<PAGE> 1
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.
[ ] 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:
5) Total fee paid:
[ X ] 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> 2
NOTICE OF
ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD
OCTOBER 1, 1997
AND PROXY STATEMENT
THE BEARD COMPANY
<PAGE> 3
THE BEARD COMPANY
ENTERPRISE PLAZA, SUITE 320
5600 NORTH MAY AVENUE
OKLAHOMA CITY, OKLAHOMA 73112
September 2, 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 Wednesday,
October 1, 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.
<TABLE>
<C> <C>
/s/ W. M. BEARD /s/ HERB MEE, JR.
W. M. BEARD HERB MEE, JR.
Chairman President
</TABLE>
<PAGE> 4
THE BEARD COMPANY
ENTERPRISE PLAZA, SUITE 320
5600 NORTH MAY AVENUE
OKLAHOMA CITY, OKLAHOMA 73112
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, OCTOBER 1, 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 Wednesday, October 1, 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 New Beard Company
pursuant to the Agreement and Plan of Merger, 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 August 15, 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
/s/ REBECCA G. WITCHER
Rebecca G. Witcher
Secretary
Oklahoma City, Oklahoma
Dated September 2, 1997
<PAGE> 5
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 October 1, 1997.
It is first being mailed to stockholders on or about September 2, 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 August 15, 1997, 2,819,074 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
3,281,518 votes are entitled to be cast at the meeting, and the holders of the
preferred stock are entitled to cast 14.09% of such votes. Additionally,
officers and directors of the Company as a group own shares entitling them to
cast 37.33% of the total votes to be cast by holders of common stock. Each of
the officers and directors has indicated their intention to vote in favor of the
proposals to be presented at the meeting. Only holders of common stock and
preferred stock of record at the close of business on August 15, 1997, will be
entitled to vote at the meeting.
<PAGE> 6
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
August 15, 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) 11.07% 16.14%(3)
57th Floor (2)
200 Clarendon Street
Boston, Massachusetts 02117
The Beard Group 401(k) Trust...................... None 0.00% 330,515(4) 11.72% 10.07%
c/o The Liberty Bank and Trust Company, Trustee
100 N. Broadway Avenue
Oklahoma City, OK 73102
W. M. Beard(8).................................... None 0.00% 813,222(5) 28.59% 24.78%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
Lu Beard.......................................... None 0.00% 233,998(6) 8.30% 7.13%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
Warren B. Kanders................................. 25,188.76 27.94% 174,274(2) 6.18%(2) 9.25%(3)
2100 South Ocean Boulevard
Suite 302 North
Palm Beach, FL 33480
Herb Mee, Jr.(8).................................. None 0.00% 221,518(7) 7.79% 6.75%
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 14.09% 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 (33.96%), after giving effect to the
conversion of their 90,155.86 preferred shares.
(4) Represents shares owned by the Trust at June 30, 1997 (latest information
available). Shares held by The Beard Group 401(k) Trust (the "Trust") 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
100,417.22, 120,071.31 and 28,979.60 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 8.24%) 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; 100,417.22 shares held by the Trust for the account of Mr. Beard
as to which he has sole voting
<PAGE> 7
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) Includes 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
120,071.31 shares held by the 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.
(8) Officers and directors of the Company.
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 August 15, 1997.
<TABLE>
<CAPTION>
AMOUNT
AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OWNERSHIP OF CLASS
---------------- ---------- --------
<S> <C> <C>
W. M. Beard................................................. 813,222(1) 28.59%
Herb Mee, Jr................................................ 221,518(2) 7.79%
Allan R. Hallock............................................ 40,458(3) 1.44%
Michael E. Carr............................................. 28,643 1.02%
Ford C. Price............................................... 13,665(4) --(7)
C. H. Collen, Jr............................................ 46,030(5) 1.63%
All directors and executive officers as a group (8 in
number)................................................... 1,102,335(6) 38.42%
</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 28,979.60 shares held by the Trust for the
account of Mr. Collen as to which he has sole voting and investment power.
(6) Includes 757,971 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.
(7) Reflects ownership of less than one (1) percent.
<PAGE> 8
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") (the Company and Collen are referred to collectively as 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 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. Collen is the
president and chief executive officer, and is a director of Carbonics, but he is
neither an officer nor a director of the Company. There is no affiliation
between the Company (or Carbonics) and Airgas.
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 stockholders 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.
VOTE REQUIRED
For the past three years, Carbonics has accounted for 68 to 80% of the
Company's revenues and the environmental/resource recovery business has
accounted for 18 to 22%. After the Asset Sale, Carbonics will not have any
material assets or operations. Accordingly, 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. Therefore, 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.
THE TRANSACTION
In consideration of the Asset Sale, Carbonics will receive cash at closing
in the amount of $18.375 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 or the
Shareholders; or environmental liabilities. Carbonics
<PAGE> 9
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.
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, Inc. 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 Airgas, Inc. common stock and cash. At the
time Airgas, Inc. announced these acquisitions, it stated its intention to
pursue additional acquisitions of CO(2) companies.
Because Airgas, Inc. 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, Inc.
announcement put an end, for all practical purposes, to Carbonics' acquisition
strategy.
In April 1997 Airgas, Inc. 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, Inc. 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. Because of the difficulty of competing with Airgas, Inc.
for acquisitions, and the increasing competition from other companies to acquire
CO(2) and dry ice companies, the Company perceived limited opportunity for
growth in the business. Accordingly, the Company decided to entertain proposals
for the sale of Carbonics or its assets with a view to deploying the available
proceeds in the development or expansion of its Mulled Coal technology and an
existing environmental remediation license, or in the possible acquisition of
new businesses. See "-- Description of Future Business."
Following discussions with the three interested parties, including Airgas,
Inc. 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. Each of the proposals or indications of
interest were for cash. The offer from Airgas, Inc. was the highest and
contained no unacceptable conditions. On June 20, 1997, Airgas, Inc. and the
Company executed a letter of intent and began negotiating the terms of the
agreement. The board of directors approved the Asset Sale on July 21, 1997 and
the Agreement was executed on August 18, 1997.
Negotiations with Airgas were primarily conducted by W. M. Beard, Chairman
of the Board of the Company, with assistance from Collen, president of
Carbonics. Because of the knowledge obtained from acquiring, owning and
operating Carbonics, and the Company's studies of possible acquisition targets,
together with the fact that the Company had three proposals to acquire the
assets of Carbonics, no outside appraisal was obtained. Further, because the
three proposals to acquire the assets were for cash, Airgas' proposal was the
highest and there were no unacceptable conditions to the Airgas proposal, there
were no difficult problems
<PAGE> 10
of comparison of the proposals. After the public announcement of the proposed
Airgas transaction on June 23, 1997, no further inquiries concerning Carbonics
or its assets were received.
Finally, because Collen is not a director of the Company and no director of
the Company had any interest in the transaction adverse to the Company or its
shareholders, the entire board of directors reviewed and approved the
transaction.
REASONS FOR THE ASSET SALE
The terms of the Agreement are the result of arms-length negotiations
between representatives of the Company and Airgas, Inc. In addition to the
Company's difficulties in expanding the dry ice operation, and the increasing
competition from better financed competitors discussed above under "Background
of the Asset Sale," the Company believes that consummation of the Asset Sale
will allow the Company to sell Carbonics' assets at the best price available,
and at the same time enable it to 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
Agreement and the Asset Sale. The purchase price is 39.1 times 1996 earnings
(net of non-recurring items), 11.1 times 1996 operating cash flow and 1.66 times
1996 gross income. In 1996 Carbonics had determined to pursue a course of growth
through acquisition. However, with the CO(2) industry under consolidation by
much larger and better capitalized companies, Carbonics is unable to compete in
terms of acquisitions. Also, the sale will leave the Company in a strong
financial position to pursue its Mulled Coal technology (see "-- Description of
Future Business"), which demonstrated very favorable results in its 23-month
contract completed last year for the Department of Energy to test the
feasibility of the technology in terms of its storage, transportation and
handling capabilities.
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 its 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.
<PAGE> 11
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 or 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 salary and expense reimbursement payments made to Collen
in the ordinary course of business and 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; and
(i) make any capital additions in excess of $10,000.
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; and
(c) the receipt of all third party consents.
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
<PAGE> 12
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 October 1, 1997, subject
to the satisfaction or waiver of the conditions set forth under "-- Conditions
to the Asset Sale."
PARTIES INTERESTED IN THE ASSET SALE
Collen owns 15% of the outstanding common stock and the president and one
of three directors of Carbonics. The Company owns the remaining common stock,
plus preferred stock with an aggregate redemption value of $14,859,000. The
purchase price for the Asset Sale is $19,375,000 (with $1,000,000 held back and
subject to offsets) plus assumption of liabilities estimated to be $2.7 million.
Carbonics will also incur approximately $213,000 in state income taxes and
$200,000 for employee bonuses. Carbonics will also redeem the preferred stock
owned by the Company. Collen has agreed to sell his 15% of the common stock of
Carbonics to Carbonics for $900,000.
Collen has an employment agreement with Carbonics under the terms of which
Collen is entitled to receive payment of one year's salary upon the sale of
substantially all of the assets of Carbonics. In satisfaction of all contractual
rights with the Company and Carbonics, Collen will receive $100,000 following
the closing, which was the amount of his salary under the contract. Collen also
received a bonus of $63,216 for 1996, but will receive no bonus for 1997 if the
Asset Sale is consummated.
At closing of the Asset Sale, Collen will enter into an employment
agreement with Airgas for a term of one year, pursuant to which he will be paid
$80,000. Collen will also be guaranteed a bonus of $20,000 with the opportunity
to receive an additional $10,000 depending on Airgas' performance. Collen will
also enter into a non-competition and confidentiality agreement with Airgas
pursuant to which Collen agrees not to compete with Airgas or use confidential
information for a period of ten years. As consideration, Collen will receive
$500,000, payable $300,000 on execution and $200,000 on January 2, 1998.
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.
The applicable waiting period expired at midnight on August 2, 1997. 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.
<PAGE> 13
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 $11,700,000; 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. Carbonics
will also incur state income tax. See "Pro Forma Condensed Financial Statements"
and the discussion of the Company's net operating loss carryforwards 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 small working
interest (0.54561%) and overriding royalty interest (0.471926% net revenue
interest) in the McElmo Dome Field in southwest Colorado, and a very small
working interest (0.05863%) 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. The Company is not involved in the operations of either
field. In addition, Beard will continue to hold (i) a minority interest (40%) 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. Although the Company
would sell the real estate holdings and the McElmo Dome and Bravo Dome
properties if a favorable price can be obtained, the Company does not have any
present intention to sell any material amount of assets.
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. ("Whitetail")
and Horizontal Drilling Technologies, Inc. ("HDT"), which the Company is making
efforts to expand. Complete details concerning these activities and operations
are discussed in the Company's 1996 Annual Report on Form 10-K/A, pages 10-15.
Although it has no present plans or arrangements, the Company may consider
acquisition or development of other businesses in the future.
Beard Technologies, Inc. ("BTI"). The principal thrust of the
environmental/resource recovery segment ("E/RR Segment") going forward will be
the commercial development of the Mulled Coal process using the patented
technology owned by the Company's wholly-owned subsidiary, Beard Technologies,
Inc. ("BTI"). During the past several months BTI has had ongoing discussions
with several major coal companies, two utilities, and several industrial
companies concerning projects of varying sizes. Seven projects are currently
under discussion involving 20 coal slurry ponds with estimated recoverable coal
of more than 12.5 million tons. BTI hopes to have its first project underway by
year-end, and to have a minimum of four plants in operation by the year 2000.
