a) RIGHT TO CONVERT. Each share of the Series A Preferred
Stock shall be convertible, at the sole option of the holder thereof,
at any time after the end of the redemption period provided for in
Section 9(a) hereof, in the manner hereinafter set forth, into
5.129425 fully paid and nonassessable share(s) of Common Stock of the
Corporation, which number of shares shall be subject to adjustment in
accordance with the terms of subsection (b) below. The "Conversion
Price" per share as used herein shall be the Market Price per share of
Common Stock into which a share of Series A Preferred Stock is
convertible as determined on the date of the issuance of the Series A
Preferred Stock, subject to adjustment as set forth in subsection (b)
below.
(b) ADJUSTMENT. The number of shares of Common Stock into
which each share of the Series A Preferred Stock is convertible shall
be adjusted from time to time as follows:
(i) STOCK SPLITS. In case the Corporation at any time or
from time to time shall effect a subdivision of the outstanding
shares of its Common Stock into a greater number of shares of
Common Stock (otherwise than by payment of a dividend in its
Common Stock), then, and in each such case, the number of
shares of Common Stock into which each share of the Series A
Preferred Stock is convertible shall be adjusted so that the
holder of each share thereof shall be entitled to receive, upon
the conversion thereof, the number of shares of Common Stock
determined by multiplying (A) the number of shares of Common
Stock into which such share was convertible immediately prior
to the occurrence of such event by (B) a fraction, the
numerator of which is the sum of (1) the number of shares of
Common Stock into which such share was convertible immediately
prior to the occurrence of such event plus (2) the number of
shares of Common Stock which such holder would have been
entitled to receive in connection with the occurrence of such
event had such share been converted immediately prior thereto,
and the denominator of which is the number of shares of Common
Stock determined in accordance with clause (1) above. An
adjustment made pursuant to this subparagraph (b)(i) shall
become effective (x) in the case of any such dividend,
immediately prior to the close of business on the record date
for the determination of holders of Common Stock entitled to
receive such dividend, or (y) in the case of any such
subdivision, at the close of business on the day immediately
prior to the day upon which such corporate action becomes
effective;
(ii) REVERSE STOCK SPLIT. In case the Corporation at any
time or from time to time shall combine or consolidate the
outstanding shares of its Common Stock into a lesser number of
shares of Common Stock, then, and in each such case, the number
of shares of Common Stock into which each share of the Series A
Preferred Stock is convertible shall be adjusted so that the
holder of each share thereof shall be entitled to receive, upon
the conversion thereof, the number of shares of Common Stock
determined by multiplying (A) the number of shares of Common
Stock into which such share was convertible immediately prior
to the occurrence of such event by (B) a fraction, the
numerator of which is the number of shares which the holder
would have owned after giving effect to such event had such
share been converted immediately prior to the occurrence of
such event and the denominator of which is the number of shares
of Common Stock into which such share was convertible
immediately prior to the occurrence of such event. An
adjustment made pursuant to this subparagraph (b)(ii) shall
become effective at the close of business on the day
immediately prior to the day upon which such corporate action
becomes effective;
(iii) ADJUSTMENT TO CONVERSION PRICE. In the event the
Corporation at any time or from time to time shall effect a
subdivision of the outstanding shares of its Common Stock into
a greater number of shares of Common Stock pursuant to
subparagraph (b)(i) above, the Conversion Price in effect as of
the record date for such subdivision shall be proportionately
reduced as of such record date, and conversely, in the event
the Corporation at any time or from time to time shall combine
or consolidate the outstanding shares of its Common Stock into
a lesser number of shares of Common Stock pursuant to
subparagraph (b)(ii) above, the Conversion Price in effect as
of the record date for such combination of consolidation shall
be proportionately increased as of such record date;
(iv) RIGHTS, OPTIONS AND WARRANTS.
A. In case the Corporation at any time or from time to
time shall grant, issue or sell rights, options or warrants to
subscribe for or purchase shares of its Common Stock (or
securities convertible into or exchangeable for its Common
Stock) (collectively referred to as "Convertible Securities")
at a price per share (or having a conversion price per share)
(1) less than the Conversion Price in effect on the record date
fixed for the determination of stockholders entitled to receive
such right or warrant, or (2) greater than the Conversion Price
in effect immediately prior to the time of granting such
Convertible Securities but less than the Market Price per share
of Common Stock, then, and in each such case the number of
shares of Common Stock into which each share of the Series A
Preferred Stock is convertible shall be adjusted so that the
holder of each share thereof shall be entitled to receive, upon
the conversion thereof, the number of shares of Common Stock
determined by multiplying (a) the number of shares of Common
Stock into which such share was convertible immediately prior
to the occurrence of such event by (b) a fraction, the
numerator of which is the sum of (I) the number of shares of
Common Stock outstanding on such record date plus (II) the
number of additional shares of Common Stock of offered for
subscription or purchase, and the denominator of which is the
sum of (I) the number of shares of Common Stock outstanding on
such record date plus (II) the number of shares of Common Stock
which the aggregate consideration receivable by the Corporation
for the total number of shares of Common Stock so offered would
purchase at such Conversion Price or Market Price, as
applicable, on such record date. For purposes of this
subparagraph (b)(iv), the aggregate consideration receivable by
the Corporation in connection with the issuance of rights or
warrants to subscribe for or purchase securities convertible
into Common Stock shall be deemed to be equal to the sum of the
aggregate offering price of such securities plus the minimum
aggregate amount, if any, payable upon conversion of such
securities into shares of Common Stock. An adjustment made
pursuant to this subparagraph (b)(iv) shall be made upon the
issuance of any such rights or warrants and shall be effective
retroactively immediately prior to the close of business on the
record date fixed for the determination of stockholders
entitled to receive such rights or warrants. For purposes of
this subparagraph (b)(iv)(A), an adjustment shall not be made
with respect to the issuance of equity securities of the
Corporation pursuant to a valid qualified employee stock
ownership plan to employees who do not own directly or
beneficially (as determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934) 5% or more of the outstanding
capital stock or securities of the Corporation;
B. No further adjustment of the number of shares issuable
upon conversion of the Series A Preferred Stock will be made
when Convertible Securities are actually issued upon the
exercise of such option, rights or warrants or the conversion
or exchange of such Convertible Securities; and
(v) SALES OF COMMON STOCK. In case the Corporation at
any time or from time to time shall issue shares of its Common
Stock at a price per share (A) less than the Conversion Price
in effect immediately prior to the issuance of such Common
Stock, or (B) greater than the Conversion Price in effect
immediately prior to the issuance of such Common Stock but less
than the Market Price per share of Common Stock at such time,
then, and in each such case, the number of shares of Common
Stock into which each share of the Series A Preferred Stock is
convertible shall be adjusted so that the holder of each share
thereof shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock determined by
multiplying (1) the number of shares of Common Stock into which
such share was convertible immediately prior to the occurrence
of such event by (2) a fraction, the numerator of which is the
sum of (x) the number of shares of Common Stock outstanding on
the date of such issuance plus (y) the number of additional
shares of Common Stock offered for subscription or purchase,
and the denominator of which is the sum of (x) the number of
shares of Common Stock outstanding on the date of such issuance
plus (y) the number of shares of Common Stock which the
aggregate consideration receivable by the Corporation for the
total number of shares of Common Stock so offered would
purchase at such Conversion Price or Market Price, as
applicable, on the date of such issuance. For purposes of this
subparagraph (b)(v), the aggregate consideration receivable by
the Corporation in connection with the issuance of its shares
of Common Stock shall be deemed to be equal to the sum of the
aggregate offering price of such securities p]us the minimum
aggregate amount, if any, payable upon such conversion of such
securities into shares of Common Stock. Any adjustment made
pursuant to this subparagraph (b)(v) shaD be made upon the
issuance of any such Common Stock. For purposes of this
subparagraph (v), an adjustment shall not be made with respect
to the issuance of equity securities of the Corporation
pursuant to a valid qualified employee stock ownership plan to
employees who do not own directly or beneficially (as
determined pursuant to Rule 13d-3 under the Securities Exchange
Act of 1934) 5% or more of the outstanding capital stock or
securities of the Corporation.
(c) MINIMUM ADJUSTMENT. If any adjustment in the number of
shares of Common Stock into which each share of the Series A Preferred
Stock may be converted required pursuant to this Section 10 would
result in an increase or decrease of less than one percent (1%) in the
number of shares of Common Stock into which each share of the
convertible Preferred Stock is then convertible, the amount of any
such adjustment shall be carried forward and adjustment with respect
thereto shall be made at the time of and together with any subsequent
adjustment; provided that in any event such adjustments shall be made
upon delivery of written notice of conversion of any part of the
Series A Preferred Stock. All calculations under this paragraph (c)
shall be made to the nearest one-hundredth of a share.
(d) PROCEDURE. The holder of any shares of the Series A
Preferred Stock may exercise his option to convert such shares into
shares of Common Stock by surrendering for such purpose to the
Corporation, at its principal office or at such other office or agency
maintained by the Corporation for that purpose, a certificate or
certificates representing the shares of Series A Preferred Stock to be
converted accompanied by a written notice stating that such holder
elects to convert all or a specified whole number of such shares in
accordance with the provisions of this Section 10 and specifying the
name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. In case such
notice shall specify a name or names other than that of such holder
the certificate or certificates so surrendered shall be properly
endorsed or otherwise in proper form for transfer. As promptly as
practicable, and in any event within five business days after the
surrender of such certificate or certificates and the receipt of such
notice relating thereto, the Corporation shall deliver or cause to be
delivered (i) a certificate or certificates representing the number of
validly issued, fully paid and nonassessable shares of Common Stock of
the Corporation to which the holder of the Series A Preferred Stock so
converted shall be entitled and (ii) if less than the full number of
shares of the Series A Preferred Stock evidenced by the surrendered
certificate or certificates are being converted, a new certificate or
certificates, of like tenor, for the number of shares evidenced by
such surrendered certificate or certificates less the number of shares
converted. Such conversions shall be deemed to have been made at the
close of business on the date on which the certificate or certificates
representing the shares of the Series A Preferred Stock to be
converted have been surrendered. At such time as the conversion has
been effected, the rights of the holder thereof shall cease except for
the right to receive Common Stock of the Corporation in accordance
herewith, and the converting holder shall be treated for all purposes
as having become the record holder of such Common Stock of the
Corporation at such time.
(e) NO FRACTIONAL SHARES. In connection with the conversion of
any shares of the Series A Preferred Stock, no fractions of shares of
Common Stock shall be issued, but the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal
to the Market Value (as of the date deemed to be converted) of such
fractional interest.
(f) TAXES. The Corporation will pay all taxes and other
governmental changes that may be imposed in respect of the issuance or
delivery of shares of Common Stock upon conversion of shares of Series
A Preferred Stock.
(g) RESERVATION OF STOCK. The Corporation shall at all times
reserve and keep available out of its authorized Common Stock the full
number of shares of Common Stock of the Corporation issuable upon the
conversion of all outstanding shares of the Series A Preferred Stock.
(h) NO IMPAIRMENT. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger,
dissolution, issuance or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all
the provisions of this Section 10 and in the taking of all such action
as may be necessary or appropriate in order to protect the conversion
rights of the holders of the Series A Preferred Stock against
impairment.
Section 11. NOTICES.
(a) Whenever the number of shares of Common Stock into which
the shares of the Series A preferred Stock are convertible is adjusted
as provided in Section 10, the Corporation shall promptly compute such
adjustment and furnish to each holder of Series A Preferred Stock a
certificate, signed by a principal financial officer of the
Corporation, setting forth the number of shares of Common Stock into
which each share of the Series A Preferred Stock is convertible as a
result of such adjustment, a brief statement of the facts requiring
such adjustment and the computation thereof, and when such adjustment
became or will become effective.
(b) The Corporation shall give written notice to all holders of
Series A Preferred Stock at least 10 days prior to the date on which
the Corporation closes its books or takes a record (i) with respect to
any pro rata subscription offer to holders of Common Stock or (ii) for
determining rights to vote with respect to any dissolution,
liquidation, merger, consolidation, or similar action.
Section 12. SHARES REACQUIRED. Any shares of the Series A Preferred
Stock convened, redeemed, purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and cancelled
promptly after the acquisition thereof
Section 13. NOTICES. All notices or other communications referred to
in this resolution, except as otherwise expressly provided, shall be hand
delivered or given by registered or certified mail, return receipt
requested, postage prepaid, and shall be deemed to have been given when so
hand delivered or within two days of mailing.
2. COMMON STOCK
Each share of Common Stock of the Corporation shall be equal in all
respects to each other share. The holders of Common Stock shall be
entitled to one vote for each share of Common Stock held with respect to
all matters as to which the Common Stock is entitled to be voted.
Subject to the preferential and other dividend rights, if any,
applicable to the shares of Preferred Stock, the holders of the Common
Stock shall be entitled to receive such dividends (payable in cash, stock
or otherwise) as may be declared on the Common Stock by the board of
directors at any time or from time to time out of any funds legally
available therefor.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, after distribution in full of the
preferential and/or other amounts to be distributed to the holders of the
shares of the Preferred Stock, if any shall be outstanding, the holders of
the Common Stock shall be entitled to receive all of the remaining assets
of the Corporation available for distribution to its stockholders, ratably
in proportion to the number of shares of Common Stock held by them.
3. SECTION 382 TRANSFER RESTRICTIONS
Section 3.1 TRANSFER RESTRICTIONS. In order to preserve the net
operating loss carryovers (including any "net unrealized built-in loss," as
defined under applicable law), capital loss carryovers, general business
credit carryovers, alternative minimum tax credit carryovers and foreign
tax credit carryovers (the "Tax Benefits") to which the Corporation is
entitled pursuant to the Internal Revenue Code of 1986, as amended, or any
successor statute (collectively, the "Code") and the Treasury Regulations
promulgated thereunder (the "Treasury Regulations"), the following
restrictions shall apply until the earlier of (x) the day after the
fourteenth (14th) anniversary of the filing of this Certificate of
Incorporation with the Secretary of State of Oklahoma (the "Filing Date"),
(y) the repeal of Section 382 of the Code if the Board of Directors
determines that the restrictions are no longer necessary, and (z) the
beginning of a taxable year of the Corporation to which the Board of
Directors determines that no Tax Benefits may be carried forward, unless
the Board of Directors shall fix an earlier or later date in accordance
with Section 3.7 of this Article Four (such date is sometimes referred to
herein as the "Expiration Date"):
(1) For purposes of this Article Four, (a) a "Prohibited
Ownership Percentage" shall mean any ownership of the Corporation's stock
that would cause a Person or Public Group to be a "5-percent shareholder"
of the Corporation within the meaning of Treasury Regulation Section 1.382-
2T(g)(1); (b) a "Public Group" shall have the meaning contained in Treasury
Regulation Section 1.383-2T(f)(13); (c) a "Person" shall mean any
individual, corporation, estate, trust, association, company, partnership,
joint venture, or similar organization (including the Corporation); (d)
"Transfer" refers to any means of conveying legal or beneficial ownership
of shares of stock of the Corporation, whether such means are direct or
indirect, voluntary or involuntary, including, without limitation, the
issuance by the Corporation of shares of stock of the Corporation (without
regard to whether such shares are treasury shares or authorized but
unissued shares) and the transfer of ownership of any entity that owns
shares of stock of the Corporation; and "Transferee" means any Person to
whom stock of the Corporation is Transferred.
(2) From and after the Filing Date, no Person shall Transfer
any shares of stock of the Corporation (other than stock described in
Section 1504(a)(4) of the Code, or stock that is not so described solely
because it is entitled to vote as a result of dividend arrearages) to any
other Person to the extent that such Transfer, if effective, (i) would
cause the Transferee or any Person or Public Group to have a Prohibited
Ownership Percentage; (ii) would increase the ownership percentage of any
Transferee or any Person or Public Group having a Prohibited Ownership
Percentage; or (iii) would create a new Public Group under Treasury
Regulation Section 1.382-2T(j)(3)(i).
(3) Any Transfer of shares of stock of the Corporation that
would otherwise be prohibited pursuant to the preceding subsection,
including but no limited to the issuance of stock by the Corporation
pursuant to the exercise of any warrants, options or other rights to
acquire stock in the Corporation, shall nonetheless be permitted if
information relating to a specific proposed transaction is presented to the
Board of Directors (the "Board") and the Board determines that, based on
the facts in existence at the time of such determination, such transaction
will not jeopardize the Corporation's full utilization of the Tax Benefits,
based upon the opinion of legal counsel selected by the Board to that
effect.
(4) Notwithstanding anything contained herein to the
contrary, this Article Four shall not apply to any transaction or series of
transactions which the Board, in its sole discretion upon the exercise of
its fiduciary duties in accordance with applicable law, determines to be in
the best interests of the stockholders of the Corporation.
Section 3.2 ATTEMPTED TRANSFER IN VIOLATION OF TRANSFER RESTRICTION.
Unless approval of the Board is obtained as provided in subsection (3) or
subsection (4) of Section 3.1 of this Article Four, any attempted Transfer
of shares of stock of the Corporation in excess of the shares that could be
Transferred to the Transferee without restriction under subsection (2) of
Section 3.1 of this Article Four is not effective to Transfer ownership of
such excess shares (the "Prohibited Shares") to the purposed acquiror
thereof (the "Purposed Acquiror"), who shall not be entitled to any rights
as a Stockholder of the Corporation with respect to the Prohibited Shares
(including, without limitation, the right to vote or to receive dividends
with respect thereto). The transfer agent of the stock of the Corporation
shall not recognize the purposed transfer of the Prohibited Shares to the
Purposed Acquiror. All rights with respect to the Prohibited Shares shall
(i) be deemed to have been acquired in equal amounts by the Charitable
Organizations (as defined below) and (ii) be transferred to a person
nominated and appointed by the Board from time to time (the "Agent") to act
as agent for the Charitable Organizations (in the absence of such
designation the Corporation shall act as Agent), until such time as the
Prohibited Shares are resold as set forth in subsection (i) or subsection
(2) of this Section 3.2. As agent, Agent shall exercise all rights
incident to ownership of the Prohibited Shares. The Purported Acquiror, by
acquiring ownership of shares of stock of the Corporation that are not
Prohibited Shares, shall be deemed to have consented to all the provisions
of this Article Four and to have agreed to act as provided in the following
subsection (1) of Section 3.2. The Corporation, the Board and the Agent
shall be fully protected in relying in good faith upon the information,
opinions, reports or statements of the chief executive officer, the chief
financial officer, or the chief accounting officer of the Corporation or of
the Corporation's legal counsel, independent auditors, transfer agent,
investment bankers, and other employees and agents in making the
determinations and findings contemplated by this Section 3.2, and neither
the Corporation, the Board nor the Agent shall be responsible for any good
faith errors made in connection therewith.