The recovery of low cost fuel from coal slurry ponds is not a new concept.
Several of the dredge and process technologies which BTI would use in the
recovery of coal from slurry ponds are new. Although the concept has been proven
successful in the past in laboratory scale projects and full scale
demonstrations, the process is not widely known or understood by the coal
producers who own the ponds or the coal consumers who would burn the recovered
clean coal. While discussions and negotiations with interested parties are
proceeding, BTI has yet to reach final agreement for the start-up of any one of
the projects under
<PAGE> 14
consideration. Until binding agreements are executed and the technology has been
placed in operation for some time, there can be no assurance as to actual costs,
revenues or income.
Since each project is different, the unmanned dredge for moving slurry
material from the ponds to the processing plant would be specially designed for
each project. Prior to entering into the final design stage of each project,
additional drilling and test work must be done, including sampling and analysis
of the slurry materials. BTI has never actually built and operated a fine coal
preparation plant. The management of BTI has extensive and recent experience in
designing, building, operating and marketing the end product of a wide variety
of fine coal preparation plants. Nonetheless, since BTI has never built or
operated a plant, there is obviously a risk of errors or omissions in their
estimates and that the projected results of a typical plant might fall seriously
short of target. Accordingly, the Company cannot ensure any particular results.
ISITOP, Inc. ("ISITOP"). ISITOP is presently having discussions with
several major companies that have expressed an interest in using the 54GO(TM)
101 patented process for creosote remediation. A field test of the process was
completed during the second quarter of 1997 in an old rail storage yard near
Durango, Colorado with extremely promising results. The contaminated soil at the
site selected for remediation had seven major PAH (cancer producing agents)
constituents of concern ("COC's"). At the start of the test the COC's had
concentrations ranging from 13 up to 470 parts per million. At the conclusion of
the test the concentrations had been remediated to near background levels,
ranging from less than 0.5 up to 3 parts per million, or more than 99% of the
total.
ISITOP is faced with the startup risks of any new business. Among the other
facts which could adversely affect the success of this venture are (i) the
development of cheaper or better treatment technologies; (ii) relaxed
enforcement regulation by the EPA or other regulatory agencies of the treatment
of soils contaminated with PAH's; (iii) the possibility that market penetration
may take longer than anticipated due to budget constraints of potential
customers; and (iv) the difficulties of overcoming the normal "wait and see"
attitude of customers considering any new technology.
General. Since both BTI and ISITOP are presently in the startup phase of
their commercial development, converting one or both of them to profitability in
1998 could have a significant effect on the Company's revenue and earnings
picture. In addition, efforts have been underway for some time to expand the
market for the services of both Whitetail and HDT, which comprise the remainder
of the E/RR Segment. Results of these efforts are already being reflected in
terms of increased revenues, but these two subsidiaries continue to generate
operating losses year-to-date.
The Company plans to utilize approximately $4.5 million of the sales
proceeds to fund the capital cost and working capital for the initial Mulled
Coal recovery plant. Once the initial plant is in operation and has demonstrated
its commercial viability, the Company will seek to determine whether the cost of
future plants can be leased or financed, since most of the equipment involved is
"off the shelf" type equipment, with the Company providing the necessary working
capital and perhaps 10 to 20% of the capital cost of the subsequent plants. The
number of plants that the Company may ultimately have in operation will depend
upon the results of actual operations. Additional use of proceeds will depend
upon initial results and further developments of both the Mulled Coal technology
and the ISITOP remediation process.
The Company owns 100% of BTI, and 80% of Whitetail, HDT and ISITOP. The
President of Whitetail and HDT, who owns 20% of each company, has an option to
acquire an additional 5% of Whitetail after a specified time interval. The
President and Vice President of ISITOP, who each own 10% of the company, each
have an option to acquire an additional 15% of the company after payout of
Beard's investment in the company. All of the companies in the E/RR Segment have
their own management in place, with the Company providing working capital and
financial and administrative support as needed.
The Company projects that approximately 63% of 1997 revenues will be
contributed by Whitetail, 25% by HDT, 1% by BTI, 2% by ISITOP and 9% by Beard's
share of revenues from McElmo Dome and Bravo Dome, without regard to Carbonics.
<PAGE> 15
POSSIBLE ADVERSE EFFECTS OF ASSET SALE
Beard's environmental/resource recovery activities were not profitable in
1996 or in the first six months 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 for $396 million.
MARKET INFORMATION
Market information is incorporated herein by reference to page 17 of the
Company's 1996 Annual Report on Form 10-K/A which is attached hereto as Appendix
A.
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 Condensed
Financial Statements" and "Sale of Substantially all of the Assets of
Carbonics -- Description of Future Business" regarding the effects of the Asset
Sale if it is consummated. The selected consolidated financial data as of June
30, 1997 and 1996 and for the six months ended June 30, 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 necessarily indicative of
the results which may be expected for any other period or for the full year.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 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................................. $ 9,357 $ 7,420 $16,683 $15,012 $14,123 $ 13,281 $ 10,849
Interest income.............................. 7 6 18 25 20 21 110
Interest expense............................. (187) (98) (259) (166) (116) (92) (210)
Earnings (loss) from continuing operations... (403) (44) (140) (478) 503 (893) (6,622)
Earnings (loss) from discontinued
operations................................. -- (16) (175) 75 214 (11,183) (25,871)
Gain on debt restructuring................... -- -- -- -- -- 46,928 --
Net earnings (loss).......................... (403) (60) (315) (403) 717 34,852 (32,493)
Earnings (loss) from continuing operations
per share:
(primary EPS).............................. (0.14) (0.02) (0.05) (0.20) 0.17 (0.42) (3.33)
(fully diluted EPS)........................ (0.14) (0.02) (0.05) (0.20) 0.14 (0.41) (3.33)
Net earnings (loss) per share:
(primary EPS).............................. (0.14) (0.02) (0.11) (0.17) 0.25 16.51 (16.34)
(fully diluted EPS)........................ $ (0.14) $ (0.02) $ (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.............................. $ 910 $ 1,754 $ 1,745 $ 1,989 $ 2,427 $ 1,765 $ 1,830
Properties, net.............................. 9,225 8,269 8,699 7,158 6,834 6,312 6,607
Total assets................................. 15,656 16,950 16,473 14,615 13,856 14,966 15,441
Long-term debt (excluding current
maturities)................................ 3,037 2,520 2,911 1,454 982 1,137 947
Redeemable preferred stock................... 1,200 1,200 1,200 1,200 1,200 1,200 --
Common shareholders' equity (deficit)........ $ 8,253 $ 8,753 $ 8,656 $ 8,788 $ 9,066 $ 8,407 $(27,743)
</TABLE>
<PAGE> 16
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/A for the year ended December 31, 1996 and
Form 10-Q/A for the three months and six months ended June 30, 1997 which are
incorporated herein by reference and attached hereto as Appendices A and B,
respectively. The Unaudited Pro Forma Condensed Balance Sheet is presented as if
the Asset Sale had occurred on June 30, 1997. The Unaudited Pro Forma Condensed
Statements of Operations for the year ended December 31, 1996 and six months
ended June 30, 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 Statements of Operations for the years ended December 31, 1995 and
1994 reflect the operations of Carbonics as discontinued operations.
The unaudited pro forma condensed financial statements are intended for
informational purposes only, have been prepared based on assumptions set forth
in the accompanying notes, 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> 17
THE BEARD COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
BEARD BEARD
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 52 $19,375(a) $19,427
Accounts receivable, net............................... 2,803 (1,570)(a) 1,233
Other current assets................................... 1,098 (769)(a) 329
------- ------- -------
Total current assets........................... 3,953 17,036 20,989
Investments and other assets............................. 1,675 (42)(a) 1,633
Property, plant and equipment, net....................... 9,225 (6,784)(a) 2,441
Intangible assets, net................................... 803 (288)(a) 515
------- ------- -------
$15,656 $ 9,922 $25,578
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable and other liabilities........... $ 2,122 $(1,264)(a) $ 2,536
428(b)
1,250(c)
Current maturities of long-term debt................... 921 (400)(a) 521
------- ------- -------
Total current liabilities...................... 3,043 14 3,057
Long-term debt less current maturities................... 3,037 (1,043)(a) 1,994
Minority interest in consolidated subsidiaries........... 123 -- 123
Redeemable preferred stock............................... 1,200 3,500(d) 4,700
Total common shareholders' equity........................ 8,253 12,629(a) 15,704
(428)(b)
(1,250)(c)
(3,500)(d)
------- ------- -------
$15,656 $ 9,922 $25,578
======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
<PAGE> 18
THE BEARD COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
BEARD BEARD BEARD
HISTORICAL ADJUSTMENTS PRO FORMA
---------- -------------- ----------
<S> <C> <C> <C>
REVENUES:
Carbon dioxide......................................... $ 6,809 $(6,553)(e) $ 256
Environmental/resource recovery........................ 2,421 -- 2,421
Other.................................................. 127 -- 127
---------- ------- ----------
9,357 (6,553) 2,804
EXPENSES:
Carbon dioxide (exclusive of depreciation, depletion
and amortization shown separately below)............ 4,554 (4,500)(e) 54
Environmental/resource recovery (exclusive of
depreciation, depletion and amortization shown
separately below)................................... 2,134 -- 2,134
Selling, general and administrative.................... 2,212 (1,196)(e) 1,016
Depreciation, depletion and amortization............... 734 (533)(e) 201
Other.................................................. 16 -- 16
---------- ------- ----------
9,650 (6,229) 3,421
OPERATING PROFIT (LOSS):
Carbon dioxide......................................... 514 (324)(e) 190
Environmental/resource recovery........................ (340) -- (340)
Other.................................................. (467) -- (467)
---------- ------- ----------
(293) (324) (617)
OTHER INCOME (EXPENSE):
Interest expense....................................... (187) 66(e) (121)
Other.................................................. 102 (5)(e) 97
---------- ------- ----------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES...... (378) (263) (641)
INCOME TAXES FROM CONTINUING OPERATIONS.................. (25) 8(e) (17)
---------- ------- ----------
LOSS FROM CONTINUING OPERATIONS.......................... (403) 255 (658)
EARNINGS FROM DISCONTINUED OPERATIONS (less applicable
income taxes of $8).................................... -- 255(f) 255
---------- ------- ----------
NET LOSS................................................. $ (403) $ -- $ (403)
========== ======= ==========
NET LOSS PER COMMON SHARE:
Loss from continuing operations........................ $ (0.14) $ (0.23)
Earnings from discontinued operations.................. -- 0.09
---------- ----------
Net loss............................................... $ (0.14) $ (0.14)
========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............... 2,799,000 2,799,000
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
<PAGE> 19
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 PRO FORMA
---------- -------------- ----------
<S> <C> <C> <C>
REVENUES:
Carbon dioxide.................................... $ 13,608 $(13,307)(e) $ 301
Environmental/resource recovery................... 3,009 -- 3,009
Other............................................. 66 -- 66
---------- -------- ----------
16,683 (13,307) 3,376
EXPENSES:
Carbon dioxide (exclusive of depreciation,
depletion and amortization shown separately
below)......................................... 9,478 (9,381)(e) 97
Environmental/resource recovery (exclusive of
depreciation, depletion and amortization shown
separately below).............................. 2,642 -- 2,642
Selling, general and administrative............... 4,079 (2,215)(e) 1,864
Depreciation, depletion and amortization.......... 1,309 (1,008)(e) 301
Other............................................. 77 -- 77
---------- -------- ----------
17,585 (12,604) 4,981
OPERATING PROFIT (LOSS):
Carbon dioxide.................................... 887 (703)(e) 184
Environmental/resource recovery................... (757) -- (757)
Other, principally corporate...................... (1,032) -- (1,032)
---------- -------- ----------
(902) (703) (1,605)
OTHER INCOME (EXPENSE):
Interest expense.................................. (259) 118(e) (141)
Gain on sale of assets............................ 171 (6)(e) 165
Gain on take-or-pay contract settlement........... 939 (939)(e) --
Other............................................. (89) (5)(e) (94)
---------- -------- ----------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES............................................. (140) (1,535) (1,675)
INCOME TAXES FROM CONTINUING OPERATIONS............. -- -- --
LOSS FROM CONTINUING OPERATIONS..................... (140) (1,535) (1,675)
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS........ (175) 1,535(f) 1,360
---------- -------- ----------
NET LOSS............................................ $ (315) $ -- $ (315)
========== ======== ==========
NET LOSS PER COMMON SHARE:
Loss from continuing operations................... $ (0.05) $ (0.61)
Earnings (loss) from discontinued operations...... (0.06) 0.50
---------- ----------
Net loss.......................................... $ (0.11) $ (0.11)
========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.......... 2,756,000 2,756,000
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
<PAGE> 20
THE BEARD COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
BEARD BEARD
HISTORICAL ADJUSTMENTS RECLASSIFIED
---------- -------------- ------------
<S> <C> <C> <C>
REVENUES:
Carbon dioxide....................................... $ 11,915 $(11,706)(e) $ 209
Environmental/resource recovery...................... 3,026 -- 3,026
Other................................................ 71 -- 71
--------- -------- ---------
15,012 (11,706) 3,306
EXPENSES:
Carbon dioxide (exclusive of depreciation, depletion
and amortization shown separately below).......... 8,598 (8,497)(e) 101
Environmental/resource recovery (exclusive of
depreciation, depletion and amortization shown
separately below)................................. 2,420 -- 2,420
Selling, general and administrative.................. 3,560 (1,855)(e) 1,705
Depreciation, depletion and amortization............. 1,151 (951)(e) 200
Other................................................ 98 -- 98
--------- -------- ---------
15,827 (11,303) 4,524
OPERATING PROFIT (LOSS):
Carbon dioxide....................................... 502 (403)(e) 99
Environmental/resource recovery...................... (325) -- (325)
Other, principally corporate......................... (992) -- (992)
--------- -------- ---------
(815) (403) (1,218)
OTHER INCOME (EXPENSE):
Interest expense..................................... (166) 157(e) (9)
Gain on sale of assets............................... 423 (229)(e) 194
Other................................................ 80 (12)(e) 68
--------- -------- ---------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES.... (478) (487) (965)
INCOME TAXES FROM CONTINUING OPERATIONS................ -- -- --
--------- -------- ---------
LOSS FROM CONTINUING OPERATIONS........................ (478) (487) (965)
EARNINGS FROM DISCONTINUED OPERATIONS.................. 75 487(f) 562
--------- -------- ---------
NET LOSS............................................... $ (403) $ -- $ (403)
========= ======== =========
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS........... $ (454) $ -- $ (454)
========= ======== =========
NET LOSS PER COMMON SHARE:
Loss from continuing operations...................... $ (0.20) $ (0.38)
Earnings from discontinued operations................ 0.03 0.21
--------- ---------
Net loss............................................. $ (0.17) $ (0.17)
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............. 2,662,000 2,662,000
========= =========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
<PAGE> 21
THE BEARD COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
BEARD BEARD
HISTORICAL ADJUSTMENTS RECLASSIFIED
---------- -------------- ------------
<S> <C> <C> <C>
REVENUES:
Carbon dioxide....................................... $ 10,787 $(10,654)(e) $ 133
Environmental/resource recovery...................... 3,212 -- 3,212
Other................................................ 124 -- 124
--------- -------- ---------
14,123 (10,654) 3,469
EXPENSES:
Carbon dioxide (exclusive of depreciation, depletion
and amortization shown separately below).......... 7,822 (7,706)(e) 116
Environmental/resource recovery (exclusive of
depreciation, depletion and amortization shown
separately below)................................. 2,562 -- 2,562
Selling, general and administrative.................. 3,486 (1,732)(e) 1,754
Depreciation, depletion and amortization............. 1,097 (871)(e) 226
Other................................................ 71 -- 71
--------- -------- ---------
15,038 (10,309) 4,729
OPERATING PROFIT (LOSS):
Carbon dioxide....................................... 300 (345)(e) (45)
Environmental/resource recovery...................... (254) -- (254)
Other, principally corporate......................... (961) -- (961)
--------- -------- ---------
(915) (345) (1,260)
OTHER INCOME (EXPENSE):
Interest expense..................................... (116) 164(e) 48
Gain on sale of assets............................... 2,001 (6)(e) 1,995
Other................................................ (462) (7)(e) (469)
--------- -------- ---------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES................................................ 508 (194) 314
INCOME TAXES FROM CONTINUING OPERATIONS................ (5) -- (5)
--------- -------- ---------
EARNINGS FROM CONTINUING OPERATIONS.................... 503 (194) 309
EARNINGS FROM DISCONTINUED OPERATIONS.................. 214 194(f) 408
--------- -------- ---------
NET EARNINGS........................................... $ 717 $ -- $ 717
========= ======== =========
NET EARNINGS ATTRIBUTABLE TO COMMON SHAREHOLDERS....... $ 659 $ -- $ 659
========= ======== =========
NET EARNINGS PER COMMON SHARE (PRIMARY EPS):
Earnings from continuing operations.................. $ 0.17 $ 0.10
Earnings from discontinued operations................ 0.08 0.15
--------- ---------
Net earnings......................................... $ 0.25 $ 0.25
========= =========
NET EARNINGS PER COMMON SHARE (FULLY DILUTED EPS):
Earnings from continuing operations.................. $ 0.14 $ 0.08
Earnings from discontinued operations................ 0.07 0.13
--------- ---------
Net earnings......................................... $ 0.21 $ 0.21
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Primary.............................................. 2,652,000 2,652,000
========= =========
Fully diluted........................................ 3,117,000 3,117,000
========= =========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
<PAGE> 22
THE BEARD COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(a) Pursuant to 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 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
June 30, 1997 balance sheet to reflect the sale of the assets as if the sale had
occurred on June 30, 1997 as follows (in thousands):
<TABLE>
<S> <C>
Cash proceeds:.............................................. $19,375
Liabilities to be assumed:
Trade accounts payable.................................... 1,264
Current maturities of long-term debt...................... 400
Long-term debt............................................ 1,043
-------
Total sales price........................................... 22,082
Accounts receivable, net.................................... (1,570)
Other current assets........................................ (769)
Investments and other assets................................ (42)
Property, plant and equipment, net.......................... (6,784)
Intangible assets, net...................................... (288)
-------
Proceeds greater than costs....................... $12,629
=======
</TABLE>
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 (i) 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, (ii) the amount by which notes payable to third
parties at closing exceeds the amount of such notes on December 31, 1996, to the
extent such excess is greater than the increase in the value of fixed assets
during such period; and (iii) any indemnity claims as defined in the Agreement.
Beard expects little, if any, of such amount will be ultimately held back.
(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 tax
liabilities resulting from the Asset Sale. Pro forma adjustment (b) reflects
estimated state income taxes of approximately $213,000 of Carbonics and federal
alternative minimum tax of Beard of approximately $215,000 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 primarily 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 as of December 31, 1996 had 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
<PAGE> 23
Beard preferred stock would be convertible by the holders thereof into as much
as 14.09% 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 three years
ended December 31, 1996 and for the six months ended June 30, 1996.
(f) Reflects the reclassification of the results of operations of Carbonics
as discontinued operations for each period.
(g) 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 $12,200,000, and the accretion in the carrying value
of the Beard mandatorily redeemable preferred stock of $3,500,000 ($1.27 per
share for the six months ended June 30, 1997, and $1.27, $1.31 and $1.32 per
share for the years ended December 31, 1996, 1995 and 1994, increase in the net
loss or decrease in the net income 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> 24
COMPARATIVE PER SHARE DATA
The following table sets forth certain unaudited historical and pro forma
per share financial information as of and for the six months ended June 30, 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>
JUNE 30,
1997
---------
<S> <C>
Book value per common share at period end:
Historical................................................ $ 2.95
Pro forma................................................. $ 5.61
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1997 1996
--------------- ------------
<S> <C> <C>
Loss from continuing operations per common share:
Historical............................................ $(0.14) $(0.05)
Pro forma............................................. $(0.23) $(0.61)
</TABLE>
The Company has not paid dividends on its common stock nor does it have any
plans to do so. See "Dividend Policy."
<PAGE> 25
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 New Beard Company
("NBC"). The details of this change are set out in the Agreement and Plan of
Merger 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 on October
1, 1997.
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"), and each outstanding share or fractional
share of the Company's Series A Preferred Stock, par value $1.00 per share, will
be converted automatically into the right to receive one share or fractional
share of NBC Series A Preferred Stock, par value $1.00 per share ("NBC Preferred
Stock").
Each outstanding certificate representing shares of Company common stock or
the Company's Series A Preferred Stock (or fractional share) will represent the
same number of shares or fractional shares of NBC Common Stock or NBC Preferred
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 June 30, 1997, Beard and its consolidated subsidiaries had available
federal income tax NOLs of approximately $65.8 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.
<PAGE> 26
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 Internal Revenue
Code of 1986, as amended ("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 nonbusiness 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 Company's 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. The name of NBC will be changed to The Beard Company as
part of the Merger. 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 Common or
Preferred Stock will be deemed to have been acquired by a designated charitable
organization. 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
<PAGE> 27
for sale of the shares represented thereby. The proceeds of the sale will be
paid to the designated charitable organization. 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."
<PAGE> 28
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 NBC 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 NBC 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 Code 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 or state 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.
<PAGE> 29
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 Certificate of Designation of the
Series A Preferred Stock of the Company provides that if the Company merges with
another corporation and is not the survivor, the holders of the preferred stock
are entitled to receive an amount equal to the Stated Value of the preferred
stock prior to distributions to any other security holders. If the holders of
the preferred stock do not agree that they have no rights as a result of the
Merger, other than the right to receive NBC Preferred Stock, the Merger will not
be consummated. The Board of Directors knows of no other 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
<PAGE> 30
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 party, 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 AGREEMENT AND PLAN OF
MERGER AND THE MERGER WHICH WILL EFFECTUATE THE PROPOSED REORGANIZATION. 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
<PAGE> 31
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 ByLaws.
Certain information with respect to the nominees for director and three
directors whose terms do not expire this year is set forth below. W. R. Plugge,
whose term as a director would have expired in 1999, died on August 15, 1997.
The Company has not had the opportunity to consider possible candidates for the
vacancy.
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.
DIRECTOR TO CONTINUE IN OFFICE WITH TERM 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.
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.