(1) Upon demand by the Agent, the Purported Acquiror shall
transfer any certificate or other evidence of the Purported Acquiror's
possession or control of the Prohibited Shares, along with any dividends or
other distributions paid by the Corporation with respect to the Prohibited
Shares that were received by the Purported Acquiror (the "Prohibited
Distributions"). If the Purported Acquiror has sold the Prohibited Shares
to an unrelated party in an arms-length transaction after purportedly
acquiring them, the Purported Acquiror shall be deemed to have sold the
Prohibited Shares as agent for the Charitable Organizations, and in lieu of
transferring the Prohibited Shares and Prohibited Distributions to the
Agent shall transfer to the Agent the Prohibited Distributions and the
proceeds of such sale (the "Resale Proceeds"), except to the extent that
the Agent grants written permission to the Purported acquiror to retain a
portion of the Resale Proceeds not exceeding the amount that would have
been payable by the Agent to the Purported Acquiror pursuant to the
following subsection (2) if the Prohibited Shares had been sold by the
Agent rather than by the Purported Acquiror. Any purported transfer of the
Prohibited Shares by the Purported Acquiror other than a transfer described
in one of the two preceding sentences shall not be effective to transfer
any ownership of the Prohibited Shares.
(2) The Agent shall sell in an arms-length transaction
(through the American Stock Exchange, if possible) any Prohibited Shares
transferred to the Agent by the Purported Acquiror, and the proceeds of
such sale (the "Sale Proceeds"), or the Resale Proceeds, if applicable,
shall be allocated, after reimbursement to the Agent of its expenses, to
the Purported Acquiror up to the following amount: (i) where applicable,
the purported purchase price paid or value of consideration surrendered by
the Purported Acquiror for the Prohibited Shares, or (ii) where the
purported Transfer of the Prohibited Shares to the Purported Acquiror was
by gift, inheritance, or any similar purported Transfer, the fair market
value of the Prohibited Shares at the time of such purported Transfer.
Subject to the succeeding provisions of this subsection, any Resale
Proceeds or Sales Proceeds in excess of the Agent's expenses and the amount
allocable to the Purported Acquiror pursuant to the preceding sentence,
together with any Prohibited Distributions, shall be paid in equal shares
to the charitable organizations designated from time to time by the
Corporation that qualify as entities described in Section 501(c)(3) of the
Code (the "Charitable Organizations"). In the absence of such designation,
the Agent shall designate one or more Charitable Organizations, in its
discretion, such that there is a sufficient number of Charitable
Organizations none of which will own a Prohibited Ownership Percentage. In
no event shall any such amounts due to the Charitable Organizations inure
to the benefit of the Corporation or the Agent, but such amounts may be
used to cover expenses incurred by the Agent.
Section 3.3 PROMPT ENFORCEMENT AGAINST PURPORTED ACQUIROR. Within
thirty (30) business days of learning of the purported Transfer of
Prohibited Shares to a Purported Acquiror, the Corporation through its
Secretary shall demand that the Purported Acquiror surrender to the Agent
the certificates representing the Prohibited Shares, or any Resale
Proceeds, and any Prohibited Distributions, and if such surrender is not
made by the Purported Acquiror within thirty (30) business days from the
date of such demand, the Corporation shall institute legal proceedings to
compel such transfer; provided, however, that nothing in this Section 3.3
shall preclude the Corporation in its discretion from immediately bringing
legal proceedings without a prior demand, and provided further that failure
of the Corporation to act within the time periods set out in this Section
3.3 shall not constitute a waiver of any right of the Corporation to compel
any transfer required in subsection (1) of Section 3.2.
Section 3.4 ADDITIONAL ACTIONS TO PREVENT VIOLATION OR ATTEMPTED
VIOLATION. Upon a determination by the Board that there has been or is
threatened a purported Transfer of Prohibited Shares to a Purported
Acquiror, the Board may take such action in addition to any action required
by the preceding paragraph as it deems advisable to give effect to the
provisions of this Article Four, including, without limitation, refusing to
give effect on the books of this Corporation to such purported Transfer.
Nothing herein shall preclude the settlement of transactions entered into
through the facilities of the American Stock Exchange.
Section 3.5 OBLIGATION TO PROVIDE INFORMATION. The Corporation may
require as a condition to the registration of the Transfer of any shares of
its stock that the proposed Transferee furnish to the Corporation all
information reasonably requested by the Corporation with respect to all the
proposed Transferee's direct or indirect ownership interest in, or options
to acquire, stock of the Corporation.
Section 3.6 LEGENDS. All certificates evidencing ownership of shares
of stock of this Corporation that are subject to the restrictions on
Transfer contained in this Article Four shall bear a conspicuous legend
referencing the restrictions set forth in this Article Four.
Section 3.7 FURTHER ACTIONS. Subject to the provisions of Section
3.4 of this Article Four, nothing contained in this Article Four shall
limit the authority of the Board to take such other action to the extent
permitted by law as it deems necessary or advisable to protect the
Corporation and the interest of the holders of its securities in preserving
the Tax Benefits. Without limiting the generality of the foregoing, in the
event of a change in law making one or more of the following actions
necessary or desirable or in the event that the Board believes that such
actions are in the best interest of the Corporation and its Stockholders,
the Board may (i) accelerate or extend the Expiration Date or modify the
definitions of any terms set forth in this Article Four; provided that the
Board shall determine in writing that such acceleration, extension change
or modification is reasonably necessary or desirable to preserve the Tax
Benefits under the Code and the regulations thereunder or that the
continuation of these restrictions is no longer reasonably necessary for
the preservation of the Tax Benefits, which determination shall be based
upon an opinion of legal counsel to the Corporation and which determination
shall be filed with the Secretary of the Corporation and mailed by the
Secretary to the Stockholders of this Corporation within ten days after the
date of any such determination. In addition, the Board may, to the extent
permitted by law, from time to time establish, modify, amend or rescind
Bylaws, regulations and procedures of the Corporation not inconsistent with
the express provisions of this Article Four for purposes of determining
whether any acquisition of stock of the Corporation would jeopardize the
Corporation's ability to preserve and use the Tax Benefits, and for the
orderly application, administration and implementation of the provisions of
this Article Four. Such procedures and regulations shall be kept on file
with the Secretary of the Corporation and with its transfer agent and shall
be made available for inspection by the public and, upon request, shall be
mailed to any holder of stock of the Corporation.
ARTICLE FIVE
The duration of the Corporation is perpetual.
ARTICLE SIX
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court within the
State of Oklahoma may, on the application in a summary way of this
Corporation under the provisions of Section 1106 of the Act or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 1100 of the
Act order a meeting of the creditors or class of creditors and/or of the
stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of this Corporation as a consequence of such
compromise or arrangement, the compromise or arrangement and the
reorganization shall, if sanctioned by the court to which the application
has been made, be binding on all the creditors or class of creditors,
and/or on all the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this Corporation.
ARTICLE SEVEN
To the fullest extent permitted by the Act as the same exists or
may hereafter be amended, a director of this Corporation shall not be
liable to the Corporation or its shareholders for monetary damages for
breach of fiduciary duty as a director.
ARTICLE EIGHT
The number of directors which shall constitute the whole board
shall be not more than nine (9) and not less than three (3). The board of
directors shall from time to time by a vote of a majority of the directors
then in office fix within the maximum and minimum the number of directors
which shall constitute the board. The board of directors shall be divided
into three classes as nearly equal in number as possible with the term of
office of one class expiring each year. Of the directors chosen at the
first stockholders' meeting, the term of office of those of the first class
shall expire at the first annual meeting after their election; the term of
office of those of the second class shall expire at the second annual
meeting after their election; and the term of office of those of the third
class shall expire at the third annual meeting after their election. At
each annual meeting held after such classification and election, directors
shall be chosen for a full term of three years to succeed those whose terms
expire. When the number of directors is changed any newly created
directorship or any decrease in directorship shall be so apportioned among
the classes as to make all classes as nearly equal in number as possible.
Subject to the rights, if any, of the holders of Preferred Stock to
elect directors, vacancies and newly created directorships resulting from
any increase in the authorized number of directors shall be filled by a
majority of the directors then in office, though less than a quorum, or by
a sole remaining director. The directors so chosen shall hold office until
the next annual election of the class for which each such director has been
chosen and until his successor is duly elected and qualified, or until his
earlier resignation or removal. No decrease in the number of directors
constituting the board of directors shall shorten the term of an incumbent
director. Subject to the rights, if any, of the holders of Preferred Stock
to elect directors, directors shall be chosen by a plurality of votes cast
in an election for directors.
ARTICLE NINE
Section A. Notwithstanding any other provisions of the Act, the
Corporation shall not engage in any business combination with any
interested shareholder, unless:
1. prior to the date on which a person becomes an interested
shareholder, the board of directors of the Corporation approved
either the business combination or the transaction which resulted
in the person becoming an interested shareholder;
2. upon consummation of the transaction which resulted in the person
becoming an interested shareholder, the interested shareholder
owned of record or beneficially capital stock having at least
eighty-five percent (85%) of all voting power of the Corporation at
the time the transaction commenced, excluding for purposes of
determining such voting power the votes attributable to those
shares owned of record or beneficially by employee stock plans in
which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
3. on or subsequent to the date a person becomes an interested
shareholder, the business combination is approved by the board of
directors and authorized at an annual or special meeting of
shareholders, and not by written consent, by the affirmative vote
of at least sixty-six and two-thirds percent (66 2/3 %) of all
voting power which is not attributable to shares owned of record or
beneficially by the interested shareholder.
Section B. The restrictions contained in Section A of this Article Nine
shall not apply if:
1. the business combination is proposed prior to the consummation or
abandonment, and subsequent to the earlier of the public
announcement or the notice required hereunder, of a proposed
transaction which:
a. constitutes one of the transactions described in subsection 2
of this Section B,
b. is with or by a person who either is not an interested
shareholder or who became an interested shareholder with the
approval of the Corporation's board of directors, and
c. is approved or not opposed by a majority of the members of the
board of directors then in office who were directors prior to
any person becoming an interested shareholder or were
recommended for election or elected to succeed such directors
by a majority of such directors ("continuing directors");
2. the proposed transactions referred to in subsection 1 of this
Section B are limited to:
a. a share acquisition pursuant to Section 1090.1 of the Act, or
a merger or consolidation of the Corporation, except for a
merger in respect of which, pursuant to subsection F of
Section 1081 of the Act, no vote of the shareholders of the
Corporation is required, or
b. a sale, lease, exchange, mortgage, pledge, transfer or other
disposition, in one transaction or a series of transactions,
whether as part of a dissolution or otherwise, of assets of
the Corporation or of any direct or indirect majority-owned
subsidiary of the Corporation, other than to any direct or
indirect wholly-owned subsidiary or to the Corporation, having
an aggregate market value equal to fifty percent (50%) or more
of either the aggregate market value of all the assets of the
Corporation determined on a consolidated basis or the
aggregate market value of all the outstanding stock of the
Corporation. The Corporation shall give not less than twenty
(20) days notice to all interested shareholders prior to the
consummation of any of the transactions described in divisions
(a) or (b) of this subsection.
Section C. The restrictions contained in Section A of this Article Nine
shall not apply to a business combination which is proposed prior to the
consummation or abandonment of, and subsequent to the public announcement
of, a proposed tender or exchange offer for the outstanding stock of the
Corporation which represents fifty percent (50%) or more of all voting
powers of the Corporation if all of the following conditions are met:
1. The aggregate amount of cash and the fair market value as of the
date of the consummation of the business combination of
consideration other than cash to be received per share by holders
of common stock in such business combination shall be at least
equal to the highest of the following:
a. (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the interested shareholder for any shares of
common stock acquired by it (i) within the two-year period
immediately prior to the first public announcement of the
proposal of the business combination (the "Announcement Date")
or (ii) in the transaction in which it became an interested
shareholder (the date of such transaction being referred to
herein as the "Determination Date"), whichever is higher; or
b. the fair market value per share of common stock on the
Announcement Date or the Determination Date, whichever is
higher. This subsection shall be used if the interested
shareholder has not acquired any common stock.
2. The aggregate amount of the cash and the fair market value as of
the date of the consummation of the business combination of
consideration other than cash to be received per share by holders
of shares of any other class of outstanding voting stock shall be
at least equal to the highest of the following:
a. the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid
by the interested shareholder for any shares of such class of
voting stock acquired by it (1) within the two-year period
immediately prior to the Announcement Date or (2) in the
transaction in which it became an interested shareholder,
whichever is higher;
b. the highest preferential amount per share to which the holders
of shares of such class of voting stock are entitled in the
event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation; or
c. the fair market value per share of such class of voting stock
on the Announcement Date or on the Determination Date,
whichever is higher.
3. The consideration to be received by holders of a particular class
of outstanding voting stock (including common stock) shall be in
cash or in the same form as the interested shareholder has
previously paid for the largest number of shares of such class of
voting stock.
4. After such interested shareholder has become an interested
shareholder and prior to the consummation of such business
combination: (a) except as approved by three-fourths (3/4) of the
continuing directors, there shall have been no failure to declare
and pay at the regular date therefor any full quarterly dividends
(whether or not cumulative) on any outstanding preferred stock (if
any); (b) there shall have been (1) no reduction in the annual rate
of dividends, if any, paid on the common stock, except as approved
by a majority of the continuing directors, and (2) no failure to
increase the annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of the
common stock, unless the failure so to increase such annual rate is
approved by a majority of the continuing directors.
5. A proxy or information statement, describing the proposed business
combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the rules
and regulations thereunder shall be prepared and mailed by the
Corporation, at the expense of the interested shareholder, to
stockholders of the Corporation at least 30 days prior to the
meeting at which such business combination will be voted upon
(whether or not such proxy or information statement is required to
be mailed pursuant to such Act or subsequent provisions).
Section D. As used in this Article Nine:
1. "affiliate" means a person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under
common control with, another person;
2. "all voting power" means the aggregate number of votes which the
holders of all classes of capital stock of the Corporation would be
entitled to cast in an election of directors generally;
3. "associate", when used to indicate a relationship with any person,
means:
a. any corporation or organization of which such person is a
director, officer or partner or is, of record or beneficially,
the owner of outstanding stock of the Corporation having
twenty percent (20%) or more of all voting power of the
Corporation,
b. any trust or other estate in which such person has at least a
twenty percent (20%) beneficial interest or as to which such
person serves as trustee or in a similar fiduciary capacity,
and
c. any relative or spouse of such person, or any relative of such
spouse, who has the same residence of such person;
4. "beneficial ownership" shall have the meaning ascribed to such term
by Rule 13d-3 under the Exchange Act except that a person shall be
deemed to be the owner or beneficial owner of securities of which
he has the right to acquire ownership either immediately or only
after the passage of any time or the giving of notice or both;
provided, however, that a person shall not be deemed the owner or
beneficial owner of any stock if:
a. the agreement, arrangement or understanding to vote such stock
arises solely from a revocable proxy or consent given in
response to a proxy or consent solicitation made to more than
ten persons, or
b. the stock is tendered pursuant to a tender or exchange offer
made by such person or any of such person's affiliates or
associates, until such tendered stock is accepted for purchase
or exchange;
5. "business combination", when used in reference to the Corporation
and any interested shareholder of the Corporation, means:
a. any merger or consolidation of the Corporation or any direct
or indirect majority-owned subsidiary of the Corporation with:
(1) the interested shareholder, or
(2) any other corporation if the merger or consolidation is
caused by the interested shareholder and as a result of
such merger or consolidation Section A of this Article is
not applicable to the surviving corporation,
b. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition, in one transaction or a series of transactions,
except as proportionately as a shareholder of the Corporation,
to or with the interested shareholder, whether as part of a
dissolution or otherwise, of assets of the Corporation or of
any direct or indirect majority-owned subsidiary of the
Corporation which assets have an aggregate market value equal
to ten percent (10%) or more of either the aggregate market
value of all the assets of the Corporation determined on a
consolidated basis or the aggregate market value of all the
outstanding stock of the Corporation,
c. any transaction, which results in the issuance or transfer by
the Corporation or by any direct or indirect majority-owned
subsidiary of the Corporation of any stock of the Corporation
or of such subsidiary to the interested shareholder, except:
(1) pursuant to the exercise, exchange or conversion of
securities exercisable for, exchangeable for or
convertible into stock of the Corporation or any such
subsidiary which securities were outstanding prior to the
time that the interested shareholder became such,
(2) pursuant to a dividend or distribution paid or made, or
the exercise, exchange or conversion of, securities
exercisable for, exchangeable for or convertible into
stock of the Corporation or any such subsidiary which
security is distributed pro rata to all holders of a
class or series of stock of the Corporation subsequent to
the time the interested shareholder became such, or
(3) pursuant to an exchange offer by the Corporation to
purchase stock made on the same terms to all holders of
said stock; provided, however, that in no case under
divisions (2) and (3) of this subparagraph c shall there
be an increase in the interested shareholder's
proportionate share of the stock of any class or series
of the Corporation or of all voting power of the
Corporation,
d. any transaction involving the Corporation or any direct or
indirect majority-owned subsidiary of the Corporation which
has the effect, directly or indirectly, of increasing the
proportionate share of the stock of any class or series, or
securities convertible into the stock of any class or series,
or all voting power, of the Corporation or of any such
subsidiary which is owned by the interested shareholder,
except as a result of immaterial changes due to fractional
share adjustments or as a result of any purchase or redemption
of any shares of stock not caused, directly or indirectly, by
the interested shareholder,
e. any receipt by the interested shareholder of the benefit,
directly or indirectly, except proportionately as a
shareholder of the Corporation, of any loans, advances,
guarantees, pledges, or other financial benefits, other than
those expressly permitted in subparagraphs a through d of this
paragraph, provided by or through the Corporation or any
direct or indirect majority-owned subsidiary, or
f. any share acquisition by the interested shareholder from the
Corporation or any direct or indirect majority-owned
subsidiary of the Corporation pursuant to Section 1090.1 of
the Act;
6. "continuing director" has the meaning established in Section B.1.c.
7. "control", including the terms "controlling", "controlled by" and
"under common control with", means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership
of voting stock, by contract, or otherwise. A person who owns, of
record or beneficially, outstanding stock of the Corporation having
twenty percent (20%) or more of all voting power of the Corporation
shall be presumed to have control of the Corporation, in the
absence of proof by a preponderance of the evidence to the
contrary. Notwithstanding the foregoing, a presumption of control
shall not apply where such person holds stock, in good faith and
not for the purpose of circumventing this section, as an agent,
bank, broker, nominee, custodian or trustee for one or more owners
who do no individually or as a group have control of the
Corporation.
8. "fair market value" means: (i) in the case of stock, the highest
closing sale price during the 30-day period ending on the date in
question of a share of such stock on the principal United States
securities exchange registered under the Exchange Act on which such
stock is listed or on the Nasdaq National Market, or, if the stock
is not listed on any such exchange or the Nasdaq National Market,
the highest closing bid quotation with respect to a share of such
stock during the 30-day period ending on the date in question on
the Nasdaq SmallCap Market or any system then in use, or if no such
quotations are available, the fair market value on the date in
question of a share of such stock as determined by the board in
good faith; and (ii) in the case of property other than cash or
stock, the fair market value of such property on the date in
question by the board in good faith.
9. "group" means two or more persons who agree to act together for the
purpose of acquiring, holding, voting or disposing of securities of
the Corporation;
10. a. "interested shareholder" means:
(1) any person, other than the Corporation and any direct or
indirect majority-owned subsidiary of the Corporation,
that:
(a) owns of record or beneficially outstanding stock of
the Corporation having ten percent (10%) or more of
all voting power of the Corporation, or
(b) is an affiliate or associate of the Corporation and
owned of record or beneficially outstanding stock of
the Corporation having ten percent (10%) or more of
all voting power of the Corporation, and
(2) the affiliates and associates of such person;
b. the term "interested shareholder" shall not include any person
whose ownership of shares in excess of the ten percent (10%)
limitation set forth herein is the result of action taken
solely by the Corporation provided that such person shall be
an interested shareholder if thereafter he acquires additional
shares of voting stock of the Corporation, except as a result
of further corporate action not caused, directly or
indirectly, by such person;
c. for the purpose of determining whether a person is an
interested shareholder, the stock of the Corporation deemed to
be outstanding shall include stock owned of record or
beneficially by such person, but shall not include any other
unissued stock of the Corporation which may be issuable
pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or
otherwise;
11. "person" means any individual, corporation, partnership,
unincorporated association, any other entity, any group and any
member of a group.
ARTICLE TEN
Section 1. PREVENTION OF "GREENMAIL". Any direct or indirect purchase
or other acquisition by the Corporation of any Equity Security (as
hereinafter defined) of any class from any Interested Securityholder (as
hereinafter defined) who has beneficially owned such securities for less
than two years prior to the date of such purchase or any agreement in
respect thereof shall, except with respect to any class of Equity Security
which by its terms is redeemable by the Corporation (in accordance with
such terms) or as hereinafter expressly provided, require the affirmative
vote of the holders of at least a majority of the voting power of the then
outstanding shares of Voting Stock, voting together as a single class (it
being understood that for the purposes of this Article Ten each share of
the Voting Stock shall have the number of votes granted to it pursuant to
Article Four of this Certificate of Incorporation). Such affirmative vote
shall be required notwithstanding the fact that no vote may be required, or
that a lesser percentage may be specified, by law or any agreement of any
national securities exchange, or otherwise, but no such affirmative vote
shall be required with respect to any purchase or other acquisition of
securities made as part of a tender or exchange offer by the Corporation to
purchase securities of the same class made on the same terms to all holders
of such securities and complying with the applicable requirements of the
Exchange Act and the rules and regulations thereunder (or any subsequent
provisions replacing the Exchange Act, rules or regulations).
Section 2. CERTAIN DEFINITIONS. For the purposes of this Article Ten:
A. The terms "affiliate," "all voting power," "associate," "beneficial
owner" and "person" shall have the meanings ascribed to such terms
in Article Nine.
B. "Interested Securityholder" shall mean any person (other than the
Corporation or any wholly-owned subsidiary) who or which:
(i) is the record or beneficial owner of 5% or more of the class
of securities to be acquired; or
(ii) is an affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was
the record or beneficial owner of 5% or more of the class of
securities to be acquired; or
(iii) is an assignee of or has otherwise succeeded to any shares of
the class of securities to be acquired which were at any time
within the two-year period immediately prior to the date in
question beneficially owned by an Interested Securityholder,
if such assignment or succession shall have occurred in the
course of a transaction or transactions not involving a public
offering within the meaning of the Securities Act of 1933;
provided, however, a person shall not be deemed to be an
Interested Securityholder if such person has acquired the
class of securities to be acquired by gift from a person who
has owned such securities for at least five years.
C. For the purpose of determining whether a person is an Interested
Securityholder pursuant to paragraph B of this Section 2, the
relevant class of securities outstanding shall be deemed to
comprise all such securities deemed owned through application of
paragraph C of this Section 2 but shall not include any other
securities of such class which may be issuable pursuant to any
agreement, arrangements or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
D. "Equity Security" shall have the meaning ascribed to such term in
Section 3(a)(11) of the Exchange Act as in effect on the date
hereof.
ARTICLE ELEVEN
Section 1. Notwithstanding any other provision of this Certificate of
Incorporation or the Bylaws of the Corporation (and notwithstanding the
fact that a lesser percentage may be specified by law, this Certificate of
Incorporation or the Bylaws of the Corporation), the affirmative vote of
the holders of 80% or more of the voting power of the Corporation shall be
required to amend or repeal, or adopt any provisions inconsistent with,
Article Nine, Article Ten and this Article Eleven of this Certificate of
Incorporation.
Section 2. Sections 1145 through 1155 of the Act shall not apply from
and after the date of filing this Certificate of Incorporation to any
control shares if the control share acquisition is approved by a majority
of the board of directors prior to such acquisition.
The undersigned hereby makes, files and records this Certificate of
Incoropration, and certifies that the facts herein stated are true, this
_____ day of __________, 1997.
THE BEARD COMPANY
ATTEST:
By
_________________, Secretary Herb Mee, Jr., President
APPENDIX A
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
APPENDIX B
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12396
THE BEARD COMPANY
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-0970298
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ENTERPRISE PLAZA, SUITE 320
5600 NORTH MAY AVENUE
OKLAHOMA CITY, OKLAHOMA 73112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 842-2333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of March 31, 1997.
Common Stock $.001 par value - 2,799,074
<PAGE>
THE BEARD COMPANY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1997 (Unaudited) and December 31, 1996
Statements of Operations - Three Months ended March 31, 1997 and 1996
(Unaudited)
Statements of Shareholders' Equity, Year ended December 31, 1996
and Three Months ended March 31, 1997 (Unaudited)
Statements of Cash Flows - Three Months ended March 31, 1997 and 1996
(Unaudited)
Notes to Financial Statements (Unaudited)
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 2. Changes in Securities
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
THE BEARD COMPANY AND SUBSIDIARIES
Financial Statements
March 31, 1997 (Unaudited) and December 31, 1996 and for the
Three Months Ended March 31, 1997, and 1996 (Unaudited)
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE BEARD COMPANY AND SUBSIDIARIES
Balance Sheets
March 31, 1997 (Unaudited) and December 31, 1996
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
--------------- -------------
<S> <C> <C>
Current assets:
- --------------
Cash and cash equivalents $ 240,000 $ 375,000
Accounts receivable, less allowance for
doubtful receivables of $72,000 in 1997
and $71,000 in 1996 2,396,000 2,405,000
Inventories 998,000 2,003,000
Prepaid expense 452,000 442,000
Other assets 72,000 73,000
--------------- --------------
Total current assets 4,158,000 5,298,000
---------------- --------------
Investments and other assets 1,679,000 1,710,000
Property, plant and equipment, at cost 17,239,000 16,793,000
Less accumulated depreciation,
depletion and amortization 8,416,000 8,094,000
--------------- --------------
Net property, plant and equipment 8,823,000 8,699,000
--------------- --------------
Intangible assets, at cost 4,330,000 4,305,000
Less accumulated amortization 3,571,000 3,539,000
--------------- --------------
Net intangible assets 759,000 766,000
--------------- --------------
$ 15,419,000 $ 16,473,000
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
- -------------------
Trade accounts payable $ 1,575,000 $ 1,395,000
Accrued expense and other liabilities 426,000 609,000
Short-term debt - 639,000
Current maturities of long-term debt 776,000 910,000
-------------- ---------------
Total current liabilities 2,777,000 3,553,000
-------------- ---------------
Long-term debt less current maturities 3,067,000 2,911,000
Minority interest in consolidated
subsidiaries 143,000 153,000
Redeemable preferred stock of $100 stated
value; 5,000,000 shares authorized;
90,156 shares issued and outstanding
(note 4) 1,200,000 1,200,000
Common shareholders' equity:
- ---------------------------
Common stock of $.001 par value per share;
10,000,000 shares authorized;
2,799,074 shares issued and outstanding
in 1997 and 1996 3,000 3,000
Capital in excess of par value 41,629,000 41,629,000
Accumulated deficit (33,400,000) (32,976,000)
--------------- --------------
Total common shareholders'
equity 8,232,000 8,656,000
--------------- --------------
Commitments and contingencies (note 8) $ 15,419,000 $ 16,473,000
=============== ==============
</TABLE>
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------------
March 31, March 31,
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Carbon dioxide $ 2,918,000 $ 2,779,000
Environmental/resource recovery 1,169,000 350,000
Other 35,000 17,000
------------ ------------
4,122,000 3,146,000
Expenses:
Carbon dioxide 2,053,000 2,064,000
Environmental/resource recovery 995,000 527,000
Selling, general and administrative 1,031,000 947,000
Depreciation, depletion and
amortization 361,000 302,000
Other 7,000 14,000
------------ ------------
4,447,000 3,854,000
Operating profit(loss):
Carbon dioxide 79,000 (86,000)
Environmental/resource recovery (175,000) (353,000)
Other (229,000) (269,000)
------------ ------------
(325,000) (708,000)
Other income (expense):
Interest income 3,000 2,000
Interest expense (88,000) (46,000)
Gain on sale of assets 53,000 12,000
Gain on take-or-pay contract settlement
(note 6) - 939,000
Other, including equity in net loss
of unconsolidated affiliates (77,000) (96,000)
Minority interest in operations of
consolidated subsidiaries 10,000 -
------------ ------------
Earnings (loss) from continuing operations
before income taxes (424,000) 103,000
Income taxes (note 7) - -
------------ ------------
Earnings (loss) from continuing operations $ (424,000) $ 103,000
Loss from discontinued real
estate operations (note 2) - (8,000)
------------ ------------
Net earnings (loss) $ (424,000) $ 95,000
============ ============
Net earnings (loss) attributable to common
shareholders $ (424,000) 95,000
============ ============
Earnings (loss) per common share and
common equivalent share (primary EPS)
(note 5):
Earnings (loss) from continuing
operations $ (0.15) $ 0.03
Loss from discontinued operations - -
Net earnings (loss) $ (0.15) $ 0.03
See accompanying notes to financial statements.
</TABLE>
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Shareholders' Equity
<TABLE>
<CAPTION>
TOTAL
CAPITAL IN COMMON
COMMON EXCESS OF ACCUMULATED
SHAREHOLDERS'
STOCK PAR VALUE DEFICIT EQUITY
---------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
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
Net loss, three months ended March 31, 1997 - - (424,000) (424,000)
---------- ------------- -------------- --------------
Balance, March 31, 1997 $ 3,000 $ 41,629,000 $ (33,400,000) $ 8,232,000
========== ============= ============== ==============
</TABLE>
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Operating activities:
Cash received from customers $ 5,332,000 $ 3,361,000
Cash paid to suppliers and employees (4,426,000) (3,812,000)
Cash received from settlement of
take-or-pay contract - 539,000
Interest received 3,000 1,000
Interest paid (136,000) (47,000)
----------- -----------
Net cash provided by operating
activities 773,000 42,000
----------- -----------
Investing Activities:
Acquisition of property, plant
and equipment (369,000) (341,000)
Proceeds from sale of assets 55,000 149,000
Other investments 16,000 (8,000)
----------- -----------
Net cash used in investing
activities (298,000) (200,000)
----------- -----------
Financing Activities:
Proceeds from line of credit and
term notes 985,000 1,085,000
Payments on line of credit and
short-term notes (1,595,000) (891,000)
Proceeds from issuance of stock - 10,000
----------- -----------
Net cash provided by (used in)
financing activities (610,000) 204,000
----------- -----------
Net increase (decrease) in cash and
cash equivalents (135,000) 46,000
Cash and cash equivalents at beginning
of period 375,000 220,000
----------- -----------
Cash and cash equivalents at end of
period $ 240,000 $ 266,000
=========== ===========
</TABLE>
Continued
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
Reconciliation of Net earnings (loss) to Net Cash Provided by Operating
- ----------------------------------------------------------------------
Activities
- ----------
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net earnings (loss) $ (424,000) $ 95,000
Adjustments to reconcile net earnings
(loss) to net cash provided by operating
activities:
Depreciation, depletion and amortization 361,000 303,000
Gain on sale of assets (53,000) (12,000)
Receipt of equipment as part of
settlement of take-or-pay contract - (400,000)
Interest and other costs (capitalized)
recognized on real estate project 464,000 (30,000)
Other, including minority interest in
consolidated subsidiaries 83,000 99,000
------------ -------------
Net cash provided by operations
before changes in current assets
and liabilities 431,000 55,000
(Increase) decrease in accounts
receivable, prepaids and other
current assets (3,000) 53,000
(Increase) decrease in inventories 541,000 (258,000)
Increase (decrease) in accounts
payable, accrued expenses and other
liabilities (196,000) 192,000
------------ -------------
Net cash provided by operating
activities $ 773,000 $ 42,000
============ =============
Supplemental Schedule of Noncash Investing and Financing Activities
- -------------------------------------------------------------------
Purchase of property, plant and equipment
and intangible assets through issuance
of debt obligations $ - $ 99,000
============ =============
Receipt of equipment as part of
settlement of take-or-pay contract $ - $ 400,000
============ =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE BEARD COMPANY AND SUBSIDIARIES
Notes to Financial Statements
March 31, 1997 and 1996
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements and notes thereto have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain footnote disclosures normally
prepared in accordance with generally accepted accounting principles have
been omitted. The accompanying consolidated financial statements and notes
thereto should be read in conjunction with the consolidated financial
statements and notes thereto included in Beard's 1996 annual report on Form
10K.
The accompanying consolidated financial statements include the accounts of
The Beard Company and its wholly and majority-owned subsidiaries ("Beard or
the Company"). All significant intercompany transactions have been
eliminated.
The financial information included herein is unaudited; however, such
information reflects all adjustments which are, in the opinion of manage-
ment, necessary for a fair statement of the results for the interim periods
presented.
The results of operations for the three-month period ended March 31, 1997,
are not necessarily indicative of the results to be expected for the full
year.
The Company operates within two major industry segments: (1) the carbon
dioxide ("CO2") segment, comprised of (a) the manufacture and distribution
of dry ice (solid CO2) and (b) the production of CO2; and (2) the en-
vironmental/resource recovery ("E/RR") segment, consisting of environmental
services and resource recovery activities. The Company also operated
in the real estate ("R/E") segment, consisting of real estate construction
and development, 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.
(2) DISCONTINUED OPERATIONS
In January 1997, the Company approved a formal plan to dispose of the assets
of its R/E segment. The Company estimated that it would incur a loss of
$180,000 from discontinuing real estate construction and development
activities. The loss was recorded in the fourth quarter of 1996 and
represented the difference in the estimated amounts to be received from
disposing of the real estate construction and development assets and the
asset's recorded values as of December 31, 1996.
Results of operations of the R/E segment for the three months ended March
31, 1996, have been restated as discontinued operations in the accompanying
statements of operations. Operating results of the discontinued operations
through the date of sale of all remaining assets are not expected to be
significant.
During the three months ended March 31, 1997, the Company disposed of real
estate construction and development assets for $1,196,000 which approximated
the Company's estimated disposition values of these assets.
As of March 31, 1997, the significant assets of the R/E segment included two
speculative homes valued at approximately $574,000.
(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 prior to May 21, 1996, are not included in the Company's
consolidated financial statements.
(4) REDEEMABLE 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. The
Company's operations through March 31, 1997, were not sufficient to begin
the sharing of the consolidated net income. Accordingly, one-third of
future "consolidated net income" will accrete directly to preferred
stockholders and reduce earnings per common share. To the extent that the
preferred stock is not redeemed by December 31, 2002, the shares of
preferred stock can be converted into shares of the Company's common stock.
(5) EARNINGS (LOSS) PER SHARE
Loss per common share for the three-month period ended March 31, 1997, has
been computed by dividing the loss by the weighted average number of common
shares outstanding during the quarter. Common share equivalents and any
potentially dilutive securities outstanding were not considered in the March
31, 1997, calculations, as the effects would have been antidilutive.
Primary earnings per common share for the three-month period ended March 31,
1996, were computed by dividing net earnings available to common
shareholders by the weighted average number of shares of common stock and
common stock equivalents outstanding during the period. Common stock
equivalents include the effect of shares issuable upon exercise of incentive
and non-qualified stock options using the treasury stock method. Fully
diluted earnings per share include the potential dilution of the earnings
available to common stockholders as if the preferred stock was converted to
common stock. The calculation includes the weighted average number of
shares of common shares outstanding, the common stock equivalents, and the
common shares that would result from the conversion of the preferred shares.
The table on the following page contains the components of the common share
and common equivalent share amounts used in the calculation of earnings
(loss) per share in the Company's statement of operations:
THE BEARD COMPANY AND SUBSIDIARIES
Notes to Financial Statements
March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------------
March 31, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Primary EPS:
Weighted average of common
shares outstanding 2,799,074 2,734,094
Options considered to be
common stock equivalents - 17,752
--------- ---------
2,799,074 2,751,846
========= =========
</TABLE>
(6) SETTLEMENT OF TAKE-OR-PAY CONTRACT
In February 1996, the Company negotiated a settlement of a take-or-pay con-
tract under which a customer was obligated to purchase certain volumes of
liquid CO2. As a result of the settlement, the Company received $539,000
of cash 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 related to this
settlement.
(7) INCOME TAXES
In accordance with the provisions of the Statement of Financial Accounting
Standard No. 109, Accounting for Income Taxes ("SFAS No. 109"), the
Company's net deferred tax asset is being carried at zero book value, which
reflects the uncertainties of the Company's utilization of the net
deductible timing differences. There is no provision for income taxes in
1997 or 1996 due to the availability of net operating losses and other
carryforwards.
At March 31, 1997, the Company estimates that it had the following income
tax carryforwards available for both income tax and financial reporting
purposes (in thousands):
<TABLE>
<CAPTION>
Expiration
Date Amount
---------- ----------
<S> <C> <C>
Federal regular tax operating loss carry-
forwards 2001-2011 $ 67,388
Investment tax credit carryforward 1997-2000 679
Tax depletion carryforward Indefinite 5,500
---------- ----------
Total $ 73,567
==========
</TABLE>
(8) 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.
(9) CHANGE IN CONTROL COMPENSATION AGREEMENTS
In January 1997, the Company's dry ice subsidiary entered into Change of
Control Compensation agreements with its President and two other employees.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The following discussion focuses on material changes in the
Company's financial condition since December 31, 1996 and results of opera-
tions for the quarter ended March 31, 1997 compared to the prior year
first quarter. Such discussion should be read in conjunction with
the Company's financial statements including the related footnotes.