<PAGE> 32
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
served as chairman until his death on August 15, 1997, 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. Price and Carr serve and, until his
death, Mr. Plugge served, 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 AND SIGNIFICANT EMPLOYEES
Information concerning the executive officers and certain significant
employees 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 significant employees 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
<PAGE> 33
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 Oil 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 below 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 $100,000, for any of the fiscal years
ended December 31, 1996, 1995 or 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------- ---------- ----------
(A) (B) (C) (D) (G) (H) (I)
--- ---- ------- ------ ---------- ---------- ------------
SECURITIES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL SALARY BONUS OPTIONS/ LTIP COMPENSATION
POSITION YEAR (A)($) (B)($) SAR'S(#) PAYOUTS($) (C)($)
--------- ---- ------- ------ ---------- ---------- ------------
<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 $13,250 in 1996.
<PAGE> 34
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information, with respect to the named
executive officers, concerning the exercise of options during the Company's last
fiscal year and unexercised options held as of the end of the last fiscal year:
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
--- --------------- ----------- ------------- ---------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)
------------- ---------------
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.
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.
- ---------------
* The market value on November 1, 1994 was $1.875 per share; on February 22,
1995 it was $1.75 per share.
<PAGE> 35
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
<PAGE> 36
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 with the exception of an option granted to Jack Martine at the time he
was hired by the Company.
COMPENSATION COMMITTEE
Allan R. Hallock, Chairman
Ford C. Price
Michael E. Carr
<PAGE> 37
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.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG THE BEARD COMPANY,
AMEX MARKET INDEX AND SIC CODE INDEX
ASSUMES $100 INVESTED ON OCTOBER 27, 1993
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDED DECEMBER 31, 1996
[CHART]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD THE BEARD AMEX MARKET INDUSTRIAL GASES
(FISCAL YEAR COVERED) COMPANY INDEX INDUSTRY INDEX
<S> <C> <C> <C>
OCTOBER 1993 100 100 100
DECEMBER 1993 87.50 105.57 102.50
DECEMBER 1994 81.25 115.46 90.55
DECEMBER 1995 106.25 157.43 116.71
DECEMBER 1996 143.75 213.60 123.16
</TABLE>
The Industrial Gases Industry Index consists of four companies: Air
Products & Chemicals, BOC Group PLC ADS, Praxair, Inc. and the Company.
<PAGE> 38
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 17, 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 RECOMMENDS 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.
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.
<PAGE> 39
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
APPOINTMENT OF KPMG.
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 a majority of the Company's
outstanding stock entitled to vote at the annual meeting will be required for
the approval of (1) the Asset Sale and (2) the Merger. The affirmative vote of
the 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
amendment to the Deferred Stock Compensation Plan and (2) 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 Agreement 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 March 1997 the amount of the credit line was increased to
$1 million. The principal balance at June 30, 1997 was $900,000, which has
currently been reduced to $850,000.
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.
<PAGE> 40
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/A of the Company for the
fiscal year ended December 31, 1996, and the Quarterly Report on Form 10-Q/A of
the Company for the three months and six months ended June 30, 1997, which
reports have been filed by the Company with the Securities and Exchange
Commission.
The Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996 and the Quarterly Report on Form 10-Q/A of the Company for the
three months and six months ended June 30, 1997, are attached hereto as
Appendices A and B, respectively.
THE BEARD COMPANY
By Order of the Board of Directors
/s/ REBECCA G. WITCHER
Rebecca G. Witcher
Secretary
Oklahoma City, Oklahoma
September 2, 1997
<PAGE> 41
- --------------------------------------------------------------------------------
PROXY THE BEARD COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR STOCKHOLDERS MEETING ON OCTOBER 1, 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 Wednesday, October 1,
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 Agreement and Plan of Merger pursuant to which the Company
will be merged into The New Beard Company, 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> 42
- --------------------------------------------------------------------------------
(Continued from other side)
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 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> 43
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> 44
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE 1
SUMMARY OF TRANSACTIONS; DEFINITIONS
<S> <C> <C>
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
</TABLE>
<PAGE> 45
<TABLE>
<S> <C> <C>
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
</TABLE>
<PAGE> 46
<TABLE>
<S> <C> <C>
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
</TABLE>
<PAGE> 47
ASSET PURCHASE AGREEMENT
The parties to this Asset Purchase Agreement ("Agreement") dated the
11th day of August, 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, 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 (a) (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 (b), (c) and 2(d), (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").
1.6 Assignment of Patents and Trademarks. At Closing, Seller shall
execute and deliver to Purchaser an Assignment of Patents and a Deed of
Assignment, assigning Seller's rights in and to the patents, patent
applications and trademarks described in Section 5.1.21, substantially in the
form of Exhibits 1.6(a) and (b) (the "Patent and Trademark Assignments").
<PAGE> 48
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 mean all businesses engaged in by Seller, including but
not limited to the manufacture and distribution of dry ice.
"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 damages 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, common 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.
<PAGE> 49
"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.
<PAGE> 50
ARTICLE 2
PURCHASE PRICE
2.1 Purchase Price. The purchase price for the Assets and Business of
Seller is Nineteen Million Three Hundred Seventy Five Thousand Dollars
($19,375,000), 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 Three Hundred Seventy Five Thousand
Dollars ($18,375,000) 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
<PAGE> 51
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;
(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
<PAGE> 52
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.
<PAGE> 53
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:
<PAGE> 54
<TABLE>
<CAPTION>
Shares
Name Shares of Common Stock of Preferred Stock
<S> <C> <C>
Beard 136,000 14,859
Collen 24,000 -0-
</TABLE>
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
<PAGE> 55
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
<PAGE> 56
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
<PAGE> 57
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
<PAGE> 58
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
<PAGE> 59
(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.
<PAGE> 60
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.
<PAGE> 61
(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.
7.2 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.
<PAGE> 62
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 Beard Shareholder Approval. This Agreement and the
transactions provided for herein shall, to the extent required by law, have
been approved by the shareholders of Beard.
7.2.7 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 October 1, 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 October 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.
<PAGE> 63
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 taxes, including but not limited to
vehicle sales taxes, arising by reason of the transactions contemplated by this
Agreement shall be borne by Purchaser. All real estate transfer taxes,
including but not limited to deed rendering costs, arising by reason of the
transactions contemplated by this agreement shall be borne by Seller.
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
<PAGE> 64
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 73112
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.
<PAGE> 65
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
AIRGAS CARBONIC RESERVES, INC.
By: /s/ CHRISTOPHER J. CLOSE
------------------------------------------
Christopher J. Close, Vice President
CARBONIC RESERVES
By: /s/ CLIFFORD H. COLLEN, JR.
------------------------------------------
Clifford H. Collen, Jr., President
THE BEARD COMPANY
By: /s/ HERB MEE, JR.
------------------------------------------
Herb Mee, Jr., President
/s/ CLIFFORD H. COLLEN, JR.
------------------------------------------
Clifford H. Collen, Jr.
<PAGE> 66
EXHIBIT B
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (the "Plan") dated as of ______________,
1997 by and between The New Beard Company, an Oklahoma corporation ("Beard"),
and The New Beard 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 90,155.86 shares are designated as Series A
Preferred Stock (the "NBC Series A Preferred Stock"), 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"), 2,819,074 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.
<PAGE> 67
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 NEW BEARD COMPANY, an Oklahoma corporation
By: Herb Mee, Jr., President
ATTEST:
Rebecca G. Witcher, Secretary
<PAGE> 68
EXHIBIT C
CERTIFICATE OF INCORPORATION
OF
THE NEW BEARD COMPANY
ARTICLE ONE
The name of the Corporation is:
THE NEW BEARD 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:
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES PAR VALUE
<S> <C> <C>
Preferred Stock 5,000,000 $1.00
Common Stock 10,000,000 $.001
</TABLE>
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;
<PAGE> 69
(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:
<TABLE>
<CAPTION>
TERM SECTION
<S> <C>
Conversion Price 10
Market Price 1(b)
NNM 1(b)
Redemption Date 9
SCM 1(b)
Series A Preferred Stock 2
Stated Value 3
</TABLE>
(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
<PAGE> 70
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.
<PAGE> 71
(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
<PAGE> 72
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.
<PAGE> 73
(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
<PAGE> 74
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
<PAGE> 75
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
<PAGE> 76
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
<PAGE> 77
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
<PAGE> 78
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
<PAGE> 79
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
<PAGE> 80
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, which shall be generally to the
following effect:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFERS SET FORTH IN ARTICLE FOUR OF THE
CORPORATION'S CERTIFICATE OF INCORPORATION. THE RESTRICTIONS
GENERALLY PROHIBIT ANY PERSON (BROADLY DEFINED) FROM BECOMING A
HOLDER (BROADLY DEFINED) OF 5% OR MORE OF THE CORPORATION'S
OUTSTANDING STOCK, ACTUALLY AND CONSTRUCTIVELY. ANY ATTEMPT TO
ACQUIRE COMMON STOCK OR PREFERRED STOCK OF THE CORPORATION IN
VIOLATION OF SUCH RESTRICTIONS SHALL BE NULL AND VOID AND MAY RESULT
IN FINANCIAL LOSS TO THE PERSON OR ENTITY ATTEMPTING SUCH
ACQUISITION."
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.
<PAGE> 81
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
<PAGE> 82
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
<PAGE> 83
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;
<PAGE> 84
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,
<PAGE> 85
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;
<PAGE> 86
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
<PAGE> 87
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
Incorporation, and certifies that the facts herein stated are true, this _____
day of __________, 1997.
THE NEW BEARD COMPANY
ATTEST:
By
- -------------------------- ---------------------------------
Rebecca Witcher, Secretary Herb Mee, Jr., President
<PAGE> 88
Schedule A
BEARD INVESTMENT COMPANY
AMORTIZATION WITHOUT COMTEMPLATED
WRITEDOWNS
BASED ON BOOK VALUES AS OF 11-30-92
<TABLE>
<CAPTION>
Book Value Amortization
at ---------------------------------------------------------
11/30/92 1993 1994 1995 After 1995
--------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Writedown of Certain intangible
Assets in:
Carbonic Reserves 1,801,410 560,200 466,200 291,100 483,910
Energy international 181,564 90,800 90,764 -- --
--------- --------- --------- ------- ---------
1,982,974 651,000 556,964 291,100 483,910
--------- --------- --------- ------- ---------
Change depreciable life on boxes:
Carbonic Reserves 5yrs 150,000 30,000 30,000 30,000 60,000
Writedown Tanner #1 well: 6yrs 1,868,464 311,400 311,400 311,400 934,264
Additional impairment on
CO2 Acreage 6yrs 366,113 64,700 64,700 64,700 172,013
--------- --------- --------- ------- ---------
2,384,577 406,100 406,100 406,100 1,166,277
--------- --------- --------- ------- ---------
Writedown investment in:
NABR 3yrs 2,201,293 167,100 167,100 167,093 --
EEIC 3yrs 140,679 46,900 46,900 31,879 --
Neshart-B 226,964 25,700 25,700 25,564 --
Other Land & improvements 381,509 35,500 35,500 35,509 --
--------- --------- --------- ------- ---------
Total Land & invest. 2,950,445 275,200 275,200 260,045 --
--------- --------- --------- ------- ---------
Total book value 7,317,996
=========
Total DD&A on
effected assets 1,332,300 1,238,264 957,245 1,650,187
========= ========= ======= =========
DD&A differential:
Without writedown 1,332,300 1,238,264 957,245 1,650,187
With writedown 285,329 155,200 117,800 319,756
--------- --------- ------- ---------
Difference 1,046,971 1,083,064 839,445 1,330,431
========= ========= ======= =========
</TABLE>
Page 2
<PAGE> 89
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.
<PAGE> 90
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
<PAGE> 91
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,
<PAGE> 92
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
<PAGE> 93
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.
<PAGE> 94
APPENDIX A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[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> 95
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> 96
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.