In preparing the discussion and analysis, the Company has presumed
readers have read or have access to the discussion and analysis of the
prior year's results of operations, liquidity and capital resources
as contained in the Company's 1996 Form 10-K.
The Company operates within two major industry Segments: (1) the
carbon dioxide ("CO2") Segment, comprised of (a) the manufacture and
distribution of dry ice (solid CO2) and (b) the production of CO2; and
(2) the environmental/resource recovery ("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, including the assets of the
Company's former real estate construction and development ("R/E")
Segment, the operations of which were discontinued in January, 1997.
(See Note 2 to the Financial Statements).
MATERIAL CHANGES IN FINANCIAL CONDITION - MARCH 31, 1997 AS
COMPARED WITH
DECEMBER 31, 1996.
The following table reflects some of the changes in the Company's financial
condition during the periods indicated:
<TABLE>
<CAPTION>
March 31, December 31, Increase
1997 1996 (Decrease)
--------- ------------ --------
<S> <C> <C> <C>
Cash and cash equivalents $ 240,000 $ 375,000 $(135,000)
Working capital $1,381,000 $1,745,000 $(364,000)
Current ratio 1.50 to 1 1.49 to 1
</TABLE>
The Company's ability to generate working capital from operations during the
first quarter of 1997 was adversely affected by operating losses from the E/RR
Segment and the low sales volumes of the CO2 Segment. The Company's core
operations are affected by seasonality. The first quarter is normally a poor
one for the dry ice business, and cold and/or rainy weather also normally
causes a slowdown of sales in the environmental/resource recovery
Segment. As previously mentioned, the Company has discontinued the R/E Segment
and the sale of substantially all of its assets in this Segment during the
quarter provided cash of $996,000 and working capital of $220,000. The
proceeds from the sale were used to pay down the short-term debt associated
with the construction cost of these assets. Despite the seasonal decline,
however, net working capital generated by operations for the first three months
of 1997 amounted to $431,000, a strong improvement over the $55,000 generated in
the 1996 quarter.
In addition to the proceeds from the sale of assets in the R/E Segment, the
Company has been able to satisfy its liquidity needs through its working
capital and borrowing arrangements. Future cash flows and availability of
credit are subject to a number of variables, including the price and demand for
dry ice, a continuing source of economical CO2, and continuing private and
governmental demand for environmental services. Despite these uncertainties,
the Company anticipates that its cash flow from operations and continuing
availability of credit on a basis similar to that experienced to date will be
sufficient to meet its planned operating costs and capital spending require-
ments.
Additional capital expenditures of $369,000 were made by the following
Segments in property, plant and equipment during the first three months of
1997:
<TABLE>
<CAPTION>
<S> <C>
Carbon dioxide $272,000
Environmental/resource recovery 59,000
Other 38,000
--------
$369,000
========
</TABLE>
The CO2 Segment's line of credit will be sufficient to fund its presently
foreseeable capital expenditure requirements, including the $713,000 projected
for the last nine months of 1997. The Company's other credit lines and cash
flow will be adequate to fund the $449,000 of capital expenditures projected for
the rest of the Company for the last nine months of the year.
Through the period ending December 31, 2002, the Company's liquidity will
be reduced to the extent it is required to redeem any of the Beard preferred
stock pursuant to the mandatory redemption provisions. See Note 2 to the
accompanying financial statements.
MATERIAL CHANGES IN RESULTS OF OPERATIONS - QUARTER ENDED MARCH
31, 1997 AS
COMPARED WITH THE QUARTER ENDED MARCH 31, 1996.
The loss for the first quarter of 1997 was $424,000, compared to earnings
of $95,000 for the same time period in 1996. There was a significant
improvement in operating margins across the board; the CO2 Segment improved by
$165,000, the E/RR Segment by $178,000, and Other by $40,000. As a
result, the operating loss for the current quarter decreased 54% to $325,000
versus $708,000 a year ago. The first quarter of 1996 was favorably
impacted by a $939,000 gain from the settlement of a take-or-pay contract in
the CO2 Segment.
Operating results of the Company's two Segments are reflected below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
OPERATING PROFIT (LOSS):
Carbon dioxide $79,000 $(86,000)
Environmental/resource
recovery (175,000) (353,000)
---------- ----------
Subtotal (96,000) (439,000)
Other (229,000) (269,000)
---------- ----------
(325,000) (708,000)
========== ==========
</TABLE>
The "Other" in the above table reflects primarily general and corporate
activities, as well as other activities and investments of the Company.
CARBON DIOXIDE
First quarter 1997 operations reflected an operating profit of $79,000
compared to an $86,000 loss for the 1996 first quarter. The primary component
of revenues for this Segment is dry ice sales which are seasonal with the
downturn occurring from December through February, while the brisk sales period
occurs from June through August and then again in October. The operating loss
for the dry ice component of this Segment decreased to $6,000 in 1997 from
$141,000 in 1996 as a result of increased sales and lower operating costs.
Revenues from this Segment totaled $2,918,000 for the 1997 first quarter, a
5% increase over last year's first quarter. The factors contributing to this
improvement included increases in the volume of dry ice sales, in the sales of
equipment, and in the Company's allocated share of sales from its working
interest in a producing CO2 unit. This improvement in revenues was par-
tially offset by increases in expenses associated with advertising and sales,
insurance, and an incentive-sales arrangement for employees.
ENVIRONMENTAL/RESOURCE RECOVERY
A significant increase in revenues generated by the E/RR Segment led to a
sharply reduced operating loss by this Segment in the first quarter of 1997 as
compared to the same period in 1996. This increase in revenue was primarily
caused by an increase in environmental services activity and the operation of
the Horizontal Drilling rigs acquired in the acquisition of Horizontal Drilling
Technologies, Inc. ("HDT") in May, 1996 (see Note 3 to the Financial
Statements). This increase was offset somewhat, however, by a decline in the
revenues generated by resource recovery activities due to the completion in
February 1996 of a contract with the U. S. Department of Energy related to the
Company's patented Mulled Coal technology. Management has been pursuing and
will continue to pursue the commercial development of this technology during
the remainder of 1997.
OTHER ACTIVITIES
Other operations, consisting primarily of general and corporate
activities, generated a slightly smaller operating loss for the first quarter
of 1997 as compared to the same period last year. A slight decrease in the
revenues generated by the corporate group was more than offset by a larger
decrease in corporate overhead expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company's selling, general and administrative expenses ("SG&A") in the
current quarter increased to $1,031,000 from $947,000 in the 1996 first
quarter. This resulted primarily from an increase in the SG&A of the E/RR
Segment as a result of including the operations of HDT (see Note 3 to the
Financial Statements) which added $94,000 to SG&A.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSES
The first quarter of 1997 had a minor increase in DD&A expense of $59,000,
reflecting additions to property, plant and equipment made during the past
year.
OTHER INCOME AND EXPENSES
The other income and expenses for the first quarter of 1997 netted to a
$99,000 loss compared to $811,000 net income for the same period in 1996. As
previously mentioned, the Company benefited in the first quarter of 1996 from
the settlement of a take-or-pay contract in the CO2 Segment. This settle-
ment resulted in a gain of $939,000. The Company realized a gain of
$53,000 on the sale of assets during the first quarter of 1997 compared to
$12,000 for the same period in 1996.
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. As discussed in Note 2 to the Financial Statements, the Company
recognized the estimated loss of disposing of the R/E Segment's assets in the
fourth quarter of 1996. In the first quarter of 1997, the Company sold all of
the R/E Segment's assets, except for two completed speculative homes, for
$1,196,000. One of these homes is under contract for closing on May 30, 1997.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, and restatement of prior-period earnings per share
data is required. The new standard will not apply to Beard's financial
statements until the fourth quarter of 1997. SFAS No. 128 revises the current
calculation methods and presentation of primary and fully diluted earnings per
share. Beard has reviewed the requirements of SFAS No. 128 and has concluded
that they will not have a material effect on the calculation of Beard's
historical earnings (loss) per share data.
PART II. OTHER INFORMATION.
ITEM 2. CHANGES IN SECURITIES.
The Company's preferred stock is mandatorily redeemable through December 31,
2002 from one-third of Beard's "consolidated net income" as defined in the
Stock Purchase Agreement. Accordingly, one-third of future "consolidated net
income" will accrete directly to preferred stockholders and reduce earnings per
common share. As a result of these redemption requirements, the payment of any
dividends to the common stockholders in the near future is very unlikely. See
Note 2 to the accompanying financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed with this Form 10-Q and are identified
by the numbers indicated:
4 Promissory Note from Registrant to the Trustees of the William M.
Beard and Lu Beard 1988 Charitable Unitrust, dated March 7, 1997.
10 Form of Change in Control Compensation Agreement dated as of
January 24, 1997, by and between Carbonic Reserves and three em-
ployees.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the period covered by this
report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
(Registrant) THE BEARD COMPANY
HERB MEE, JR.
(Date) May 13, 1997 Herb Mee, Jr., President and
Chief Financial Officer
JACK A. MARTINE
(Date) May 13, 1997 Jack A. Martine, Controller and
Chief Accounting Officer
EXHIBIT A
ASSET PURCHASE AGREEMENT
by and between
AIRGAS CARBONIC RESERVES, INC. ("Purchaser")
and
CARBONIC RESERVES ("Seller")
and
THE BEARD COMPANY and CLIFFORD H. COLLEN, JR. ("Shareholders")
<PAGE>
TABLE OF CONTENTS PAGE
ARTICLE 1
SUMMARY OF TRANSACTIONS; DEFINITIONS
1.1 Assets Purchased
1.2 Excluded Assets
1.3 Assumption of Liabilities
1.4 Employment Agreement
1.5 Non-Competition and Confidentiality Agreements
1.6 Assignment of Patents and Trademarks
1.7 US Airgas Guaranty
1.8 Certain Definitions
ARTICLE 2
PURCHASE PRICE
2.1 Purchase Price
2.2 Purchase Price Allocation.
2.3 Payment of Purchase Price
2.3.1 Assumed Liabilities
2.3.2 Closing Payment
2.3.3 Holdback Payment
ARTICLE 3
ASSUMPTION OF LIABILITIES
3.1 Assumption of Certain Liabilities
3.2 Limitation of Purchaser's Liabilities
3.3 Discharge of Liabilities Not Assumed by Purchaser
3.4 Bulk Sales Law
3.5 Release of Guarantees
ARTICLE 4
CONDUCT OF SELLER'S BUSINESS
4.1 Conduct of Business Prior to Closing
4.2 Access and Information
4.3 Compliance with Laws, etc
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
5.1 Representations, Warranties and Agreements of Seller and
Shareholders
5.1.1 Organization and Good Standing
5.1.2 No Violation; Consents
5.1.3 Validity of Agreement
5.1.4 Capitalization
5.1.5 Assets
5.1.6 Inventories
5.1.7 Accounts Receivable
5.1.8 Taxes
5.1.9 Litigation
5.1.10 Compliance with Laws; Environmental
5.1.11 Contracts
5.1.12 Employee Benefit Plans
5.1.13 Customers and Suppliers
5.1.14 Financial Information
5.1.15 Absence of Undisclosed Liabilities
5.1.16 Books of Account, Returns and Reports
5.1.17 Transactions with Affiliates
5.1.18 Franchises, Permits and Licenses
5.1.19 Employees
5.1.20 Insurance
5.1.21 Patents
5.1.22 Conditions Affecting Seller
5.1.23 Disclosure
5.1.24 Knowledge
5.2 Representations, Warranties and Agreements of Purchaser
5.2.1 Organization and Good Standing
5.2.2 No Violation; No Consents
5.2.3 Validity of Agreement
ARTICLE 6
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
6.1 Survival of Representations and Warranties
6.2 Indemnification
6.2.1 Seller's and Shareholders' Indemnity
6.2.2 Purchaser's Indemnity
6.2.3 Notice and Defense of Indemnity Claims
6.2.4 Manner of Indemnification
6.2.5 Brokers
6.2.6 Limitation
6.3 Purchaser's Right of Setoff
ARTICLE 7
CONDITIONS PRECEDENT TO THE CLOSING
7.1 Conditions To Purchaser's Performance
7.1.1 Representations and Warranties True
7.1.2 Covenants Performed
7.1.3 Litigation
7.1.4 Other Agreements
7.1.5 Consents
7.1.6 Opinion of Counsel
7.1.7 Audits and Inspections
7.1.8 Environmental Studies
7.1.9 Hart-Scott-Rodino Antitrust Improvements Act
7.1.10 Purchaser Board Approval
7.2 Conditions to Seller's Performance
7.2.1 Representations and Warranties True
7.2.2 Covenants Performed
7.2.3 Litigation
7.2.4 Other Agreements
7.2.5 Environmental Studies
7.2.6 Hart-Scott-Rodino Antitrust Improvements Act
7.2.8 Opinion of Counsel
ARTICLE 8
THE CLOSING
8.1 Closing Date
8.2 Seller's Deliveries at Closing
8.3 Purchaser's Deliveries at Closing
ARTICLE 9
EXPENSES
9.1 Expenses
ARTICLE 10
CONSTRUCTION
10.1 Choice of Laws
10.2 Headings
10.3 Invalid Provisions
ARTICLE 11
ASSIGNABILITY
11.1 Binding Agreement
11.2 Assignability
ARTICLE 12
NOTICES
12.1 Written Notices
12.2 Notice to Purchaser
12.3 Notice to Seller
ARTICLE 13
FURTHER ASSURANCES AND MISCELLANEOUS
13.1 Seller's Name
13.2 Employee Contracts
13.3 Further Agreements and Cooperation
13.4 Audited Business
13.5 Entire Agreement, No Oral Change
13.6 Risk of Loss
<PAGE>
ASSET PURCHASE AGREEMENT
The parties to this Asset Purchase Agreement ("Agreement") dated the
________ day of July, 1997, are AIRGAS CARBONIC RESERVES, INC.
("Purchaser"), a Delaware corporation and subsidiary of AIRGAS CARBONIC
INDUSTRIES, INC.; CARBONIC RESERVES ("Seller"), a Nevada corporation; and
THE BEARD COMPANY ("Beard"), an Oklahoma corporation and the majority
shareholder of Seller and CLIFFORD H. COLLEN, JR. ("Collen"), an individual
residing at 36 Old San Antonio Road, Boerne, Texas 78006 and the minority
shareholder of Seller (Beard and Collen collectively "Shareholders").
Seller desires to sell and Purchaser desires to buy all the assets of
Seller used or useful in the dry ice manufacturing and distribution
business of Seller (the "Business"), except those expressly excluded herein
(such assets, except those expressly excluded, the "Assets"), on the terms
and conditions of this Agreement.
In consideration of the mutual representations, warranties, covenants
and agreements hereinafter contained, the parties hereto, each intending to
be legally bound hereby, agree as follows:
ARTICLE 1
SUMMARY OF TRANSACTIONS; DEFINITIONS
1.1 Assets Purchased. Purchaser hereby agrees to purchase from
Seller and Seller hereby agrees to sell to Purchaser all of the Assets.
The Assets include, but are not limited to, the following:
(a) the tangible assets of Seller, all of Seller's accounts
receivable, notes receivable, deposits, prepaid expenses, inventories,
fixed assets, real property and intangible properties;
(b) all contract rights, causes of action, claims, refunds and
demands of whatever nature, including rights to returned or repossessed
goods and rights as unpaid vendor arising out of the Business;
(c) all books and records relating to the Business and Seller
(except minute books and stock record books);
(d) all rights of Seller in and to all of Seller's trademarks
and trade names, including without limitation, the name "Carbonic
Reserves," and all variants thereof, and all intellectual property and
proprietary information of Seller; and
(e) all of Seller's intangibles and goodwill.
At Closing, Seller shall deliver to Purchaser a bill of sale for
the Assets, substantially in the form of Exhibit 1.1 (the "General
Assignment and Bill of Sale"), and special warranty deeds for the Real
Property identified in Section 5.1.5(b) and Schedule 5.1.5(c) as being
owned by Seller, substantially in the form of Exhibits 1.1.1, 1.1.2, 1.1.3
and 1.1.4 (the "Deeds").
1.2 Excluded Assets. Purchaser and Seller agree that the following
assets are expressly excluded from the purchase and sale hereunder: cash
and cash equivalents, notes receivable from Beard or any other Related
Party and identified on Schedule 1.2, and any tax refunds relating to
periods prior to the Closing Date.
1.3 Assumption of Liabilities. At Closing (as defined herein),
Purchaser shall enter into an assignment and assumption agreement,
substantially in the form of Exhibit 1.3 (the "Assignment and Assumption
Agreement") providing for Purchaser to assume those liabilities of Seller
described in Section 3.1 hereof. Except as expressly provided in this
Agreement, Purchaser is not assuming any liabilities of Seller.
1.4 Employment Agreement. At Closing, Collen shall enter into an
employment agreement with Purchaser, substantially in the form of Exhibit
1.4 (the "Employment Agreement").
1.5 Non-Competition and Confidentiality Agreements. At Closing,
Seller, Beard and Collen shall enter into separate non-competition and
confidentiality agreements with Purchaser, substantially in the form of
Exhibits 1.5(a), (b) and (c) (the "Non-Competition and Confidentiality
Agreements"). At Closing, Purchaser shall pay Collen Five Hundred Thousand
Dollars ($500,000) in consideration for his execution of the
Non-Competition and Confidentiality Agreement.
1.6 Assignment of Patents and Trademarks. At Closing, Seller shall
execute and deliver to Purchaser Assignment of Patents and Assignment of
Trademarks forms, assigning Seller's rights in and to the patents and
trademarks described in Section 5.1.21, substantially in the form of
Exhibits 1.6(a), (b) and (c) (the "Patent and Trademark Assignments").
1.7 US Airgas Guaranty. Concurrently with the execution hereof,
Purchaser is causing US Airgas, Inc., a subsidiary of Airgas, Inc., to
execute and deliver to Seller and Shareholders a guaranty of Purchaser's
obligations hereunder, substantially in the form of Exhibit 1.7 (the "US
Airgas Guaranty").
1.8 Certain Definitions. The following terms used in this Agreement
shall have the meanings set forth below:
"Affiliate" means any person, firm, corporation, partnership or
association controlling, controlled by, or under common control with
another person, firm, corporation, partnership or association;
"Airgas Plans" shall have the meaning given to such term in
Section 13.2 hereof;
"Assets" shall have the meaning given to such term in the preamble of
this Agreement and in Section 1.1 hereof;
"Assumed Liabilities" shall have the meaning given to such term in
Section 3.1 hereof;
"Business" shall have the meaning given to such term in the preamble
of this Agreement;
"Closing" shall have the meaning given to such term in Section 8.1
hereof;
"Closing Date" shall have the meaning given to such term in
Section 8.1 hereof;
"Closing Date Balance Sheet" means a balance sheet as of the Closing
Date and a related statement of income, stockholders' equity, and cash
flows for the period between the last day of Seller's last full fiscal year
and the Closing Date, prepared by Purchaser, subject to Seller's approval,
within sixty (60) days after the Closing Date in accordance with generally
accepted accounting principles, consistently applied in accordance with the
past practices of Seller;
"Code" shall mean the Internal Revenue Code of 1986, as amended;
"Employee Plans" shall have the meaning given to such term in
Section 5.1.12 hereof;
"Environmental Laws" shall mean all Legal Requirements relating to the
generation, storage, handling, release, discharge, emission,
transportation, treatment or disposal of solid wastes, hazardous wastes,
and hazardous, toxic or dangerous materials or substances, including, but
not limited to, the Comprehensive Environmental Response, Compensation and
Liability Act, the Superfund Amendments and Reauthorization Act of 1986,
the Resource Conservation and Recovery Act, the Clean Water Act, the Clean
Air Act (as amended), the Federal Water Pollution Control Act, the Safe
Drinking Water Act, the Toxic Substances Control Act, and the Hazardous
Materials Transportation Act;
"Environmental Liability" shall mean any obligation or liability
imposed against an owner or operator of property pursuant to the provisions
of any Environmental Laws or pursuant to common law, and shall include all
response costs, costs of remediation, attorneys' fees and expert witness
fees to investigate and defend such claims, personal injuries and any dam-
ages to natural resources and other property. The term "Environmental
Liability" shall include all theories of liability for environmental
contamination of property, including theories arising under statute, com-
mon law or tort, and contribution;
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
"Financial Statements" shall have the meaning given to such term in
Section 5.1.14 hereof;
"Hazardous Substances" shall have the meaning given to such term in
Section 5.1.10 hereof;
"Holdback" shall have the meaning given to such term in Section 2.3.3
hereof;
"Immaterial Contracts" shall have the meaning given to such term in
Section 5.1.11 hereof.
"Indemnity Claims" shall have the meaning given to such term in
Sections 6.2.1 and 6.2.2 hereof;
"Legal Requirements" shall mean all judgments, decrees, injunctions,
orders, writs, rulings, laws, ordinances, statutes, rules, regulations,
codes and other requirements of all federal, state and local governmental,
administrative and judicial bodies and authorities;
"Permitted Contracts" shall have the meaning given to such term in
Section 3.1 hereof.
"Personal Property Leases" shall have the meaning given to such term
in Section 5.1.5(a) hereof;
"Purchaser" shall have the meaning given to such term in the preamble
of this Agreement;
"Purchase Price" shall have the meaning given to such term in
Section 2.1 hereof;
"Real Property" shall have the meaning given to such term in
Section 5.1.5(b) hereof;
"Real Property Leases" shall have the meaning given to such term in
Section 5.1.5(b) hereof;
"Related Party" shall mean Collen and any member of Collen's immediate
family, any Affiliate of Seller, any Affiliate of Beard, and any employee,
director, officer or shareholder of any of the foregoing.
"Scheduled Contracts" shall have the meaning given to such term in
Section 5.1.11 hereof;
"Seller" shall have the meaning given to such term in the preamble of
this Agreement;
"Wastes" shall have the meaning given to such term in Section 5.1.10
hereof;
Financial terms not defined in this Agreement shall have the meanings
of such terms under generally accepted accounting principles.
ARTICLE 2
PURCHASE PRICE
2.1 Purchase Price. The purchase price for the Assets and Business
of Seller is Nineteen Million Five Hundred Twenty Thousand Dollars
($19,520,000), plus the amount of liabilities to be assumed by Purchaser
hereunder (the "Purchase Price"), subject to any setoff provided in Section
2.3.3 and payable in the manner provided in Section 2.3.
2.2 Purchase Price Allocation. The Purchase Price shall be allocated
in accordance with Section 1060 of the Code, based on the actual results of
operations of Seller through the Closing Date as shown on the Closing Date
Balance Sheet, consistent with the valuation techniques and practices of US
Airgas, Inc. and, if Purchaser elects, on the basis of an independent third
party appraisal made at Purchaser's expense. The parties agree (i) that
they shall allocate to accounts receivable consideration paid and received
equal to the face value of such receivables as of the Closing Date as
reflected on the Closing Date Balance Sheet; (ii) that they shall allocate
to inventory consideration paid and received equal to the lower of cost or
market value as of the Closing Date as reflected on the Closing Date
Balance Sheet; (iii) that they should allocate to fixed assets
consideration paid and received equal to the fair market value of those
assets as of the Closing Date as determined by appraisals prepared by
independent third parties or valued in a manner consistent with past
valuation techniques and practices of the US Airgas, Inc., as Purchaser
shall elect; and (iv), that the parties shall adopt and abide by the
allocations provided for herein in all federal and state tax filings, and
shall take no position inconsistent therewith.
2.3 Payment of Purchase Price.
2.3.1 Assumed Liabilities. At the Closing, Purchaser shall
assume the Assumed Liabilities described in Sections 3.1.
2.3.2 Closing Payment. On the Closing Date, or the first
business day thereafter if the Closing Date is a Saturday, Sunday or legal
holiday, Purchaser shall pay Seller Eighteen Million Five Hundred Thousand
Dollars ($18,500,000) by wire transfer or other immediately-available
funds.
2.3.3 Holdback Payment. No later than 150 days after the
Closing Date, Purchaser shall pay Seller the sum of One Million Dollars
($1,000,000) (the "Holdback") by wire transfer or other immediately
available funds. The Holdback shall be subject to setoff for (i) any
accounts receivable of Seller in existence as of the Closing that are not
collected within 120 days of the Closing (to the extent such uncollected
accounts receivable exceed in amount the Doubtful Accounts Allowance
provided for in Section 5.1.7); (ii) the amount, if any, by which notes
payable to third parties included in the Assumed Liabilities, as reflected
on the Closing Date Balance Sheet, exceed the amount of such notes payable
as reflected on Seller's December 31, 1996 Financial Statements to the
extent such excess is greater than the increase in the value of the fixed
assets included in the Assets, as reflected on the Closing Date Balance
Sheet, above the value of such fixed assets as reflected on Seller's
December 31, 1996 Financial Statements; and (iii) any other Indemnity
Claims (as defined herein) under this Agreement which arise during said 150
day period. Any accounts receivable as to which Purchaser exercises its
right of setoff shall be reassigned to Seller. Purchaser shall give Seller
a written notice specifying any setoffs made or to be made against the
Holdback. If Seller disputes any of such setoffs, it shall so notify
Purchaser prior to that date which is 30 days after its receipt of
Purchaser's Notice. If Seller and Purchaser cannot resolve any of such
disputes within thirty (30) days after the date of Purchaser's receipt of
Seller's notice, Seller shall be free to submit such unresolved disputes to
arbitration as provided in Section 6.2.4 hereof.
ARTICLE 3
ASSUMPTION OF LIABILITIES
3.1 Assumption of Certain Liabilities. As consideration for the
transfer of the Assets and Business to Purchaser, Purchaser agrees to
assume at the Closing: (a) the trade accounts payable and accrued expenses
incurred in the ordinary course of Seller's business (as provided in
Article 4) existing on the Closing Date, excluding any federal or state
income tax liability relating to the operations of Seller prior to the
Closing Date, employee-related liabilities and indebtedness to Beard or any
Related Party; (b) the notes payable to third parties as reflected on
Seller's December 31, 1996 balance sheet together with those entered into
in the ordinary course of business in a manner consistent with past
practice after December 31, 1996 and prior to the Closing Date; and (c) the
obligations of future performance of Seller under the Scheduled Contracts
shown as being assumed by Purchaser, under the Immaterial Contracts, and
under comparable contracts of Seller entered into in the ordinary course of
business after the date hereof and prior to the Closing Date (such
comparable contracts the "Permitted Contracts"). The liabilities described
above are referred to herein as the "Assumed Liabilities."
3.2 Limitation of Purchaser's Liabilities. The parties agree that
Purchaser will not assume or pay any debts, liabilities, or obligations not
expressly described in Section 3.1 and, without limiting the generality of
the foregoing, agree that, anything in Section 3.1 to the contrary
notwithstanding, the Assumed Liabilities shall not include and Purchaser
will not assume or pay any of the following:
(a) any obligations or liabilities to employees of Seller,
including without limitation any obligation or liability under any
collective bargaining agreement, or any pension, profit-sharing or other
employee benefit plan affecting any employee or former employee of Seller;
(b) any Environmental Liabilities;
(c) any contingent liabilities based on Seller's sale or lease
of defective products or equipment, Seller's failure to adequately warn any
purchaser or user of its products and equipment or Seller's breach of any
express or implied warranty made in connection with the sale or lease of
any products or equipment;
(d) any tax liabilities (including penalties and interest) of
Seller or Shareholders (including, without limitation, any sales or use
taxes arising out of the transfer of the Assets to Purchaser, which Seller
shall pay except where payment by the Seller, or reimbursement of Purchaser
by Seller, is prohibited, or payment by Purchaser without reimbursement by
Seller is required by law);
(e) any liabilities or obligations incurred by Seller after the
Closing Date;
(f) any liabilities or obligations incurred by Seller or
Shareholders in connection with this Agreement and the transactions
provided for herein, including without limitation, counsel and accounting
fees;
(g) any liabilities or obligations of Seller under any contract,
lease or other agreement which is not one of the Scheduled Contracts shown
on Schedule 5.1.11 as being assumed by Purchaser; or
(h) any liabilities or obligations of Seller to the extent the
same is (i) not disclosed or reserved against on Seller's December 31, 1996
balance sheet or in this Agreement (or in a schedule attached hereto), or
if such liability or obligation is so disclosed or reserved, the amount by
which such liability or obligation as finally determined exceeds the amount
thereof so disclosed or reserved, or (ii) not incurred in the ordinary
course of business (as provided in Article 4) after December 31, 1996 and
prior to the Closing Date.
3.3 Discharge of Liabilities Not Assumed by Purchaser. Except for
those liabilities set forth in Section 3.1 hereof, Seller agrees to pay or
discharge any and all liabilities of Seller when due.
3.4 Bulk Sales Law. Purchaser hereby waives compliance by Seller
with the provisions of the Bulk Sales Law of any state, if applicable to
the transactions contemplated hereby; provided, however, that Seller agrees
to indemnify Purchaser for claims of creditors of Seller with respect to
liabilities not being assumed by Purchaser pursuant to the express terms of
this Agreement.
3.5 Release of Guarantees. Purchaser agrees to use its best efforts
to cause Beard to be released from all written guarantees of Seller's
obligations. If Purchaser is unable to obtain the release of Beard from
any such guaranty (an "Unreleased Guaranty"), Purchaser hereby agrees to
indemnify and defend Beard and hold it harmless, from and against any and
all damages, claims, deficiencies, losses, liabilities, obligations and
expenses (including reasonable attorneys' fees) of every kind and
description arising from or relating to such Unreleased Guaranty.
ARTICLE 4
CONDUCT OF SELLER'S BUSINESS
4.1 Conduct of Business Prior to Closing. From and after December
31, 1996 and pending the Closing, Seller and Shareholders covenant and
agree that except as set forth in Schedule 4.1 or with the prior written
consent of Purchaser:
(a) Seller's Business has been and will be conducted only in the
ordinary and usual course, including normal commitments for the purchase of
supplies and the sale of goods and services;
(b) no material contract has been or will be entered into by or
on behalf of Seller, other than in the ordinary course of business;
(c) Seller has not made and will not make any bonuses or salary
or wage increases nor any contributions to any profit-sharing or pension
plan;
(d) Seller and Shareholders have used and will use their best
efforts to preserve Seller's business organization intact, and their
commercially reasonable efforts to keep available the services of present
employees and to preserve Seller's reputation and goodwill and the goodwill
of Seller's suppliers, customers, and others having business relations with
Seller;
(e) no reorganization, declaration, setting aside or payment of
any dividend or other distribution in respect of any of Seller's capital
stock, or any direct or indirect redemption, purchase, or other acquisition
of any such stock has been or will be effected by Seller;
(f) Seller has not paid, loaned or advanced and will not pay,
loan or advance, any amounts to any Shareholder or any member of a
Shareholder's family, except salary and expense reimbursement payments made
to Collen in the ordinary course of business and except as disclosed in
this Agreement or a schedule attached hereto; provided, however, Seller may
make payments to Beard for Seller's prorated share of corporate insurance
and employee benefit costs and expenses properly attributable to Seller as
of the Closing Date. Seller shall provide details of such payments to
Purchaser prior to Closing;
(g) Seller has not entered into and will not enter into any
agreement or arrangement with any Shareholder or any member of a
Shareholder's family, except as disclosed in this Agreement or a schedule
attached hereto;
(h) Seller has not sold or leased and will not sell or lease any
of its assets or properties, tangible or intangible, except in the ordinary
course of its business;
(i) Seller has not and will not grant a security interest in or
otherwise encumber in any manner any of its assets or properties;
(j) Seller has not incurred and will not incur any indebtedness
for borrowed money except in the ordinary course of business pursuant to a
credit agreement listed in Schedule 5.1.11;
(k) Seller has maintained and will maintain the Assets in good
condition and repair, normal wear and tear excepted, and adequately
insured; and
(l) Other than those described in Schedule 4.1, Seller has not
made and will not make any capital additions in excess of $10,000.Nothing
in this Section 4.1 shall require Seller to reduce indebtedness for
borrowed money owed to third parties other than such reductions as are
required by the instruments evidencing such indebtedness; provided,
however, that any proceeds from the sale of fixed assets in the ordinary
course of business shall be applied to reduce such indebtedness over and
above the normal required reductions referred to above.
4.2 Access and Information. Seller will give to Purchaser and to
Purchaser's officers, employees, counsel, accountants, auditors, and other
independent contractors, representatives and designees full and unlimited
access, during normal business hours throughout the period after the
signing hereof and prior to Closing, to Seller's offices, plants,
properties, documents, contracts, commitments, title reports, surveys, tax
returns, books and records, files and employees, related to Seller or the
Business, will furnish Purchaser with copies of any such documents and will
allow Purchaser (and its said representatives and designees) to inspect the
accounting work papers and other records of Seller's independent auditors
relating to the Business, all in order that Purchaser and its designees may
have full opportunity to make such legal, financial, tax, technical,
accounting and other reviews and investigations of the Assets and the
Business as Purchaser shall desire to make. Purchaser's review and
investigation hereunder shall in no way be deemed to relieve Seller or
Shareholders from any of the representations, warranties and agreements
made herein.
4.3 Compliance with Laws, etc. Seller shall comply with all laws
applicable to it and to the conduct of the Business and Seller and
Shareholders shall cause the Business to be conducted in such a manner that
on the Closing Date the representations and warranties contained in this
Agreement shall be as though such representations and warranties were made
on and as of such date, except as otherwise indicated.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
5.1 Representations, Warranties and Agreements of Seller and
Shareholders. Seller and Shareholders, with respect to Seller, the Assets
and the Business, jointly and severally represent, warrant and agree, as of
the date hereof, that:
5.1.1 Organization and Good Standing. Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada, with full corporate power and authority to
conduct its business as such business is now being conducted, and has all
requisite corporate power and authority to execute and perform this
Agreement and the transactions contemplated hereby. Seller is qualified to
do business in all states where the failure to be so qualified would have a
material adverse effect on the Business or the Assets.
5.1.2 No Violation; Consents. Seller and Shareholders have
taken or will take prior to Closing all necessary or appropriate action to
enable them to enter into, execute, deliver and perform this Agreement and
the transactions contemplated hereby. Subject to Seller's obtaining the
third-party consents described in Schedule 5.1.2, the execution and the
performance of this Agreement, and the consummation of the transactions
contemplated hereby, will not: (i) violate any provision of the Articles
or Certificate of Incorporation or By-Laws of Seller or Beard; (ii) violate
or result in the breach of any term or provision of or constitute a default
or accelerate maturities under any loan or any other similar agreement,
instrument, indenture, mortgage, deed of trust, or other restriction to
which Seller or Beard is a party or by which any of the properties of
Seller is bound; (iii) violate or result in a breach of any term or
provision of or constitute a default or accelerate the terms of any right
of first refusal agreement or any other similar agreement or other
restriction to which Seller or Beard is a party or by which any of the
Assets is bound; or (iv) cause or permit any third party to cause any
material contract of Seller to be cancelled or otherwise modified.
5.1.3 Validity of Agreement. This Agreement and the
transactions contemplated hereby have been, or shall have been prior to
Closing, duly authorized and approved by the Board of Directors and
Shareholders of Seller and the Board of Directors and shareholders of
Beard, and this Agreement has been duly executed and delivered by Seller
and Shareholders and is the legal, valid and binding obligation,
enforceable in accordance with its terms, of Seller and Shareholders,
except as the enforcement of Seller's and Shareholders' post-Closing
obligations may be limited by bankruptcy, insolvency and general principles
of equity. Except for the Board and shareholder approvals described above,
no other proceedings are necessary to authorize this Agreement and the
transactions contemplated hereby, or the performance or compliance by
Seller and Shareholders with any of the terms, provisions or conditions
hereof.
5.1.4 Capitalization. Seller's authorized capital stock
consists solely of 1,000,000 shares of common stock, of which 160,000
shares of common stock are issued and outstanding and 15,400 shares of
preferred stock, of which 14,859 shares of preferred stock are issued and
outstanding. The record and beneficial owners of all of the outstanding
shares of Seller, and their shareholdings are as follows:
Shares
Name Shares of Common Stock of Preferred Stock
Beard 136,000 14,859
Collen 24,000 -0-
All of Seller's issued and outstanding shares have been validly issued and
are fully paid and non-assessable. Except for the outstanding shares
described above, no person or entity has, or has any right or interest in,
or claim to or by reason of, any equity securities of Seller, and there are
no outstanding options, warrants, agreements, subscriptions or rights of
any kind obligating Seller to issue any equity securities or any securities
or debt obligations convertible into or exchangeable for any equity
securities of Seller. Schedule 5.1.4 contains true and correct copies of
Seller's currently effective Articles of Incorporation and By-Laws, each as
amended to date. Seller does not own or control directly or indirectly,
any stock or other securities of, nor in any manner control, any
corporation, association, or business organization.
5.1.5 Assets. (a) Seller has good and marketable title to
all the Assets. All of the machinery, equipment, vehicles and other
tangible personal property owned or used in the Business are listed in
Schedule 5.1.5(A) with an indication of whether each is owned by Seller or
leased from a third party. All such personal property is in good working
order and operating condition and is free and clear of all liens, security
interests, mortgages, deeds of trust, pledges, conditional sales contracts,
charges, leases, claims, administrative orders or decrees or encumbrances
whatsoever (except as disclosed in Schedule 5.1.5(B)). All the Assets are
in compliance with all applicable laws and governmental regulations. All
of the Assets are in the possession of Seller or its customers and, if in
the possession of customers, are held pursuant to binding agreements
obligating the customer to return or reimburse Seller for such property.