<PAGE> 97
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
expansion 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
distribution 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
Corporation ("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
<PAGE> 98
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,
production 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,
<PAGE> 99
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
----------- -------------------------- ----------------
<S> <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 illustrated by the
following table:
<PAGE> 100
<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
- ----------- --------- ------- --------------------- ---------- -------
<S> <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
<PAGE> 101
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
production for each of the last three fiscal years:
<TABLE>
<CAPTION>
Net CO2
Fiscal Year Production
Ended (Mcf)
----------- ----------
<S> <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
------------ ------------- ----------------
<S> <C> <C>
12/31/96 $0.18 $0.06
12/31/95 $0.20 $0.09
12/31/94 $0.19 $0.14
</TABLE>
<PAGE> 102
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
----- ----- ---
<S> <C> <C>
Colorado................ 41 0.224
New Mexico.............. 265 0.029
Utah (a)................ 1 1.000
--- -----
307 1.253
=== =====
</TABLE>
- --------
(a) Includes the Tanner #1-27 shut-in CO2 well in Wayne County, Utah.
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 nonhazardous
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.
<PAGE> 103
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
consideration 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
utiliies, 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 compounds 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
throughout 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.
<PAGE> 104
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 demonstrating 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
completion 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
<PAGE> 105
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
explore 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 system 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, environmental
service companies and telecommunication companies. (3) Through ISITOP the
segment believes it can demonstrate the capability to clean up manufacturing
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
----------- --------------------------
<S> <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
Segment is competing against much larger and better financed companies. Beard's
<PAGE> 106
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
operated 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.
<PAGE> 107
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 solicitation
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.
<PAGE> 108
<TABLE>
<CAPTION>
1996 High Low
---- ---- ---
<S> <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
---- ---- ---
<S> <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.
<PAGE> 109
<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
<PAGE> 110
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
disappointing 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>
<PAGE> 111
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).
<PAGE> 112
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.
At year-end 1996 the Company has $295,000 of credit available under the
parent Company's new $500,000 bank line of credit, and had $45,000 of credit
available under its line of credit with the William M. Beard and Lu Beard 1988
Charitable Unitrust. In addition, Carbonics had $150,000 of unused credit
under its $1,250,000 bank line of credit, although such funds were not
available at the time since Carbonics was already at its borrowing base
limitation (December being a low month due to the seasonality of the dry ice
business).
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:
<PAGE> 113
<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
=========== =========== ===========
</TABLE>
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.
The Company has an equity investment (40%) in North American Brine Resources
("NABR"), a joint venture for the extraction, production and sale of crude
iodine. In the second half of 1996 NABR determined to reactivate its Woodward
Plant (with iodine priced in the $17-18/kilogram range), which had been shut
down since mid-1993 due to severely depressed iodine prices (bottomed at
$7/kilogram in mid-1994). Beard's share of NABR's 1996 operating loss was
approximately $43,000 compared to $13,000 in 1995.
Although the Company owns 80% of the common stock of Cibola Corporation
("Cibola"), it does not have financial control of this gas marketing
subsidiary. Cibola, formed in May of 1996, contributed $99,000 of pre-tax net
income to the Company for fiscal year 1996 pursuant to a tax sharing agreement.
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
<PAGE> 114
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
<PAGE> 115
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
Liabilities." 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
<TABLE>
<CAPTION>
Page Number
<S> <C>
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
</TABLE>
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> 116
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> 117
THE BEARD COMPANY AND SUBSIDIARIES
Balance Sheets
<TABLE>
<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> 118
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Operations
<TABLE>
<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 (exclusive of
depreciation, depletion and
amortization shown separately
below) 9,478,000 8,598,000 7,822,000
Environmental/resource
recovery (exclusive of
depreciation, depletion and
amortization shown separately
below) 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> 119
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, 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> 120
THE BEARD COMPANY AND SUBSIDIARIES
Statement of Cash Flows
<TABLE>
<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> 121
THE BEARD COMPANY AND SUBSIDIARIES
Statement of Cash Flows
Reconciliation of Net earnings (loss) to Net cash provided by (used in)
operating activities
<TABLE>
<CAPTION>
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
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> 122
(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
distribution 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 exploration 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):
<PAGE> 123
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current assets $ 778,000 $ 245,000 $ 308,000
Noncurrent assets 3,746,000 3,749,000 3,915,000
Current liabilities 580,000 122,000 88,000
Noncurrent liabilities 540,000 -- --
----------- ----------- -----------
Venture equity $ 3,404,000 $ 3,872,000 $ 4,135,000
=========== =========== ===========
Net sales 263,000 282,000 211,000
Gross margin (deficit) 102,000 102,000 (48,000)
Net loss ($ 468,000) ($ 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 $288,000 less than its 40% ownership in the
underlying equity of NABR. In 1992 and 1994, the Company recorded $529,000 and
$408,000, respectively, of economic impairment of its investment in NABR due to
closure of NABR's larger iodine plant and low iodine prices. NABR did
not record economic impairment of its assets at the venture level. Beard is
amortizing the difference between the carrying amount of its investment in
NABR and its share of NABR's recorded equity based on the expected useful life
of the iodine plant and certain maintenance costs incurred by NABR during the
closure period. As a result of higher iodine prices, the closed iodine plant
was reopened in late 1996. Beard amortized $144,000, $92,000 and $109,000 of
the difference between the carrying amount of its investment in NABR and its
share of NABR's recorded equity in 1996, 1995 and 1994, respectively.
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
depreciation, 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
<PAGE> 124
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.
<PAGE> 125
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 valued at
$301,000, 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, valued at $44,000 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 50,000 shares of the Company's common
stock on July 1, 1996. The conversion rate used was the Company's July 1, 1996
closing stock price of $3.00. 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.
<PAGE> 126
(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. The redemption value of the mandatorily redeemable
preferred stock was $9,015,600 at December 31, 1996 and 1995.
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:
<PAGE> 127
<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:
<PAGE> 128
<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 various 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. The various notes payable mature through May 2000.
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
<PAGE> 129
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 various 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. The various notes payable mature through July 2011.
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
contingent 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 of ten years 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.
<PAGE> 130
(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 a CO2
vapor recovery system 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:
<TABLE>
<S> <C>
1997 $555,000
1998 468,000
1999 231,000
2000 111,000
2001 29,000
----------
$1,394,000
==========
</TABLE>
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
impairment of assets, depletion, depreciation and amortization of property and
equipment and debt restructuring.
<PAGE> 131
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):
<PAGE> 132
<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:
<PAGE> 133
<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 subsidiary
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
subsidiaries 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:
<PAGE> 134
<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> 135
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
<PAGE> 136
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:
<TABLE>
<CAPTION>
Director Term
-------- ----
<S> <C>
Allan R. Hallock 1997
Ford C. Price 1997
Herb Mee, Jr. 1998
W. M. Beard 1999
W. R. Plugge 1999
Michael E. Carr (a)
</TABLE>
- ----------
(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 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 $100,000, for any of the
fiscal years ended December 31, 1996, 1995 or 1994:
<PAGE> 137
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
---------------------------
Annual Compensation Awards Payouts
- ----------------------------------------------------- ------ -------
(a) (b) (c) (d) (g) (h) (i)
Securities
Underlying All Other
Options/ LTIP Compen-
Name and Salary (A) Bonus (B) SAR's Payouts sation (C)
Principal Position Year ($) ($) (#) ($) ($)
- ------------------ ---- --- --- --- --- ---
<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> <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 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
<PAGE> 138
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.
<PAGE> 139
<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
<PAGE> 140
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.
<PAGE> 141
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,
respectively, 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. The financial statements of North American Brine
Resources, a 40% owned investor of Beard, as of December 31, 1996,
and 1995 and for each of the years in the three-year period ended
December 31, 1996, and for the year then ended are filed as a
financial statement schedule.
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).
<PAGE> 142
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).
<PAGE> 143
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).*
<PAGE> 144
- ------------------
* 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
(b) No reports on Form 8-K were filed by the Company during the three months
ended December 31, 1996.
<PAGE> 145
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: August 29, 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
W.M. BEARD
W.M. Beard Chief Executive Officer August 29, 1997
HERB MEE, JR.
Herb Mee, Jr. President and Chief August 29, 1997
Financial Officer
JACK A. MARTINE
Jack A. Martine Controller and Chief August 29, 1997
Accounting Officer
W.M. BEARD
W.M. Beard Chairman of the Board August 29, 1997
HERB MEE, JR.
Herb Mee, Jr. Director August 29, 1997
ALLAN R. HALLOCK
Allan R. Hallock Director August 29, 1997
FORD C. PRICE
Ford C. Price Director August 29, 1997
MICHAEL E. CARR
Michael E. Carr Director August 29, 1997
</TABLE>
<PAGE> 146
FINANCIAL STATEMENT SCHEDULE 1
NORTH AMERICAN BRINE RESOURCES
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT ON 1996)
<PAGE> 147
INDEPENDENT AUDITORS' REPORT
The Partners
North American Brine Resources:
We have audited the accompanying balance sheet of North American Brine
Resources as of December 31, 1996, and the related statements of operations,
partners' equity, and cash flows for the year then ended. These financial
statements are the responsibility of North American Brine Resources'
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides 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 North American Brine Resources
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Oklahoma City, Oklahoma
April 22, 1997
<PAGE> 148
NORTH AMERICAN BRINE RESOURCES
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 208,205 64,263
Accounts receivable 2,978 539
Inventory:
Raw materials 10,171 13,854
Work-in-process 70,594 4,691
Finished goods 383,864 21,857
------------ ------------
464,629 40,402
Supplies 58,200 84,700
Prepaid expenses 40,022 50,788
Other current assets 4,177 4,177
------------ ------------
Total current assets 778,211 244,869
------------ ------------
Property, plant and equipment 7,863,304 7,590,142
Less accumulated depletion, depreciation, and amortization 4,116,866 3,841,482
------------ ------------
Net property, plant and equipment 3,746,438 3,748,660
------------ ------------
$ 4,524,649 3,993,529
============ ============
p
Liabilities and Partners' Equity
--------------------------------
Current liabilities:
Accounts payable and accrued expenses 390,637 121,861
Deferred revenue 100,000 --
Current maturities of long-term debt 90,000 --
------------ ------------
Total current liabilities 580,637 121,861
------------ ------------
Long-term debt less current maturities 540,000 --
Partners' equity:
Partners' contributions 7,062,610 7,062,610
Accumulated deficit (3,658,598) (3,190,942)
------------ ------------
Net partners' equity 3,404,012 3,871,668
------------ ------------
$ 4,524,649 3,993,529
============ ============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 149
NORTH AMERICAN BRINE RESOURCES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Iodine sales $ 271,080 299,550 218,250
Less sales discounts and commissions 8,208 17,227 7,712
---------- ---------- ----------
Net iodine sales 262,872 282,323 210,538
Cost of iodine sales 160,960 179,912 162,962
---------- ---------- ----------
Gross margin 101,912 102,411 47,576
---------- ---------- ----------
Operating expense (30,478) (14,236) (22,124)
General and administrative expense (171,974) (122,263) (132,276)
Interest expense (7,063) -- --
Idled plant costs (119,631) (230,762) (273,624)
Plant re-opening costs (213,970) -- --
Reduction of supplies' carrying value to net
replacement cost (26,500) -- --
Other income 48 1,119 3,754
---------- ---------- ----------
(569,568) (366,142) (424,270)
---------- ---------- ----------
Net loss $ (467,656) (263,731) (376,694)
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 150
NORTH AMERICAN BRINE RESOURCES
STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
GODOE The Inorgchem
(USA), Beard Developments
Inc. Company Inc. Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 (Unaudited) $ 2,274,853 1,789,792 447,448 4,512,093
Net loss (188,347) (150,678) (37,669) (376,694)
------------ ------------ ------------ ------------
Balance, December 31, 1994 (Unaudited) 2,086,506 1,639,114 409,779 4,135,399
Net loss (131,867) (105,491) (26,373) (263,731)
------------ ------------ ------------ ------------
Balance, December 31, 1995 (Unaudited) 1,954,639 1,533,623 383,406 3,871,668
Net loss (233,828) (187,062) (46,766) (467,656)
------------ ------------ ------------ ------------
Balance, December 31, 1996 $ 1,720,811 1,346,561 336,640 3,404,012
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 151
NORTH AMERICAN BRINE RESOURCES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (467,656) (263,731) (376,694)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depletion, depreciation, and amortization expense 293,806 166,701 174,231
Reduction in carrying value of supplies 26,500 -- --
Decrease (increase) in accounts receivable (2,439) 70,191 4,212
Increase in accounts payable and
accrued expenses 268,776 34,253 38,396
Increase in deferred revenue 100,000 -- --
Increase in inventory (424,227) (4,283) (3,193)
Decrease (increase) in prepaid expenses and
other current assets 10,766 (826) (12,477)
---------- ---------- ----------
Net cash provided by (used in) operating
activities (194,474) 2,305 (175,525)
---------- ---------- ----------
Cash flows from investing activities:
Purchase of plant and equipment (54,722) -- --
Development of producing properties (236,862) -- --
---------- ---------- ----------
Net cash used in investing activities (291,584) -- --
Cash flows from financing activities: --
Proceeds from credit agreements 630,000 -- --
---------- ---------- ----------
Net cash provided by financing activities 630,000 -- --
Net increase (decrease) in cash and cash equivalents 143,942 2,305 (175,525)
Cash and cash equivalents at beginning of year 64,263 61,958 237,483
---------- ---------- ----------
Cash and cash equivalents at end of year $ 208,205 64,263 61,958
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 152
NORTH AMERICAN BRINE RESOURCES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(INFORMATION AS OF DECEMBER 31, 1995 AND 1994 AND
FOR THE YEARS THEN ENDED IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
North American Brine Resources (NABR) was formed on June 5, 1981, as a
joint venture of GODOE (USA), Inc., The Beard Company, and Inorgchem
Developments, Inc. The participants make capital contributions and share
in the profits and losses of NABR as follows:
GODOE (USA), Inc. 50%
The Beard Company 40%
Inorgchem Developments, Inc. 10%
NABR operates two crude iodine extraction and processing plants in Dover
and Woodward, Oklahoma. All of NABR's revenues consist of sales of crude
iodine to Mitsui and Co. (USA), Inc. (see note 5).