All leases covering personal property not owned by Seller are listed on
Schedule 5.1.11 (the "Personal Property Leases").
(b) All real property owned by, leased to or otherwise occupied
by Seller for use in the conduct of the Business (the "Real Property") is
listed on Schedule 5.1.5(C) with an indication of whether each is owned by
Seller or leased from a third party. The present use of each parcel of
Real Property is in compliance with all applicable zoning ordinances (or
variances therefrom) and other applicable government regulations, and there
does not exist any notice of any uncorrected violation of any housing,
building, safety, fire or other ordinance or applicable governmental
regulation. Except for assessments not yet due and payable, Seller is not
liable for any unpaid assessments for any public improvements, whether as
owner or lessee of any Real Property, nor has Seller received any notice
from any appropriate governmental authority of intention to make any public
improvement for which Seller may be assessed directly or by reason of a
leasehold interest or otherwise. The Real Property owned by Seller is free
and clear of all liens and free and clear of all easements, restrictions,
building encroachments or other encumbrances and other matters disclosed by
an accurate survey of the premises except as disclosed on Schedule
5.1.5(C), which would have a material adverse effect on the value of any of
such properties or the use of any such property in the manner that it is
currently being used. All leases for any of the Real Property subject to a
lease (the "Real Property Leases") are listed in Schedule 5.1.11.
5.1.6 Inventories. Except as disclosed on Schedule 5.1.6,
all inventories of Seller are useable in the ordinary course, have been
recorded in amounts not in excess of the lower of cost paid by Seller for
such items or the market value thereof, and are good and merchantable and
readily saleable in the ordinary course of Seller's business.
5.1.7 Accounts Receivable. All of Seller's accounts
receivable existing as of the Closing Date shall have arisen in the
ordinary course of business and, subject to an allowance for doubtful
accounts of $33,000 (the "Doubtful Accounts Allowance"), shall be good and
collectable within 120 days of the Closing Date, and such accounts
receivable are not subject to any counterclaims or setoffs. During the
120-day period following the Closing Date, Purchaser shall use commercially
reasonable efforts (but without resort to litigation) to collect all such
accounts receivable. Purchaser agrees to cooperate in the collection of
accounts receivable reassigned to Seller hereunder.
5.1.8 Taxes. Within the times and in the manner prescribed
by law, Seller has filed all federal, state and local tax returns and
reports required by law to have been filed by it, and has paid all taxes,
assessments, and penalties due and payable by it. There are no federal,
state or local tax liens (other than a lien for property taxes not
delinquent) against any of the Assets, nor are there any overdue federal,
state or local taxes with respect to the Business or any of the Assets. At
Closing, all taxes and other assessments and levies which Seller is
required by law to withhold or collect, shall have been duly withheld and
collected, and if due, shall be paid over to or deposited with the proper
governmental authorities. Seller has furnished to Purchaser true and
correct copies of all real estate and personal property tax bills and tax
returns of Seller for the most recent full fiscal year and period for which
Seller has filed such tax returns or received such tax bills. Seller is
not presently under nor has it received any notice of, any contemplated
investigation or audit by the Internal Revenue Service or any state or
local government or governmental agency concerning Seller's taxes.
5.1.9 Litigation. Except as disclosed in Schedule 5.1.9,
neither Seller, any employees or officers of Seller nor any Shareholder is
a party to any pending or, to the best of Seller's knowledge, threatened
litigation or administrative investigation or proceeding relating to the
Assets or Business, nor, to the best of Seller's knowledge , is there any
reasonable basis therefor. To the best of Seller's knowledge no complaints
or charges of unlawful conduct have been made against Seller, any employees
or officers of Seller, or any Shareholder that relate in any way to the
Assets or Business. Purchaser is not assuming any liability with respect
to any pending or threatened litigation or administrative investigation or
proceeding or with respect to any such complaints or charges of unlawful
conduct.
5.1.10 Compliance with Laws; Environmental. To the best of
Seller's knowledge, the Assets and Business are in compliance in all
material respects with all Legal Requirements. There is no outstanding
notice of any uncorrected violation of any such Legal Requirements. All
Real Property, and the use and occupancy thereof, are in compliance with
all Legal Requirements and all applicable leases and insurance
requirements. The Real Property has not been used for the generation,
manufacture, storage or disposal of, and there has not been transported to
or from the Real Property, any Hazardous Substances or Wastes (as
those terms are hereinafter defined); there are no Hazardous Substances or
Wastes present on the Real Property; there has been no use of the Real
Property that may, under any federal, state or local law or regulation,
require any closure or cessation of the use of the Real Property or impose
upon Seller, its successors or assigns any monetary obligations; neither
Seller nor any Shareholder has been identified by any governmental agency
or individual in any pending or threatened action, litigation, proceeding
or investigation as a responsible party or potentially responsible party
for any liability for disposal or releases of any Hazardous Substances or
Wastes; no lien or superlien has been recorded, asserted or threatened
against the Real Property for any liability in connection with any
environmental contamination; the Real Property has not been listed on
either the National Priorities List, as defined in CERCLA, or any state
listing of hazardous sites; and the Real Property is in compliance with all
Environmental Laws. No underground tanks currently or formerly used for
the storage of any gas or petroleum products are present at the Real
Property and if any such tanks previously existed and were removed, they
were removed in accordance with all Legal Requirements. For the purposes
hereof, "Hazardous Substances" shall mean any flammables, explosives,
radioactive materials, asbestos, ureaformaldehyde, hazardous wastes, toxic
substances or any other elements or compounds designated as a "hazardous
substance", "pollutant" or "contaminant" in the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. Section 9601
et seq., or in the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6991 et seq., or any other applicable federal, state or local law
or regulation; and "Wastes" shall mean any hazardous wastes, residual
wastes, solid wastes or other wastes as those terms are defined in the
applicable federal, state or local laws or regulations.
5.1.11 Contracts. Schedule 5.1.11 is a complete list of each
material contract, agreement, lease, mortgage, note, written purchase
order, or any other obligation or commitment of Seller or of any
Shareholder pertaining to Seller, the Assets or Business which, except in
the case of leases, mortgages, or notes, meets the following criteria (the
"Contract Delivery Criteria"):
(a) is a requirements contract with a vendor; or
(b) has a remaining noncancellable term of one (1) year or more
and involves the purchase or sale of goods or services the value of which
aggregates or is reasonably expected to aggregate Seventy-Five Thousand
Dollars ($75,000) or more per year.
The contracts, agreements, leases, mortgages, notes, written purchase
orders and other obligations or commitments listed on Schedule 5.1.11,
together with those that would be listed but for their failure to meet the
criteria set forth in (a) or (b) above (such unlisted contracts
hereinafter the "Immaterial Contracts") are referred to herein as the
"Scheduled Contracts." Schedule 5.1.11 indicates as to each Scheduled
Contract whether or not such Scheduled Contract is being assumed by
Purchaser hereunder. True and correct copies of each of the Scheduled
Contracts and Immaterial Contracts have been made available for inspection
by Purchaser and true and correct copies of each of the Permitted Contracts
will be made available for inspection by Purchaser prior to the Closing.
Each of the Scheduled Contracts and Immaterial Contracts contains and each
of the Permitted Contracts will contain the entire agreement of the parties
thereto, with respect to the subject matter thereof, is, or, in the case of
Permitted Contracts, will be, in full force and effect, is, or, in the case
of Permitted Contracts, will be, valid and enforceable in accordance with
its terms, is, or, in the case of Permitted Contracts, will be, adequate to
accomplish the purposes for which it is intended and contains, or, in the
case of Permitted Contracts, will contain, only terms normal and reasonable
for the conduct of the Business. Seller is not in default under any
Scheduled Contract which is being assumed by Purchaser or under any
Immaterial Contract which is being assumed by Purchaser nor, to the best of
Seller's knowledge, is any other party in default under any such Scheduled
Contract or Immaterial Contract nor has any event occurred which, after the
giving of notice or the passage of time or both, would constitute a default
under any such Scheduled Contract or Immaterial Contract. Except as noted
on Schedule 5.1.11, all of the Scheduled Contracts shown as being assigned
to Purchaser, all of the Immaterial Contracts, and all of the Permitted
Contracts to be assigned to Purchaser are or will be assignable to
Purchaser without the consent or approval of other parties or, if such
approval is required Seller will obtain such approval prior to Closing
unless Schedule 5.1.11 states that the assignment of such contract is not
material to the continued operation of the Business. As of the Closing
Date, Seller will not be in default under any of the Scheduled Contracts,
any of the Immaterial Contracts, or any of the Permitted Contracts.
5.1.12 Employee Benefit Plans. Except as described in
Schedule 5.1.12, Seller has no bonus, pension, profit sharing, or
retirement income, stock purchase, stock option, hospitalization insurance
or similar agreements, plans or practices, formal or informal, covering any
of the employees employed in the Business, or under which Seller has any
present or future obligation or liability or under which any current or
former employee of Seller has any present or future rights to benefits
("Employee Plans"). With respect to each Employee Plan which is an
employee pension benefit plan, as defined in Section 3.2 of ERISA, and is
intended to be qualified within the meaning of Section 401(a) of the Code
(a "Pension Plan"), a copy of the latest available summary plan
description, determination letter, and Form 5500 for the most recent plan
year have been made available to Purchaser. Each Pension Plan has been
determined by the Internal Revenue Service to be qualified. Each Employee
Plan has been operated and administered in accordance with the requirements
of ERISA and the Code. No Employee Plan or any trustee or administrator
thereof has engaged in a "prohibited transaction" (as defined in
Section 406 of ERISA or in Section 4975 of the Code) which would subject
Seller, any Employee Plan, any trust created thereunder, any trustee or
administrator thereof, or any party dealing with any Employee Plan to the
liability set forth in Section 409(a) of ERISA or to the tax or penalty on
prohibited transactions imposed by Section 502 of ERISA or Section 4975 of
the Code. Seller is not and has never been a party to a Multi-Employer
Plan and has no current or due "withdrawal liability" with respect to any
such Multi-Employer Plan. Purchaser is not assuming any liability of
Seller to any of Seller's employees or by reason of any Employee Plans.
Seller is not a party to any collective bargaining agreements or other
labor union or similar agreements, and Seller is not the subject of or
threatened by any strike or other labor disturbance by any group of
employees, and no attempt or plan to organize Seller's employees is
threatened or contemplated. Except as disclosed in Schedule 5.1.9, there
are no claims, nor, to the best knowledge of Seller or Shareholders, has
any event occurred which could be the basis for any claim under workmen's
compensation, occupational safety and health, ERISA or similar laws and
regulations.
5.1.13 Customers and Suppliers. Seller has furnished to
Purchaser a complete list of all of Seller's customers with whom Seller has
done business within the past twelve months. Except as listed on Schedule
5.1.13(a), none of Seller's customers accounted for more than 5% of
Seller's revenues during such period. Except as listed on Schedule
5.1.13(a), no customer or supplier of Seller that during the 12-month
period prior to the date hereof accounted for more than $75,000 of gross
revenues to Seller (in the case of customer) or $50,000 in gross payments
by Seller (in the case of a supplier), has indicated that it intends to
terminate or modify its relationship with Seller and Seller agrees to
immediately notify Purchaser of any change or prospective change in any
such relationship occurring prior to or after the Closing. Except as
listed on Schedule 5.1.13(b), Seller has not engaged in any forward selling
or granted any unusual sales or terms of sale to any customer. There are
no customer prepayments or deposits, except to the extent disclosed in
Schedule 5.1.13(b) hereto.
5.1.14 Financial Information. Attached as Schedule 5.1.14 are
balance sheets and related statements of income, changes in stockholders'
equity, and cash flow of Seller for the fiscal years ending December 31,
1996, 1995 and 1994 (the "Financial Statements"). The Financial
Statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, are true and correct in all
material respects, contain no untrue statements of a material fact, do not
omit any material fact necessary in order to make such Financial Statements
not misleading, and are a true and accurate reflection of the operations of
Seller for the periods described therein in accordance with generally
accepted accounting principles consistently applied. Since December 31,
1996, there has not been, and as of the Closing Date there will not have
been, any material adverse change in the Assets, the Business or Seller's
earnings, financial or other condition, or business prospects of Seller
(whether or not in the ordinary course of business), nor has there been any
damage, destruction or loss adversely affecting the Assets or Business; nor
has there been any other event or condition of any nature which reasonably
could be expected to have a material and adverse effect on the Assets or
Business.
5.1.15 Absence of Undisclosed Liabilities. There are no
liabilities of Seller which have not been disclosed in the Financial
Statements or this Agreement or the schedules attached hereto which could
reasonably be expected to materially and adversely affect the Assets or
Business. There is no basis for the assertion against Seller of any
liability of any nature or in any amount which is not fully reflected or
reserved against in the Financial Statements, except liabilities incurred
in the ordinary course of business since the date of the most recent
Financial Statements.
5.1.16 Books of Account, Returns and Reports. Seller's books
of account reflect all material items of income and expense, and all of
Seller's material assets, liabilities and accruals.
5.1.17 Transactions with Affiliates. Except as disclosed in
this Agreement or on Schedule 5.1.17 attached hereto, neither Seller nor
any Shareholder, officer or director of Seller, nor any member of the
immediate family of Collen or any of Seller's officers or directors has a
material direct or indirect interest in any person, firm, corporation or
entity which has a material business relationship (as creditor, lessor, or
otherwise) with Seller.
5.1.18 Franchises, Permits and Licenses. Schedule 5.1.18
contains a complete and correct list or summary description of all material
franchises, permits, licenses, approvals and other authorizations from
federal, state and local governmental authorities held by Seller in
connection with the conduct of the Business or the Real Property as
presently conducted. No claim is pending or threatened to revoke any of
said franchises, permits, licenses, approvals, and other authorizations or
to declare them invalid in any respect. There are no additional material
franchises, permits, licenses, approvals or authorizations necessary for
the conduct of the Business or the Real Property as presently conducted.
5.1.19 Employees. Schedule 5.1.19 is a complete list of all
the employees of Seller employed in the business and, for each such
employee, his or her current title, exempt or non-exempt status, salary or
wage, date of hire, and bonuses and salary increases within the past year.
There are no employment contracts with any of the employees that require
Seller to employ an employee for a fixed term or restrict the right of
Seller to terminate such employee. Except as listed on Schedule 5.1.19,
to the best of Seller's knowledge, no former employee of Seller who was
employed by Seller at any time within the 12-month period prior to the date
hereof is currently engaged, directly or indirectly, in competition with
Seller.
5.1.20 Insurance. Seller has in full force and effect the
insurance coverages listed in Schedule 5.1.20. Said insurance is in
compliance with all the leases and contracts of Seller and will adequately
insure the Assets and Business of Seller through the Closing. Except as
disclosed in Schedule 5.1.20, there are no outstanding written requirements
or recommendations by any insurer or underwriter with respect to the
Assets, the Business or the Real Property which require or recommend
changes in the conduct of the Business or work to be performed with respect
to any of the Assets or the Real Property.
5.1.21 Patents. Seller has no patents, trademarks, trade
names, copyrights or applications therefor, nor any licenses, assignments
or agreements with others relating thereto, except as set forth in Schedule
5.1.21. To the best of Seller's knowledge, except as disclosed on Schedule
5.1.21, there is no reasonable basis for any third party claim that Seller
is infringing on any patent, trademark, trade name or copyright in the
conduct of the Business as presently conducted. To the best of Seller's
knowledge, Seller has the full right to use its corporate name and all
trade names currently in use in all places where it now does business and
to convey such right to Purchaser as part of the Assets.
5.1.22 Conditions Affecting Seller. There are no conditions
existing with respect to Seller's markets, products, facilities, personnel
or raw material supplies which might reasonably be expected to materially
adversely affect the Assets, the Business or business prospects of Seller,
other than such conditions as may affect the industry in which Seller
participates as a whole.
5.1.23 Disclosure. No representation or warranty by Seller or
Shareholders herein or in any certificate or schedule furnished or to be
furnished by Seller or Shareholders to Purchaser pursuant hereto contains
or will contain any untrue statement of a material fact, or omits or will
omit to state a material fact necessary to make the statements contained
herein or therein not misleading.
5.1.24 Knowledge. For purposes of this Section 5.1, the
phrase "to the best of Seller's knowledge," and phrases of similar import
shall mean all matters that are known or in the exercise of reasonable
business judgement should be known, by Collen, the management of Seller,
the management of Beard or any one or more of any of the foregoing and the
knowledge of each shall be imputed to the others.
5.2 Representations, Warranties and Agreements of Purchaser.
Purchaser hereby represents, warrants and agrees, as of the date hereof,
that:
5.2.1 Organization and Good Standing. Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of Delaware, with full corporate power and authority to conduct its
business as such business is now being conducted, and has requisite
corporate power and authority to execute and perform this Agreement and the
transactions contemplated hereby.
5.2.2 No Violation; No Consents. Purchaser has taken or will
take prior to Closing all necessary or appropriate action to enable
Purchaser to enter into, execute, deliver and perform this Agreement and
the transactions contemplated hereby. The execution and the performance of
this Agreement, and the consummation of the transactions contemplated
hereby, will not: (i) violate any provision of the Articles or Certificate
of Incorporation or By-Laws of Purchaser; (ii) violate or result in the
breach of any term or provision of or constitute a default or accelerate
maturities under any loan or any other similar agreement, instrument,
indenture, mortgage, deed of trust, or other restriction to which Purchaser
is a party or by which any of the properties of Purchaser is bound; (iii)
violate or result in a breach of any term or provision of or constitute a
default or accelerate the term of any right of first refusal agreement or
any other similar agreement or other restriction to which Purchaser is a
party; or (iv) cause or permit any third party to cause any material
contract of Purchaser to be cancelled or otherwise modified.
5.2.3 Validity of Agreement. This Agreement and the
transactions contemplated hereby have been, or shall have been prior to
Closing, duly authorized and approved by the Board of Directors of
Purchaser, and this Agreement has been duly executed and delivered by
Purchaser and is the legal, valid and binding obligation, enforceable in
accordance with its terms, of Purchaser, except as the enforcement of
Purchaser's post-Closing obligations may be limited by bankruptcy,
insolvency and general principles of equity. Except for the Board approval
described above, no other proceedings are necessary to authorize this
Agreement and the transactions contemplated hereby, or the performance or
compliance by Purchaser with any of the terms, provisions or conditions
hereof.
ARTICLE 6
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
6.1 Survival of Representations and Warranties. The representations
and warranties of the parties contained in this Agreement or in any
schedule or exhibit or other writing delivered pursuant to the provisions
of this Agreement or in connection with the transactions contemplated
hereby, shall survive the Closing for a period of fifteen (15) months
after the Closing Date except for representations and warranties with
respect to taxes and title, which shall survive for the applicable statute
of limitations, and representations and warranties with respect to
environmental matters, which shall survive indefinitely. Liability for
intentional misrepresentation shall survive without regard to the foregoing
limitation.
6.2 Indemnification. The parties agree to indemnify each other as
follows:
6.2.1 Seller's and Shareholders' Indemnity. Subject to the
limitation set forth in Section 6.2.6, Seller and Shareholders, jointly and
severally, agree to indemnify and defend Purchaser, and its successors and
assigns, and to hold them harmless from and against any and all damages,
claims, deficiencies, losses, liabilities, obligations, and expenses
(including reasonable attorneys' fees) of every kind and description
arising from or relating to: (i) the operation of the Business prior to the
Closing; (ii) any misrepresentation or breach of warranty hereunder by
Seller or Shareholders; (iii) any nonfulfillment of any of Seller's or
Shareholders' obligations under this Agreement; (iv) any federal, state or
local taxes which may become payable after the Closing Date to the extent
such payment is attributable to periods prior to the Closing Date; or (v)
any environmental remediation required at the Real Property arising out of
any pre-Closing refining, processing, generating, storing, recycling,
transporting, disposing of or releasing into the environment of any
Hazardous Substances or Wastes ("Indemnity Claims").
6.2.2 Purchaser's Indemnity. Purchaser agrees to indemnify
and defend Seller, and its successors and assigns, and Shareholders, and to
hold them harmless from and against any and all damages, claims,
deficiencies, losses, liabilities, obligations, and expenses (including
reasonable attorneys' fees) of every kind and description arising from or
relating to: the operation of the Business by Purchaser subsequent to the
Closing; any misrepresentation or breach of warranty hereunder by
Purchaser; other nonfulfillment of any of Purchaser's obligations under
this Agreement; or any environmental remediation required at the Real
Property arising out of any post-Closing refining, processing, generating,
storing, recycling, transportation, disposing of or releasing into the
environment of any Hazardous Substances or Wastes by Purchaser or its
agents ("Indemnity Claims").
6.2.3 Notice and Defense of Indemnity Claims. A party hereto
agreeing to be responsible for or to indemnify against any matter pursuant
to this Agreement is referred to herein as the "Indemnifying Party" and a
party entitled to indemnification hereunder is referred to as the
"Indemnified Party." An Indemnified Party under this Agreement shall give
written notice to the Indemnifying Party hereunder with respect to any
assertion by the Indemnified Party or by a third party of any liability
which the Indemnified Party has reason to believe might give rise to an
Indemnity Claim under this Agreement. Such notice shall set forth in
reasonable detail the nature of such action or claim, and include copies of
any written complaint, summons, correspondence or other communication from
the party asserting the claim or initiating the action. As to any such
Indemnity Claim which involves a third party, the Indemnifying Party shall
assume and thereafter control the defense of such Indemnity Claim. The
Indemnified Party shall be entitled, together with the Indemnifying Party,
to participate in the defense, compromise or settlement of any such matter
through the Indemnified Party's own attorneys and at its own expense, but
the Indemnifying Party shall have control thereof. The Indemnified Party
shall provide such cooperation and such access to its books, records and
properties as the Indemnifying Party shall reasonably request with respect
to such matters and the parties hereto agree to render each other such
assistance as they may reasonably require of each other in order to ensure
the proper and adequate defense thereof. An Indemnifying Party shall not
make any settlement of any Indemnity Claims, other than Indemnity Claims
strictly for monetary damages as to which the Indemnifying Party agrees to
be responsible, without the written consent of the Indemnified Party, which
consent shall not be unreasonably withheld. Without limiting the
generality of the foregoing, it shall not be deemed unreasonable to
withhold consent to a settlement involving injunctive or other equitable
relief against the Indemnified Party or its assets, employees or business.
6.2.4 Manner of Indemnification. Any Indemnity Claims that
the parties are unable to amicably resolve may be submitted to arbitration
by any party in accordance with this Section 6.2.4. The arbitration shall
be conducted by a single arbitrator in San Antonio, Texas and, except as
otherwise expressly provided herein, shall be conducted in accordance with
the rules of the American Arbitration Association. Within thirty (30) days
of the hearing, the arbitrator shall render a decision concerning all
contested issues considered during the arbitration and the arbitrator shall
notify the parties in writing of their decision, setting forth the dollar
amount, if any, awarded. The arbitrator's decision shall be final and
binding on the parties, and notice of award, if any, shall be given to the
parties not later than thirty (30) days after the date set for the hearing.
In the event that there shall be more than one dispute to be arbitrated,
the parties agree that all pending disputes shall be consolidated to the
extent feasible. In the event of an arbitration decision in favor of the
Indemnified Party, the amount of the dollar award, if any, plus all
reasonable attorneys' fees of the prevailing party, shall be paid in cash
by the Indemnifying Party to the Indemnified Party, within ten (10) days
following the date of such award. In the event that payment is not made
within the time period provided herein, the prevailing party shall have the
right to commence an action, at law or in equity, in any state or federal
court in the State of Texas to have the decision of the arbitrator
enforced. In the event such an action is filed, the costs of such action
(including reasonable attorneys' fees) shall be borne by the party against
whom such performance is sought.
6.2.5 Brokers. Each party hereto agrees to indemnify the
other and agrees to hold the other harmless against any claim or claims for
brokerage or other commission relative to the transactions contemplated
herein due to any acts or things done by its employees, agents or
consultants.
6.2.6 Limitation. No Indemnified Party under Section 6.2.1
shall assert an Indemnity Claim based on the breach of representation or
warranty by Seller or either Shareholder unless and until the aggregate
amount of such Indemnity Claims exceeds $200,000 whereupon the Indemnified
Party shall be entitled to full indemnification without deduction. The
threshold provided for in the preceding sentence shall not apply to claims
based on Seller's accounts receivable or to Indemnity Claims brought under
Section 6.2.1(iv). The maximum liability of Seller and Shareholders herein
shall be $22,600,000.
6.3 Purchaser's Right of Setoff. In the event of (i) an undisputed
Indemnity Claim against Seller and/or Shareholders, or (ii) an Indemnity
Claim against Seller and/or Shareholders after judgment or award or in any
way adverse to Seller and/or Shareholders as provided above, which remains
uncured or unsettled for 60 days or more after notice of the Indemnity
Claim is given by Purchaser to Seller and/or Shareholders, Purchaser and/or
its Affiliates shall have the right, but not the obligation, to set off the
amount of the Indemnity Claim against any then remaining obligation of
Purchaser and/or its Affiliates to Seller and/or either of the
Shareholders, regardless of the source of such obligation.
ARTICLE 7
CONDITIONS PRECEDENT TO THE CLOSING
7.1 Conditions To Purchaser's Performance. Purchaser's obligations
to purchase and pay the Purchase Price for the Assets are subject to the
following express conditions:
7.1.1 Representations and Warranties True. The
representations and warranties of Seller and Shareholders contained in this
Agreement shall be true and correct in all material respects (should such
representations and warranties prove not to be true and correct, the phrase
"in all material respects" shall not limit Purchaser's right to
indemnification under Article 6 hereof) on and as of the Closing Date (as
if made on the Closing Date), and Seller shall have delivered to Purchaser
a certificate to such effect, dated as of the Closing Date and signed by
its President and Shareholders, which certificate shall be in form and
substance reasonably satisfactory to Purchaser.
7.1.2 Covenants Performed. All of the covenants of Seller
and Shareholders set forth herein and which were to be performed at or
prior to the Closing Date shall have been duly performed in all material
respects (should such covenants prove not to have been duly performed, the
phrase "in all material respects" shall not limit Purchaser's rights to
indemnification under Article 6 hereof), and Seller and Shareholders shall
certify to such effect in the certificate provided for in Section 7.1.1
hereof.
7.1.3 Litigation. There shall not have been instituted or
threatened, on or before the Closing Date, any action or proceeding before
any court or governmental agency or body or by a public authority with
respect to the acquisition of the Assets or Business as contemplated
hereby.
7.1.4 Other Agreements. All agreements between Purchaser and
any other party hereto shall have been fully executed and delivered.
Seller shall have executed and delivered the General Assignment and Bill of
Sale, the Deeds, and other instruments provided for herein, and such other
documents, reasonably satisfactory to Purchaser's counsel, as shall be
necessary or appropriate to the transfer of the Assets and Business to
Purchaser.
7.1.5 Consents. Seller shall have obtained all required
consents or approvals in writing of all parties whose consent or approval
is necessary for the assignment of Scheduled Contracts and Permitted
Contracts to be assigned to Purchaser hereunder as provided in
Section 5.1.11, and for the assignment of the Personal Property Leases and
the Real Property Leases.
7.1.6 Opinion of Counsel. Counsel for Seller shall have
delivered to Purchaser a favorable opinion, dated as of the Closing Date
and in form and substance reasonably satisfactory to Purchaser, with
respect to the following matters:
(a) Seller is a corporation duly incorporated, validly existing,
and in good standing under the laws of the State of Nevada; and is duly
qualified to do business and is in good standing in every jurisdiction
where the conduct of its business requires such qualification.
(b) Seller has full corporate power and authority to enter into
this Agreement and to perform all of Seller's covenants and agreements
herein set forth. Beard has the full legal right, power and authority to
enter into and perform all of the covenants and agreements provided for
herein.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will: contravene any
provision of Seller's Articles of Incorporation or By-Laws; violate, be in
conflict with, cause a default under, or otherwise impair the good
standing, validity, or effectiveness of any agreement, contract, indenture,
note, mortgage, lease, or other obligation or instrument to which Seller or
Beard is a party or to which any of the Assets is subject and which is
listed on any exhibit on any documents filed by Beard with the Securities
and Exchange Commission; or violate any provision of law, rule, or
regulation to which Seller or the Assets or Business is subject.
(d) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Seller and
Beard; and the agreements entered into pursuant to this Agreement are the
valid and binding obligations of Seller and Beard, enforceable in
accordance with their terms (subject, as to enforcement of remedies, to
applicable bankruptcy, insolvency and other laws affecting the rights of
creditors generally).
7.1.7 Audits and Inspections. Seller shall have permitted
Purchaser to make such audits and inspections as Purchaser deems reasonably
appropriate as provided for in Article 4 hereof and the results of such
audits and inspections and any other due diligence conducted by Purchaser
shall have been satisfactory to Purchaser in the exercise of its reasonable
discretion. Such audits and inspections by Purchaser shall not affect any
of the representations and warranties made by Seller and Shareholders in
this Agreement and shall not, under any circumstances constitute a waiver
of Purchaser's indemnification rights under Article 6 hereof, or otherwise
relieve Seller or Shareholders of any liability thereunder.
7.1.8 Environmental Studies. Purchaser, at its sole cost and
expense, shall have obtained Phase I environmental reports which to the
satisfaction of Purchaser do not contain any results that would raise a
substantial likelihood of an Indemnity Claim by Purchaser based on such
matters disclosed in the reports.
7.1.9 Hart-Scott-Rodino Antitrust Improvements Act. All
applicable waiting periods imposed under the Hart-Scott-Rodino Antitrust
Improvements Act of 1978, as amended, shall have expired and neither party
shall have received any formal protest from the Department of Justice of
the Federal Trade Commission with respect to the transactions contemplated
by this Agreement.
7.1.10 Purchaser Board Approval. This Agreement and the
transactions provided for herein shall have been approved by the Board of
Directors of Purchaser, US Airgas, Inc., Airgas Carbonic Industries, Inc.
and Airgas, Inc.
7.2 Conditions to Seller's Performance. Seller's obligations
pursuant to this Agreement are subject to the following conditions:
7.2.1 Representations and Warranties True. The
representations and warranties of Purchaser contained in this Agreement
shall be true and correct in all material respects (should such
representations and warranties prove not to be true and correct, the phrase
"in all material respects" shall not limit Purchaser's right to
indemnification) on and as of the Closing Date (as if made on the Closing
Date), and Purchaser shall have delivered to Seller a certificate to such
effect, dated as of the date of Closing and signed by its President or a
Vice President, which certificate shall be in form and substance reasonably
satisfactory to Seller.
7.2.2 Covenants Performed. All of the covenants of Purchaser
set forth herein and which were to be performed at or prior to the Closing
Date shall have been duly performed in all material respects (should such
covenants, prove not to have been performed, the phrase "in all material
respects" shall not limit Seller's and Shareholders' rights to
indemnification under Article 6 hereof), and Purchaser shall certify to
such effect in the certificate provided for in Section 7.2.1 hereof.
7.2.3 Litigation. There shall not have been instituted or
threatened, on or before the Closing Date, any action or proceeding before
any court or governmental agency or body or by a public authority with
respect to the acquisition of the Assets or Business as contemplated
hereby.
7.2.4 Other Agreements. All agreements described in Article
1 between Purchaser and any other party hereto shall have been fully
executed and delivered.
7.2.5 Environmental Studies. Purchaser shall have delivered
to Seller any Phase I environmental reports obtained by Purchaser prior to
the Closing Date. Seller need not proceed to Closing if the results of any
such Phase I study raise a substantial likelihood of an Indemnity Claim by
Purchaser based on matters disclosed in such reports.
7.2.6 Hart-Scott-Rodino Antitrust Improvements Act. All
applicable waiting periods imposed under the Hart-Scott-Rodino Antitrust
Improvements Act of 1978, as amended, shall have expired and neither party
shall have received any formal protest from the Department of Justice or
the Federal Trade Commission with respect to the transactions contemplated
by this Agreement.
7.2.7 Seller and Beard Board and Shareholder Approval. This
Agreement and the transactions provided for herein shall, to the extent
required by law, have been approved by the Board of Directors and
Shareholders of Seller and by the Board of Directors and shareholders of
Beard.
7.2.8 Opinion of Counsel. Counsel for Purchaser shall have
delivered to Seller a favorable opinion, dated as of the Closing Date, in
form and substance reasonably satisfactory to Seller.
ARTICLE 8
THE CLOSING
8.1 Closing Date. Subject to the terms and conditions herein
contained, the parties agree to close this transaction (the "Closing") at
the offices of McAfee & Taft in Oklahoma City, Oklahoma, on August 28,
1997 or on such other date and at such other place as the parties may agree
upon in writing, with all transactions being deemed effective as of 12:01
a.m. on September 1, 1997 (the "Closing Date"). Seller and Purchaser may
agree to extend the Closing for a reasonable period of time not to exceed
thirty (30) days, such agreement not to be unreasonably withheld.
8.2 Seller's Deliveries at Closing. Seller shall deliver or cause to
be delivered to Purchaser at the Closing the following:
8.2.1 Duly executed copies of the General Assignment and Bill
of Sale and the Deeds, together with appropriate certificates of title or
other evidences of Seller's ownership of the Assets, and duly executed
copies of all instruments and agreements among or between Purchaser, Seller
and Shareholders provided for herein.
8.2.2 Certified copies of resolutions of the Board of
Directors of Seller and its shareholders, authorizing the making,
execution, and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
8.2.3 Certified copies of resolutions of the Board of
Directors of Beard and its shareholders, authorizing the making, execution,
and delivery of this Agreement and the consummation of the transactions
contemplated hereby.
8.2.4 A certificate of good standing from the Secretary of
State of Nevada and the Secretary of State of each other state where
Seller is doing business and is qualified to do business.
8.2.5 The opinion of counsel described in Section 7.1.6
hereof.
8.2.6 The certificate described in Section 7.1.1 hereof.
8.3 Purchaser's Deliveries at Closing. Purchaser shall deliver or
cause to be delivered to Seller and Majority Shareholder at Closing the
following:
8.3.1 A certified check or wire transfer payable to the order
of Seller in the amounts set forth in Section 2.3 hereof.
8.3.2 Duly executed copies of all instruments and agreements
among or between Purchaser, Seller and Shareholders provided for herein.
8.3.3 Certified copies of resolutions of the Board of
Directors of Purchaser authorizing the making, execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby.
8.3.4 A Certificate of good standing from the Secretary of
State of the State of Delaware for Purchaser.
8.3.5 The opinion of counsel described in Section 7.2.8
hereof.
8.3.6 The certificate described in Section 7.2.1 hereof.
ARTICLE 9
EXPENSES
9.1 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, each of the parties hereto shall pay the fees
and expenses of such party's respective counsel, accountants, other experts
and any other expenses incurred by such party incident to the negotiation,
preparation and execution of this Agreement. All sales and transfer taxes,
including but not limited to deed recording costs and vehicle sales and
transfer taxes, arising by reason of the transactions contemplated by this
Agreement shall be borne by Seller, except as set forth in Schedule 9.1.
ARTICLE 10
CONSTRUCTION
10.1 Choice of Laws. This Agreement and the agreements appended
hereto and delivered herewith shall be governed by and construed and
enforced in accordance with the laws of the State of Texas.
10.2 Headings. All headings contained in this Agreement are for
reference only and shall not affect the meaning or interpretation of this
Agreement in any manner.
10.3 Invalid Provisions. Should any part of this Agreement for any
reason be declared invalid, such decision shall not affect the validity of
any other portion, which remaining portion shall remain in force and effect
as if this Agreement had been executed with the invalid provisions thereof
eliminated, and it is the declared intention of the parties hereto that
they would have executed the remaining portion of the Agreement without
including therein any such part or portion which may be declared invalid.
ARTICLE 11
ASSIGNABILITY
11.1 Binding Agreement. This Agreement shall be binding upon and
inure to the benefit of each of the parties hereto, their successors and
permitted assigns pursuant to Section 11.2 hereof.
11.2 Assignability. This Agreement shall not be assignable in whole
or in part by either party except with the consent in writing of the other
party, which consent shall not be unreasonably withheld. Any purported
assignment without such consent shall be void. Notwithstanding the
foregoing, Purchaser may assign its rights and obligations hereunder to an
Affiliate of Purchaser without the necessity of obtaining such consent,
provided such assignment shall not affect the continuing applicability of
the US Airgas Guaranty.
ARTICLE 12
NOTICES
12.1 Written Notices. All notices pursuant to this Agreement shall be
in writing.
12.2 Notice to Purchaser. A notice to Purchaser shall be sufficient
in all respects if delivered, or mailed by first class registered or
certified mail, postage and fees prepaid, or if sent by a nationally
recognized overnight courier providing proof of delivery, or if sent by fax
followed by a hard copy sent by first class mail, addressed to the
following or such other address as provided by written notice made pursuant
to this Article:
c/o US Airgas, Inc.
Radnor Court, Suite 100
259 Radnor-Chester Road
Radnor, Pennsylvania 19087
Attention: Christopher J. Close
Fax: (610) 687-1052
with a copy thereof to its Counsel:
McCausland, Keen & Buckman
Radnor Court, Suite 100
259 Radnor-Chester Road
Radnor, Pennsylvania 19087
Attention: Robert H. Young, Jr.