In 1993, the Management Committee of NABR approved an indefinite
suspension of the Woodward, Oklahoma plant's operations. The suspension
was in response to a world oversupply of iodine which resulted in a
decline of iodine prices to unprofitable levels.
In June 1996, the Management Committee of NABR approved a plan to resume
operations at the Woodward, Oklahoma plant based on their assessment of
world supply and demand of iodine which has resulted in increased prices.
In the opinion of management, the accompanying unaudited financial
statements as of December 31, 1995 and 1994, and for the years then ended,
reflect adjustments (all of which were normal and recurring) which, in the
opinion of management, are necessary for a fair statement of the financial
position and the results of operations and cash flows for the periods
mentioned above.
CASH AND CASH EQUIVALENTS
NABR considers certificates of deposit and other similar securities, whose
remaining terms at date of purchase are less than 90 days, to be cash
equivalents.
INVENTORIES
Raw materials, work in process, and finished goods inventories are valued
at the lower of cost (on average cost basis) or market. Raw materials
consist of chemicals used in the extraction of iodine. At December 31,
1996 and 1995, finished goods inventory consisted of approximately 27,000
and 2,800 kilograms, respectively, of crude iodine.
SUPPLIES
Supplies represent various replacement parts for NABR's producing
properties and plant equipment. Supplies are carried at the lower of cost
or net replacement cost.
6
<PAGE> 153
NORTH AMERICAN BRINE RESOURCES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
PROPERTY, PLANT AND EQUIPMENT
Plant and equipment are stated at cost. Expenditures for acquisition,
renewals and betterments are capitalized, whereas maintenance and repair
costs are expensed as incurred. When properties are retired or otherwise
disposed of, the appropriate accounts are relieved of costs and
accumulated depreciation and any resulting gain or loss is credited or
charged to operations.
Depreciation is provided on the straight-line method over periods of three
to ten years.
Producing properties represent NABR's cost of drilling and equipping wells
producing salt water for the extraction of brine and salt water disposal
wells, and the leasehold costs of such properties. Depreciation,
depletion, and amortization of producing properties is computed by the
straight-line method using an estimated recoverable period of ten years
for salt water brine reserves.
During the suspended operations of the Woodward, Oklahoma plant (1995,
1994, and 1993), NABR recorded 25% of the depletion, depreciation and
amortization of the salt water wells' leasehold, development, and
equipment costs and the plant's capitalized costs using the straight-line
method and a 10 year useful life. Upon the approval to resume the
Woodward, Oklahoma plant's operations in June 1996, NABR resumed recording
100% of the depletion, depreciation and amortization.
NABR adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived 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. Adoption of this Statement did not have a material impact on
NABR's financial position or results of operations.
DEFERRED REVENUE
Deferred revenue represents amounts received from Mitsui for future
deliveries of crude iodine (see note 5).
INCOME TAXES
No provision for income taxes is required in the financial statements
since the partners pay income taxes on, or receive as a deduction, their
distributive share of NABR's taxable income or losses.
IDLED PLANT COSTS
As previously noted, NABR suspended operations of the Woodward, Oklahoma
iodine extraction and processing plant in 1993. Included in idled plant
costs are the depreciation, depletion and amortization costs as well as
other costs incurred during the plant's suspended operations through
October 1996, the date the plant's operations resumed.
7
<PAGE> 154
NORTH AMERICAN BRINE RESOURCES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
PLANT RE-OPENING COSTS
Plant re-opening costs represent costs incurred for readying the Woodward,
Oklahoma producing salt water wells and plant for resumed operations.
USE OF ESTIMATES
Management of NABR has made a number of estimates and assumptions relating
to the reporting of assets and liabilities to prepare these financial
statements in conformity with generally acceptable accounting principles.
Actual results could differ from those estimates.
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
Plant and equipment $4,322,723 4,316,617
Autos and trucks 89,399 88,210
Furniture and fixtures 16,848 14,432
Producing properties 3,434,334 3,170,883
---------- ----------
$7,863,304 7,590,142
========== ==========
</TABLE>
(3) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Borrowings under credit agreement (a) $450,000
Term note payable (b) 180,000
Total long-term debt 630,000
Less current maturities 90,000
--------
Long-term debt, less current maturities $540,000
========
</TABLE>
(a) Amount represents unsecured borrowings under a credit agreement
with GODOE (USA), Inc., a 50% partner of NABR. The credit agreement allows
NABR to borrow up to a maximum amount of $896,000. Borrowings under the
credit agreement are due on December 31, 1998. Interest is paid quarterly
and is based on the floating three month London Interbank Offered Rate
(LIBOR) interest rate, plus .38% which approximated 5.94% at December 31,
1996. Subsequent to December 31, 1996, NABR borrowed an additional
$446,000 under the credit agreement.
8
<PAGE> 155
NORTH AMERICAN BRINE RESOURCES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(b) On December 31, 1996, NABR entered into a term note agreement
with Inorgchem Developments, Inc., a 10% partner of NABR. The term note is
unsecured and is payable in two installments of $90,000 on December 31,
1997 and 1998. Interest is paid quarterly and is based on the floating
three month LIBOR interest rate, plus .38%, which approximated 5.94% at
December 31, 1996.
(4) PROFIT SHARING PLAN
All eligible employees of NABR are eligible to participate in the North
American Brine Resources Salary Deferral Plan and Trust (the Plan).
Participant contributions up to 5% of the participant's total compensation
are matched 50% by NABR. The participant can make additional
contributions, which are not matched by NABR. During 1996, 1995, and 1994,
NABR contributed $3,500, $3,300, and $3,300, respectively, under the Plan.
Benefits payable under the Plan are limited to the amount of plan assets
allocable to the account of each Plan participant. NABR retains the right
to modify, amend, or terminate the Plan at any time.
(5) RELATED PARTY TRANSACTIONS
In connection with the formation of NABR, the partners executed a
technical assistance agreement, an operating agreement and a
distributorship agreement.
The technical assistance agreement specifies that GODOE (USA), Inc. will
provide assistance in the development of the process for extracting iodine
and other minerals from brine and will provide other support services for
NABR's plants. As compensation for these support services GODOE (USA),
Inc. is to receive reimbursement for the salary, travel, and other costs
of its personnel who assist NABR. No such costs were incurred by NABR
during 1996, 1995, and 1994.
The operating agreement specifies that The Beard Company will provide
assistance in obtaining necessary licenses and permits for the conduct of
business, locating appropriate plant sites and brine supplies, and
providing office space and clerical and accounting assistance. For these
services, The Beard Company is paid its actual cost plus 10%. Included in
general and administrative expense in 1996, 1995, and 1994 are
professional and clerical assistance charges by The Beard Company of
approximately $30,000, $12,400, and $7,800, respectively.
The distributorship agreement provides that Mitsui & Co. (USA), Inc. will
purchase all of NABR's output of iodine and other products at fair market
values. The distributorship agreement is renewed annually subject to
termination by either party upon six months' notice. Mitsui & Co. (USA),
Inc. is, in return, granted the exclusive worldwide marketing rights for
NABR's products. Mitsui & Co. (USA), Inc. is the parent company of
Inorgchem Developments, Inc. All of NABR's sales in 1996, 1995, and 1994,
were to Mitsui & Co. (USA), Inc. pursuant to this agreement.
Pursuant to a waste brine processing agreement, NABR purchases all of
required waste brine used for extracting iodine at its Berkenbile Facility
from The Beard Company. During 1996, 1995, and 1994, NABR purchased
$29,000, $33,000, and $35,000, respectively, of waste brine from The Beard
Company.
9
<PAGE> 156
APPENDIX B
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended June 30, 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 June 30, 1997.
Common Stock $.001 par value - 2,799,074
<PAGE> 157
THE BEARD COMPANY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1997 (Unaudited) and
December 31, 1996
Statements of Operations - Three Months and Six Months
ended June 30, 1997 and 1996 (Unaudited)
Statements of Shareholders' Equity, Year ended
December 31, 1996 and Six Months ended
June 30, 1997 (Unaudited)
Statements of Cash Flows - Six Months ended
June 30, 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> 158
THE BEARD COMPANY AND SUBSIDIARIES
Financial Statements
<PAGE> 159
June 30, 1997 (Unaudited) and December 31, 1996 and for the
Three Months and Six Months Ended June 30, 1997, and 1996 (Unaudited)
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE BEARD COMPANY AND SUBSIDIARIES
Balance Sheets
June 30, 1997 (Unaudited) and December 31, 1996
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
----------------- ---------------
<S> <C> <C>
Current assets:
- --------------
Cash and cash equivalents $ 52,000 $ 375,000
Accounts receivable, less allowance for doubtful
receivables of $57,000 in 1997 and $71,000 in 1996 2,803,000 2,405,000
Inventories 621,000 2,003,000
Prepaid expense 337,000 442,000
Other assets 140,000 73,000
----------- ------------
Total current assets 3,953,000 5.298,000
----------- ------------
Investments and other assets 1,675,000 1,710,000
Property, plant and equipment, at cost 17,971,000 16,793,000
Less accumulated depreciation, depletion and amortization 8,746,000 8,094,000
----------- ------------
Net property, plant and equipment 9,225,000 8,699,000
----------- ------------
Intangible assets, at cost 4,409,000 4,305,000
Less accumulated amortization 3,606,000 3,539,000
----------- ------------
Net intangible assets 803,000 766,000
----------- ------------
$15,656,000 $ 16,473,000
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
- -------------------
Trade accounts payable $ 1,671,000 $ 1,395,000
Accrued expense and other liabilities 451,000 609.000
Short-term debt - 639,000
Current maturities of long-term debt 921,000 910,000
----------- ------------
Total current liabilities 3,043,000 3,553,000
----------- ------------
Long-term debt less current maturities 3,037,000 2,911,000
Minority interest in consolidated subsidiaries 123,000 153,000
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 (33,379,000) (32,976,000)
------------ ------------
Total common shareholders' equity 8,253,000 8,656,000
------------ ------------
Commitments and contingencies (note 8)
$15,656,000 $ 16,473,000
=========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 160
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For Three Months Ended For Six Months Ended
------------------------- ------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
------------------------- ------------------------
<S> <C> <C> <C> <C>
Revenues:
Carbon dioxide $ 3,891,000 $ 3,553,000 $ 6,809,000 $ 6,332,000
Environmental/resource recovery 1,252,000 708,000 2,421,000 1,058,000
Other 92,000 13,000 127,000 30,000
----------- ----------- ----------- -----------
5,235,000 4,274,000 9,357,000 7,420,000
Expenses:
Carbon dioxide (exclusive of depreciation,
depletion and amortization shown
separately below) 2,501,000 2,419,000 4,554,000 4,483,000
Environmental/resource recovery (exclusive
of depreciation, and amortization shown
separately below) 1,139,000 603,000 2,134,000 1,130,000
Selling, general and administrative 1,181,000 1,087,000 2,212,000 2,034,000
Depreciation, depletion & amortization 373,000 320,000 734,000 622,000
Other 9,000 8,000 16,000 22,000
------------ ----------- ----------- ---------
5,203,000 4,437,000 9,650,000 8,291,000
Operating profit (loss):
Carbon dioxide 435,000 246,000 514,000 160,000
Environmental/resource recovery (165,000) (139,000) (340,000) (492,000)
Other (238,000) (270,000) (467,000) (539,000)
------------- ------------ ------------ ----------
32,000 (163,000) (293,000) (871,000)
Other income (expense):
Interest income 4,000 4,000 7,000 6,000
Interest expense (99,000) (52,000) (187,000) (98,000)
Gain on sale of assets - 74,000 53,000 86,000
Gain on take-or-pay contract settlement (note 6) - - - 939,000
Other, including unconsolidated affiliates 89,000 (7,000) 12,000 (103,000)
Minority interest in operations of
consolidated subsidiaries 20,000 (3,000) 30,000 (3,000)
------------- ------------ ------------ ----------
Earnings (loss) from continuing operations
before income tax 46,000 (147,000) (378,000) (44,000)
Income taxes (note 7) (25,000) - (25,000) -
------------- ------------ ------------ ----------
Earnings (loss) from continuing operations 21,000 (147,000) (403,000) (44,000)
Loss from discontinued real estate
operations (note 2) - (8,000) - (16,000)
------------- ------------ ------------ ----------
Net earnings (loss) $ 21,000 $ (155,000) $ (403,000) $ (60,000)
============= ============ ============ ==========
Net earnings (loss attributable to
common shareholders $ 21,000 $ (155,000) $ (403,000) $ (60,000)
============ ============ ============ ==========
Earnings (loss) per common share and common
equivalent share (primary EPS) (note 5):
Earnings (loss) from continuing operations $ 0.01 $ (0.06) $ (0.14) (0.02)
Loss from discontinued operations - - - -
Earnings (loss) $ 0.01 $ (0.06) $ (0.14) $ (0.02)
</TABLE>
See accompanying notes to financial statements.
<PAGE> 161
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, six months ended June 30, 1997 - - (403,000) (403,000)
------ ----------- ------------ --------------
Balance, June 30, 1997 $3,000 $41,629,000 $(33,379,000) $8,253,000
====== =========== ============ ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 162
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-------------------------------
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from customers $10,493,000 $7,501,000
Cash paid to suppliers and employees (9,245,000) (7,805,000)
Cash received from settlement of
take-or-pay contract - 539,000
Interest received 6,000 4,000
Interest paid (199,000) (140,000)
----------- ----------
Net cash provided by operating activities 1,055,000 99,000
----------- ----------
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (904,000) (813,000)
Proceeds from sale of assets 58,000 241,000
Other investments 22,000 33,000
----------- ----------
Net cash used in investing activities (824,000) (539,000)
----------- ----------
FINANCING ACTIVITIES:
Proceeds from line of credit and term notes 1,229,000 2,263,000
Payments on line of credit and term notes (1,783,000) (1,778,000)
Proceeds from issuance of stock - 25,000
----------- ----------
Net cash provided by (used in) financing
activities (554,000) 510,000
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (323,000) 70,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 375,000 220,000
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $52,000 $290,000
=========== ==========
</TABLE>
Continued
<PAGE> 163
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Reconciliation of Net loss to Net Cash
Provided by Operating Activities
FOR THE SIX MONTHS ENDED
----------------------------------
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net loss $(403,000) $(60,000)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation, depletion and
amortization 734,000 625,000
Gain on sale of assets (53,000) (86,000)
Interest and other costs
(capitalized) recognized
on real estate project 478,000 (66,000)
Provision for impairment of assets 60,000 120,000
Gain on take-or-pay contract
settlement - (400,000)
Other, including minority interest
in consolidated subsidiaries (82,000) (10,000)
Increase in accounts receivable,
prepaids and other current
assets (308,000) (53,000)
(Increase) decrease in inventories 932,000 (543,000)
Increase (decrease) in accounts
payable, accrued expenses
and other liabilities (303,000) 572,000
---------- ----------
Net cash provided by operating
activities $1,055,000 $99,000
========== ==========
Supplemental Schedule of Noncash
Investing and Financing Activities
Purchase of property, plant and
equipment and intangible assets
through issuance of debt
obligations $ - $1,013,000
========== ==========
Receipt of property, plant, and
equipment as part of settlement
of take-or-pay contract $ - $ 400,000
========== ==========
Sale of inventory for a note
receivable $ 87,000 $ -
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 164
THE BEARD COMPANY AND SUBSIDIARIES
Notes to Financial Statements
June 30, 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 10-K.
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
management, necessary for a fair statement of the results for the interim
periods presented.
The results of operations for the three and six-month periods ended June
30, 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
environmental/resource recovery ("E/RR") Segment, consisting of
environmental services and resource recovery activities. The Company's
real estate ("R/E") Segment, consisting of real estate construction and
development, was discontinued in January, 1997. See Note 2 below. 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.
<PAGE> 165
Results of operations of the R/E Segment for the three and six months
ended June 30, 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 six months ended June 30, 1997, the Company disposed of certain
real estate construction and development assets for $1,534,000 which
approximated the Company's estimated disposition values of those assets.
As of June 30, 1997 the significant remaining asset of the R/E Segment
consisted of one speculative home which the Company expects to dispose of
by December 31, 1997 at its June 30, 1997 recorded value.
(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 valued at $301,000, 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, valued at $44,000, 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 50,000 shares of the Company's common stock on July 1, 1996. The
conversion rate used was the Company's July 1, 1996 closing price of
$3.00. 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 June 30, 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.
<PAGE> 166
(5) EARNINGS (LOSS) PER SHARE
Earnings (loss) per common share for the respective three and six-month
periods ended June 30, 1997 and 1996 have been computed by dividing the
earnings (loss) by the weighted average number of common shares
outstanding during the respective periods. Common share equivalents and
any potentially dilutive securities outstanding were not considered as the
effects would not have been dilutive.
The table below 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:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
----------------------------- --------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Primary EPS:
Weighted average common
shares outstanding 2,799,074 2,736,141 2,799,074 2,736,141
Options considered to be
common stock equivalents - - - -
--------- --------- --------- ---------
2,799,074 2,736,141 2,799,074 2,736,141
========= ========= ========= =========
</TABLE>
(6) SETTLEMENT OF TAKE-OR-PAY CONTRACT
In February 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
$539,000 of cash and a CO2 vapor recovery system 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
Standards 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 regular federal
income taxes in 1997 or 1996 due to the availability of net operating
losses and other carryforwards. The provision in the Statements of
Operations for the three and six-month periods ending June 30, 1997
consists of $8,000 in state income tax and $17,000 in federal alternative
minimum tax.
<PAGE> 167
At June 30, 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
carryforwards 2001-2010 $ 65,788
Investment tax credit carryforward 1997-2000 679
Tax depletion carryforward Indefinite 5,500
---------
Total $ 71,967
=========
</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) LETTER OF INTENT
In June 1997, the Company signed a letter of intent to sell substantially
all of the assets of Carbonic Reserves (an 85% owned subsidiary of Beard
in the CO2 Segment) for cash and the assumption of certain liabilities.
The sale is expected to close on October 1, 1997 and result in a gain
ranging from $10 to $12 million. The sale is subject to approval by the
Company's shareholders at the annual meeting scheduled to be held on
September 25, 1997 and to certain other conditions. If the sale is
consummated as anticipated, the Company's continuing operations will
consist of its environmental services and resource recovery activities,
and the CO2 Segment's operations will be presented as discontinued in
the statements of operations for all periods presented. The sale is
expected to result in the redemption of approximately $3.5 million (35,000
shares) of the Company's preferred stock. The other proceeds from the sale
are expected to be used to pay down virtually all of the Company's
outstanding indebtedness and provide working capital to exploit the
Company's remaining assets.
<PAGE> 168
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
The following discussion focuses on material changes in the Company's financial
condition since December 31, 1996 and results of operations for the quarter
ended June 30, 1997 compared to the prior year second quarter and the six
months ended June 30, 1997 compared to the prior year six months. Such
discussion should be read in conjunction with the Company's financial
statements including the related footnotes.
In preparing the discussion and analysis, the Company has presumed readers have
read or have access to the discussion and analysis of the prior year's results
of operations, liquidity and capital resources as contained in the Company's
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; (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 - June 30, 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>
June 30, December 31, Increase
1997 1996 (Decrease)
-------- ------------ ----------
<S> <C> <C> <C>
Cash and cash equivalents $ 52,000 $ 375,000 $ (323,000)
Working capital $ 910,000 $1,745,000 $ (835,000)
Current ratio 1.30 to 1 1.49 to 1
</TABLE>
<PAGE> 169
The Company's ability to generate working capital from operations during the
first six months of 1997 was adversely affected by seasonality during the first
three months of the year. The first quarter is normally a poor one for the dry
ice business, and cold and/or rainy weather also normally causes a slowdown of
sales in the environmental services portion of the E/RR 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 first six months of
1997 provided cash of $1,305,000 and working capital of $452,000. 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 the above sale and by operations as a result of
increased activity in the E/RR Segment for the first six months of 1997
amounted to $734,000, compared to $123,000 generated in the first six months of
1996.