Fax: (610) 341-1099
12.3 Notice to Seller. A notice to Seller or Shareholders shall be
sufficient in all respects if delivered, or mailed by first class
registered or certified mail, postage and fees prepaid, or if sent by a
nationally recognized overnight courier providing proof of delivery, or if
sent by fax followed by a hard copy sent by first class mail, addressed to
the following or such other address provided by written notice made
pursuant to this Article:
The Beard Company
5600 N. May Avenue
Oklahoma City, Oklahoma 73117
Attention: Herb Mee, Jr.
Fax: (405) 842-9901
and
Clifford H. Collen, Jr.
36 Old San Antonio Road
Boerne, Texas 78006
Fax: ________________________
and with a copy thereof to their counsel:
McAfee & Taft
10th Floor, Two Leadership Square
Oklahoma City, Oklahoma 73102
Attention: Jerry A. Warren
Fax: (405) 235-0439
ARTICLE 13
FURTHER ASSURANCES AND MISCELLANEOUS
13.1 Seller's Name. At Closing Seller shall promptly amend its
Articles of Incorporation to adopt a name dissimilar to "Carbonic Reserves"
and all variants thereof.
13.2 Employee Contracts. Seller and Shareholders agree to use their
best efforts to assist Purchaser in retaining desired key employees of
Seller (as Purchaser shall determine with Seller's assistance) and to
obtain one-year employment contracts between such key employees of
Purchaser, providing for present salary levels, with ordinary course of
business bonuses and raises, and with standard US Airgas employee benefits
including health and life insurance and 401(k) Plan ("Airgas Plans").
Prior to being hired by Purchaser, employees of Seller will be required to
pass a standard drug test which is administered to all new employees of
Purchaser. All employees of Seller hired by Purchaser immediately after
Closing shall be eligible for participation in Airgas Plans (subject to the
amendment, modification or termination of any such Airgas Plans) and shall
be credited with their years of service with Seller for purposes of their
participation in the Airgas Plans.
13.3 Further Agreements and Cooperation. Each party hereto agrees to
execute such further papers or agreements and to take such other actions as
may be necessary to effect the purposes of this Agreement and carry out its
provisions, including without limitation such documents and actions as
shall ensure the orderly transfer of the customers of the Business to
Purchaser.
13.4 Audited Business. Audited financial statements of Seller for the
Business may be required for Purchaser's parent, Airgas, Inc., to comply
with the requirements of Rule 3-05 and Article 11 of Regulation S-X and
Form 8-K of the Securities and Exchange Commission. Seller will cooperate
with Purchaser to allow completion (no later than 60 days following the
Closing Date) of audited financial statements of the Business to be
prepared by Purchaser's auditors at Purchaser's expense. Seller's
cooperation shall include execution of a mutually agreeable "letter of
representation" by Seller's management.
13.5 Entire Agreement, No Oral Change. This Agreement, together with
the schedules and exhibits hereto, embodies the entire agreement between
the parties hereto and supersedes any and all prior agreements and
understandings between the parties hereto. This Agreement may only be
changed by written instrument signed by the party to be charged.
13.6 Risk of Loss. Pending Closing, Seller shall bear the risk of
loss of or damage to the Assets. Seller shall promptly notify Purchaser of
any such loss.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
AIRGAS CARBONIC RESERVES, INC.
By:_______________________________
CARBONIC RESERVES
By:_______________________________
Clifford H. Collen, Jr., President
THE BEARD COMPANY
By:______________________________
Herb Mee, Jr., President
_________________________________
Clifford H. Collen, Jr.
EXHIBIT D
THE BEARD COMPANY
DEFERRED STOCK COMPENSATION PLAN
ARTICLE I
PURPOSE AND EFFECTIVE DATE
1.1 PURPOSE. The Beard Company Deferred Stock Compensation
Plan, as amended, (the "Plan") is intended to advance the interests of the
Company and its shareholders by providing a means to attract and retain
highly-qualified persons to serve as Officers and Directors and to promote
ownership by Officers and Directors of a greater proprietary interest in
the Company, thereby aligning such interests more closely with the
interests of shareholders of the Company.
1.2 EFFECTIVE DATE. This Plan first became effective November
1, 1995 and was approved by the shareholders of the Company by the
affirmative vote of a majority of shares of the Company present, or
represented, and entitled to vote on the subject matter, at the 1996 Annual
Meeting of Shareholders of the Company. The Plan, as amended, shall become
effective upon approval of the shareholders of the Company by the
affirmative vote of a majority of the shares of the Company present, or
represented, and entitled to vote on the subject matter, at the 1997 Annual
Meeting of Shareholders of the Company.
ARTICLE II
DEFINITIONS
The following terms shall be defined as set forth below:
2.1 "Board" means the Board of Directors of the Company.
2.2 "Compensation" means all or part of the cash remuneration
payable to an Officer in his or her capacity as an Officer.
2.3 "Committee" means the Compensation Committee of the Board.
2.4 "Company" means The Beard Company, an Oklahoma corporation,
or any successor thereto.
2.5 "Deferral Date" means the date Fees or Compensation would
otherwise have been paid to the Participant.
2.6 "Director" means any individual who is a member of the
Board.
2.7 "Exchange Act" means the Securities Exchange Act of 1934,
as amended. References to any provision of the Exchange Act include rules
thereunder and successor provisions and rules thereto.
2.8 "Fair Market Value" means the "Market Price" as defined in
the Certificate of Designations for the Company's outstanding Series A
Convertible Preferred Stock, but in no event shall Fair Market Value be
less than an amount below which would cause an adjustment to the number of
shares of the Company's common stock to be issued upon conversion of the
Series A Convertible Preferred Stock.
2.9 "Fees" means all or part of any retainer and/or fees
payable to a Director in his or her capacity as a Director.
2.10 "Officer" means any person so designated by the Board.
2.11 "Participant" means a Director or Officer who defers Fees
or Compensation under Article VI of this Plan.
2.12 "Reconciliation Events" means certain events which cause
the amount of Fees or Compensation actually paid during a period to differ
from the amount of Fees credited pursuant to Section 6.4, including, but
not limited to, the following: an increase or decrease in Fees paid,
additional meetings held, missed attendance at certain meetings, newly
elected directors and Terminations of Service.
2.13 "Secretary" means the Corporate Secretary or any Assistant
Corporate Secretary of The Beard Company.
2.14 "Shares" means shares of the common stock of The Beard
Company, par value $.001 per share, or of any successor corporation or
other legal entity adopting this Plan.
2.15 "Stock Units" means the credits to a Participant's Stock
Unit Account under Article VI of this Plan, each of which represents the
right to receive one Share upon settlement of the Stock Unit Account.
2.16 "Stock Unit Account" means the bookkeeping account
established by the Company pursuant to Section 6.4.
2.17 "Termination Date" means the date the Plan terminates
pursuant to Section 12.8.
2.18 "Termination of Service" means termination of service as a
Director or Officer in any of the following circumstances:
(a) Where the Participant voluntarily resigns or retires;
(b) Where a Director is not re-elected (or elected in the
case of an appointed Director) to the Board by the shareholders, or an
Officer is not re-elected as an Officer by the Board; or
(c) Where the Participant dies.
ARTICLE III
SHARES AVAILABLE UNDER THE PLAN
Subject to adjustment as provided in Article X, the maximum
number of Shares that may be distributed in settlement of Stock Unit
Accounts under this Plan shall not exceed 100,000. Such Shares may include
authorized but unissued Shares or treasury Shares.
ARTICLE IV
ADMINISTRATION
4.1 This Plan shall be administered by the Board's Compensation
Committee, or such other committee or individual as may be designated by
the Board. Notwithstanding the foregoing, no Director who is a Participant
under this Plan shall participate in any determination relating solely or
primarily to his or her own Shares, Stock Units or Stock Unit Account.
4.2 It shall be the duty of the Committee to administer this
Plan in accordance with its provisions and to make such recommendations of
amendments or otherwise as it deems necessary or appropriate.
4.3 The Committee shall have the authority to make all
determinations it deems necessary or advisable for administering this Plan,
subject to the limitations in Section 4.1 and other explicit provisions of
this Plan.
ARTICLE V
ELIGIBILITY
Each Director and Officer of the Company shall be eligible to
defer Fees and Compensation under Article VI of this Plan.
ARTICLE VI
DEFERRAL ELECTIONS IN LIEU OF CASH PAYMENTS
6.1 GENERAL RULE. Each Director or Officer may, in lieu of
receipt of Fees or Compensation, defer such Fees or Compensation in
accordance with this Article VI.
6.2 TIMING OF ELECTION. Each eligible Director or Officer who
wishes to defer Fees or Compensation under this Plan must make an
irrevocable written election at least six (6) months prior to the beginning
of the date on which the Fees or Compensation would otherwise be paid;
provided, however, that with respect to (a) any election made by a newly-
elected or appointed Director or Officer ("New Participant Elections") and
(b) elections made prior to shareholder approval for the Plan as provided
in Section 1.2 hereof ("Initial Elections"), the following special rules
shall apply: (i) with respect to any New Participant Elections, the
Company shall hold such deferred Fees or Compensation (without interest)
and credit them pursuant to Section 6.4 on or as of the date which follows
by six months such deferral election and (ii) with respect to any Initial
Elections, such elections shall be effective for any Fees or Compensation
paid on the date the election was made and the Company shall hold such
deferred Fees or Compensation (without interest) and credit them pursuant
to Section 6.4 on or as of the date on which the shareholders of the
Company approve the Plan in accordance with Section 1.2; provided, however,
the Fair Market Value used to determine the number of Stock Units to be
credited shall be the Fair Market Value as of the date the election was
made. An election by a Director or an Officer shall be deemed to be
continuing and therefore applicable to Fees or Compensation to be paid in
periods unless the Director or Officer revokes or changes such election by
filing a new election form to be effective at least six (6) months after
such election.
6.3 FORM OF ELECTION. An election shall be made in a manner
satisfactory to the Secretary. Generally, an election shall be made by
completing and filing the specified election form with the Secretary of the
Company within the period described in Section 6.2. At minimum, the form
shall require the Director or Officer to specify the following:
(a) a percentage (for Directors in 25% increments, and for
Officers not less than 10% and in 5% increments thereafter), not to exceed
an aggregate of 100% of the Fees or Compensation to be deferred under this
Plan; and
(b) the manner of settlement in accordance with Section
7.2.
6.4 ESTABLISHMENT OF STOCK UNIT ACCOUNT. The Company will
establish a Stock Unit Account for each Participant. All Fees or
Compensation deferred pursuant to this Article VI shall be credited to the
Participant's Stock Unit Account as of the Deferral Date and converted to
Stock Units as follows: The number of Stock Units shall equal the deferred
Fees or Compensation divided by the Fair Market Value of a Share on the
Deferral Date, with fractional units calculated to three (3) decimal
places.
6.5 CREDIT OF DIVIDEND EQUIVALENTS. As of each dividend
payment date with respect to Shares, each Participant shall have credited
to his or her Stock Unit Account an additional number of Stock Units equal
to: the per-share cash dividend payable with respect to a Share on such
dividend payment date multiplied by the number of Stock Units held in the
Stock Unit Account as of the close of business on the record date for such
dividend divided by the Fair Market Value of a Share on such dividend
payment date. If dividends are paid on Shares in a form other than cash,
then such dividends shall be notionally converted to cash, if their value
is readily determinable, and credited in a manner consistent with the
foregoing and, if their value is not readily determinable, shall be
credited "in kind" to the Participant's Stock Unit Account.
6.6 RECONCILIATIONS. The Company shall record all
Reconciliation Events and, as soon as reasonably practicable after the end
of each calendar quarter or after a Termination of Service, make
appropriate adjustments to each Participant's Stock Unit Account to reflect
such Reconciliation Events; provided, however, the Fair Market Value used
to determine such adjustments shall be the same Fair Market Value used to
determine the number of Stock Units credited to such Participant's Stock
Unit Account.
ARTICLE VII
SETTLEMENT OF STOCK UNITS
7.1 SETTLEMENT OF ACCOUNT. The Company will settle a
Participant's Stock Unit Account in the manner described in Section 7.2 as
soon as administratively feasible following the earlier of (i) notification
of such Participant's Termination of Service or (ii) the Termination Date.
7.2 PAYMENT OPTIONS. An election filed under Article VI shall
specify whether the Participant's Stock Unit Account is to be settled by
delivering to the Participant (or his or her beneficiary) the number of
Shares equal to the number of whole Stock Units then credited to the
Participant's Stock Unit Accounts, in (a) a lump sum, or (b) substantially
equal annual installments over a period not to exceed ten (10) years. If,
upon lump sum distribution or final distribution of an installment, less
than one whole Stock Unit is credited to a Participant's Stock Unit
Account, cash will be paid in lieu of fractional shares on the date of such
distribution.
7.3 CONTINUATION OF DIVIDEND EQUIVALENTS. If payment of Stock
Units is deferred and paid in installments, the Participant's Stock Unit
Account shall continue to be credited with dividend equivalents as provided
in Section 6.5.
7.4 IN KIND DIVIDENDS. If any "in kind" dividends were
credited to the Participant's Stock Unit Account under Section 6.5, such
dividends shall be payable to the Participant in full on the date of the
first distribution of Shares under Section 7.2.
ARTICLE VIII
UNFUNDED STATUS
The interest of each Participant in any Fees or Compensation
deferred under this Plan (and any Stock Units or Stock Unit Account
relating thereto) shall be that of a general creditor of the Company.
Stock Unit Accounts, and Stock Units (and, if any, "in kind" dividends)
credited thereto, shall at all times be maintained by the Company as
bookkeeping entries evidencing unfunded and unsecured general obligations
of the Company.
ARTICLE IX
DESIGNATION OF BENEFICIARY
Each Participant may designate, on a form provided by the
Committee, one or more beneficiaries to receive the Shares described in
Section 7.2 in the event of such Participant's death. The Company may rely
upon the beneficiary designation last filed with the Committee, provided
that such form was executed by the Participant or his or her legal
representative and filed with the Committee prior to the Participant's
death.
ARTICLE X
ADJUSTMENT PROVISIONS
In the event any recapitalization, reorganization, merger,
consolidation, spin-off, combination, repurchase, exchange of shares or
other securities of the Company, stock split or reverse split, or similar
corporate transaction or event affects Shares such that an adjustment is
determined by the Board or Committee to be appropriate to prevent dilution
or enlargement of Participants' rights under this Plan, then the Board or
Committee will, in a manner that is proportionate to the change to the
Shares and is otherwise equitable, adjust the number or kind of Shares to
be delivered upon settlement of Stock Unit Accounts under Article VII.
ARTICLE XI
COMPLIANCE WITH RULE 16B-3
Subject to Section 6.2, it is the intent of the Company that this
Plan comply in all respects with applicable provisions of Rule 16b-3 under
the Exchange Act in connection with the deferral of Fees and Compensation.
Thus, other provisions of this Plan notwithstanding, if any deferral of
Fees or Compensation would occur less than six (6) months after the
Participant filed an irrevocable election which would result in such
deferral and at a time that the Company's employee benefit plans are being
operated in conformity with Rule 16b-3 as adopted and in effect, such
deferral election may be modified in a manner consistent with the special
rule described in Section 6.2 or in any other manner consistent with Rule
16b-3 as then applicable to any transaction by a Participant subject to
Section 16 of the Exchange Act, or would cause any Participant or Director
to no longer be deemed a "disinterested person" within the meaning of Rule
16b-3, such provision will be construed or deemed amended to the extent
necessary to conform to such requirements with respect to such Participant
or Director.
ARTICLE XII
GENERAL PROVISIONS
12.1 NO RIGHT TO CONTINUE AS AN OFFICER OR DIRECTOR. Nothing
contained in this Plan will confer upon any Participant any right to
continue to serve as an Officer or Director.
12.2 NO SHAREHOLDER RIGHTS CONFERRED. Nothing contained in this
Plan will confer upon any Participant any rights of a shareholder of the
Company unless and until Shares are in fact issued or transferred to such
Participant in accordance with Article VII.
12.3 CHANGE TO THE PLAN. The Board may amend, alter, suspend,
discontinue, extend, or terminate the Plan without the consent of
shareholders or Participants, except that any such action will be subject
to the approval of the Company's shareholders at the next annual meeting of
shareholders having a record date after the date such action was taken if
such stockholder approval is required by any federal or state law or
regulation or the rules of any stock exchange or automated quotation system
on which the Shares may then be listed or quoted, or if the Board
determines in its discretion to seek such shareholder approval; provided,
however, that, without the consent of an affected Participant, no such
action may materially impair the rights of such Participant with respect to
any Stock Units credited to his or her Stock Unit Account; and provided,
however, that any "plan provision" referred to in Rule 16b-3(c)(2)(ii)(B)
under the Exchange Act, shall not be amended more than once every six
months, other than to comport with changes in the Internal Revenue Code or
the Exchange Act or the rules thereunder.
12.4 CONSIDERATION; AGREEMENTS. The consideration for Shares
issued or delivered in lieu of payment of Fees or Compensation will be the
service of the Officer or Director during the period to which the Fees or
Compensation paid in the form of Shares related.
12.5 COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company will not
be obligated to issue or deliver Shares in connection with this Plan in a
transaction subject to the registration requirements of the Securities Act
of 1933, as amended, or any other federal or state securities law, any
requirement under any listing agreement between the Company and any
national securities exchange or automated quotation system or any other
laws, regulations, or contractual obligations of the Company, until the
Company is satisfied that such laws, regulations, and other obligations of
the Company have been complied with in full. Certificates representing
Shares delivered under the Plan will be subject to such stop-transfer
orders and other restrictions as may be applicable under such laws,
regulations, and other obligations of the Company, including any
requirement that a legend or legends be placed thereon.
12.6 LIMITATIONS ON TRANSFERABILITY. Stock Units and any other
right under the Plan that may constitute a "derivative security" as
generally defined in Rule 16a-1(c) under the Exchange Act will not be
transferable by a Participant except by will or the laws of descent and
distribution (or to a designated beneficiary in the event of a
Participant's death); provided, however, that such rights may be
transferred to one or more trusts or other beneficiaries during the
lifetime of the Participant in connection with the Participant's estate
planning, but only if and to the extent then permitted under Rule 16b-3 and
consistent with the registration of the offer and sale of Shares on Form S-
8 or a successor registration form of the Securities and Exchange
Commission. Stock Units and other rights under the Plan may not be
pledged, mortgaged, hypothecated, or otherwise encumbered, and shall not be
subject to the claims of creditors.
12.7 GOVERNING LAW. The validity, construction, and effect of
the Plan and any agreement hereunder will be determined in accordance with
the laws of the State of Oklahoma, without giving effect to principles of
conflicts of laws, and applicable federal law.
12.8 PLAN TERMINATION. Unless earlier terminated by action of
the Board or Executive Committee of the Board, the Plan will remain in
effect until the earlier of (i) such time as no Shares remain available for
delivery under the Plan and the Company has no further rights or
obligations under the Plan or (ii) June 30, 2006.