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, continuing private and
governmental demand for environmental services. Despite these uncertainties,
the Company anticipates that its cash flow from operations and continued
availability of credit on a basis similar to that experienced to date will be
sufficient to meet its planned operating costs and capital spending
requirements.
Capital additions of $1,185,000 were made by the following segments during the
first six months of 1997, as reflected in the table on the following page:
Carbon dioxide $ 915,000
Environmental/resource recovery 266,000
Other 4,000
-----------
$ 1,185,000
===========
Seller-provided financing and other debt obligations provided $281,000 of the
funds for such capital investments.
The Company's working capital, the CO2 Segment's line of credit, and a recently
finalized $500,000 bank line of credit are expected to be sufficient to fund
the Company's current and presently foreseeable capital expenditure
requirements, including the $264,000 projected for the last six months of 1997.
In June 1997, the Company signed a letter of intent to sell substantially all
of its dry ice assets for cash and the assumption of certain liabilities. The
sale is subject to approval by the Company's shareholders at its annual meeting
of stockholders presently scheduled to be held on September 25, 1997. If
consummated, the sale is expected to close on October 1, 1997 and result in (i)
a gain ranging from $10 to $12 million, (ii) the redemption of approximately
$3.5 million (35,000 shares) of the Company's preferred stock and (iii) the
paydown of virtually all of the Company's outstanding indebtedness. If the sale
is consummated as anticipated, it will significantly enhance the Company's
working capital and liquidity and improve the Company's common shareholders'
equity. See Note 9 to the accompanying financial statements.
<PAGE> 170
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 4 to the accompanying
financial statements.
Material changes in results of operations - Quarter ended June 30, 1997 as
compared with the Quarter ended June 30, 1996.
The income for the quarter ended June 30, 1997 was $21,000, compared to a loss
of $155,000 for the second quarter of the prior year. There was a significant
improvement in the operating margin in the CO2 Segment while a small decline in
the operating margin in the E/RR Segment was more than offset by a small
improvement in "Other", primarily general and corporate activities. As a
result, operating results improved $195,000 from a $163,000 loss in the second
quarter of 1996 to a profit of $32,000 for the same period in 1997.
Operating results of the Company's two segments are reflected below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Operating profit (loss):
Carbon dioxide $ 435,000 $ 246,000
Environmental/resource recovery (165,000) (139,000)
----------- -----------
Subtotal 270,000 107,000
Other (238,000) (270,000)
----------- -----------
Total $ 32,000 $ (163,000)
=========== ===========
</TABLE>
The "Other" in the above table reflects primarily general and corporate
activities, as well as other activities and investments of the Company.
Carbon dioxide
Second quarter 1997 operations reflected an operating gain of $435,000 compared
to a $246,000 gain for the 1996 second quarter. The primary component of
revenues for this segment is dry ice sales which are seasonal with the
down-turn occurring from December through February, while the brisk sales
period occurs from June through August and then again in October. The dry ice
component of this segment generated an operating profit of $330,000 in the
second quarter of 1997 versus an operating profit of $198,000 in the comparable
period of 1996.
Revenues from this segment totaled $3,891,000 for the second quarter of 1997, a
10% increase over last year's second quarter. The factors contributing to this
improvement included increases in the volume of dry ice sales, in the sales of
equipment, and in the Company's allocated share of sales from its working
interest in a producing CO2 unit. This improvement in revenues was somewhat
offset by increases in expenses associated with advertising and sales,
insurance, and an incentive-sales arrangement for employees.
<PAGE> 171
Environmental/resource recovery
The E/RR Segment generated a larger operating loss in the second quarter of
1997 as compared with the same period in 1996. The segment reflected a 77%
increase in revenues, which resulted primarily from the increased activity of
the environmental services companies, as well as the full quarter impact of
Horizontal Drilling Technologies, Inc. ("HDT"), resulting from Beard's purchase
of 80% of HDT's common stock (the "HDT acquisition") in May 1996. The increase
in revenues created by HDT was offset by a decline in the revenues generated by
resource recovery activities due to the completion in February 1996 of a
contract with U.S. Department of Energy involving activities related to the
Company's patented Mulled Coal technology. Management has been pursuing and
will continue to pursue the commercial development of this technology during
the remainder of 1997. The costs of pursuing this development, additional HDT
operations resulting from the HDT acquisition, as well as increased operating
expenses related to the Company's other environmental services activities, more
than offset the increased revenues and resulted in the decline in operating
margins.
Other activities
Other operations, consisting mostly of general and corporate activities,
generated a slightly smaller operating loss for the second quarter of 1997 than
the same period of last year.
Selling, general and administrative expenses
The Company's selling, general and administrative expenses ("SG&A") in the
current quarter increased to $1,181,000 from $1,087,000 in the 1996 second
quarter. SG&A expenses incurred by the CO2 Segment during the second quarter of
1997, which represent 57% of the total SG&A costs, increased by $44,000 over
the same period last year. This increase was associated with an increase in
expenses related to Carbonics' advertising and sales expenses, insurance, and
an incentive sales arrangement for employees. SG&A expenses incurred by the
E/RR Segment during the second quarter of 1997 increased by $79,000 over the
same period for 1996. $67,000 of this increase was due to the impact of the HDT
acquisition. Other operations incurred approximately $23,000 less in SG&A for
the second quarter of 1997 compared to the same period in 1996.
Depreciation, depletion and amortization expenses
The second quarter of 1997 had an increase in DD&A expense of $53,000,
reflecting additions to property, plant and equipment made since June 30, 1996.
Other income and expenses
Other income and expenses netted to a total income of $14,000 for the second
quarter of 1997, down slightly from the $16,000 in income recorded for such
items in the same period of 1996. The decrease was due primarily to a $123,000
increase in the earnings of unconsolidated affiliates, offset by a decrease in
the gain on sale of assets of $74,000, as well as a $47,000 increase in
interest expense.
<PAGE> 172
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 the two homes was sold during the second quarter of 1997 for
$338,000. The Company expects to dispose of the remaining speculative home by
December 31, 1997.
Material changes in results of operations - Six months ended June 30, 1997 as
compared with the Six months ended June 30, 1996.
The loss for the six months ended June 30, 1997 was $403,000, compared to a
loss of $60,000 for the first six months of the prior year. The first half of
1996 benefited from the February 1996 settlement of a take-or-pay agreement in
the amount of $939,000. The first half of 1997 benefited from increased
revenues due to an approximate 11% increase in sales volume of dry ice. In
addition, the segment benefited from increased revenue from the sale of CO2 gas
from the Company's working interests in two producing CO2 gas units in Colorado
and New Mexico. The E/RR Segment benefited from an increase in revenues of
$1,363,000. These increases, however, were partially offset by increased
operating expenses of the Company's two operating segments.
Operating results of the Company's two segments are reflected below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Operating profit (loss):
Carbon dioxide $ 514,000 $ 160,000
Environmental/resource recovery (340,000) (492,000)
----------- -----------
Subtotal 174,000 (332,000)
Other (467,000) (539,000)
----------- -----------
Total $ (293,000) $ (871,000)
=========== ===========
</TABLE>
The "Other" in the above table reflects primarily general and corporate
activities, as well as other activities and investments of the Company.
<PAGE> 173
Carbon dioxide
Operations for the first six months of 1997 resulted in an operating profit of
$514,000 compared to a $160,000 operating profit for the 1996 first half. The
primary component of revenues for this segment is dry ice sales which are
seasonal with the downturn occurring from December through February, while the
brisk sales period occurs from June through August and then again in October.
The six months operating results of both 1997 and 1996 reflect the normal
downturn in the sales cycle at the first of the year. The dry ice component of
this segment generated an operating profit of $324,000 in the 1997 first half
versus an operating profit of $58,000 in the comparable 1996 period.
Revenues from this segment totaled $6,809,000 for the first six months of 1997,
an 8% increase over the same period last year. The factors contributing to this
improvement included increases in the volume of dry ice sales and in the
Company's allocated share of sales from its working interest in a producing CO2
unit. This improvement in revenues was somewhat offset by increases in expenses
associated with advertising and sales, insurance, and an incentive-sales
arrangement for employees.
Environmental/resource recovery
A significant increase in revenues generated by the E/RR Segment led to an
improvement in operating margins in the first six months of 1997 as compared to
the same period in 1996. This increase in revenues was primarily caused by an
increase in environmental services activity in the first six months of the
year, as well as the inclusion, for the full six months in 1997, of the
operations of HDT, acquired on May 21, 1996. The increase in revenues created
by HDT was partially offset by the completion in February 1996 of a contract
involving the resource recovery activities related to the Company's patented
Mulled Coal technology. Management intends to pursue the commercial development
of this technology during the remainder of 1997. Increased revenue as a result
of increases in environmental services activity in the first quarter of 1997 as
compared to the same period in 1996 coupled with a decrease in operating
expenses as a percentage of sales have resulted in an improvement in the
operating margins for this segment for the six months in 1997 compared to the
same period in 1996.
Other activities
Other operations, consisting mostly of general and corporate activities,
generated a slightly smaller operating loss for the first half of 1997 as
compared to the same period last year.
Selling, general and administrative expenses
The Company's selling, general and administrative expenses ("SG&A") in the
first half of 1997 increased to $2,212,000 from $2,034,000 in the 1996 six
months. SG&A expenses incurred by the CO2 Segment during the first half of
1997, which represent 54% of the total SG&A costs, increased by $12,000 over
<PAGE> 174
the same period last year. This increase was associated with increases in
expenses related to advertising and sales, insurance, and an incentive-sales
arrangement for employees. SG&A of the E/RR Segment increased by $237,000
during the first six months of 1997 compared to the same period in 1996. The
effect of the HDT acquisition accounted for $162,000 or 68% of this increase.
Other members of the segment incurred increases in SG&A as a result of
increased operating activity.
Depreciation, depletion and amortization expenses
The first half of 1997 had an increase in DD&A expense of $112,000, reflecting
additions to property, plant and equipment made since June 30, 1996.
Other income and expenses
The other income and expenses for the first six months of 1997 netted to an
$85,000 loss compared to $827,000 in net income for the same period in 1996. As
previously mentioned, the Company benefited in the first six months of 1996
from the February 1996 settlement of a take-or-pay agreement in the CO2
Segment. This settlement resulted in a gain of $939,000. The first six months
of 1997 included an increase of $89,000 in interest expense as a result of
greater borrowings to meet working capital needs, a $33,000 decrease in the
gain on sale of assets, a $32,000 increase in the minority interest in the
operations of consolidated subsidiaries and a $129,000 increase in income from
unconsolidated affiliates.
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.
<PAGE> 175
PART II. OTHER INFORMATION.
Item 2. Changes in Securities.
The Company's preferred stock is mandatorily redeemable through December 31,
2002 from one-third of Beard's "consolidated net income" as defined in the
instrument governing the rights of the preferred stockholders. Accordingly,
one-third of future "consolidated net income" will accrete directly to
preferred stockholders and reduce earnings per common share. As a result of
these redemption requirements, the payment of any dividends to the common
stockholders in the near future is very unlikely. See Note 4 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:
27 Financial Data Schedules.
(b) No reports on Form 8-K were filed during the period covered by this report.
<PAGE> 176
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
August 29, 1997 HERB MEE, JR.
Herb Mee, Jr., President and
Chief Financial Officer
August 29, 1997 JACK A. MARTINE
Jack A. Martine, Controller and
Chief Accounting Officer
