THE BEARD COMPANY
Enterprise Plaza, Suite 320
5600 North May
Oklahoma City, Oklahoma 73112
Fax 405/842-9901
Telephone 405/842-2333
November 16, 2005
FEDERAL EXPRESS
---------------
Mr. John Cash
Accounting Branch Chief Division of
Corporation Finance
Securities and Exchange Commission
Washington, D.C. 20549-0510
Dear Mr. Cash:
The following is offered in response to your letter of October 7, 2005 regarding
the Form 10-K of The Beard Company (the "Company" or "Beard"):
SEC October 7, 2005, comment 1, bullet point 1
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Attached as Schedule 1 is an analysis prepared by Lisle Compton Cole & Almen LLP
("Lisle Compton") that is responsive to this request.
As the Schedule indicates, Cibola Corporation ("Cibola") issued preferred stock
in exchange for all of the common stock of Mainline Enertech Corporation
("Mainline"), with the Cibola preferred stock equal to the Mainline common
stock. Since the preferred stock is not redeemable, Cibola did not accrete the
discount. The exchange was treated as an exchange of interests between
enterprises under common control as the minority shareholders of Cibola were the
shareholders of Mainline. The book value of Cibola's preferred stock carried
over from the book value of Mainline's common stock.
None of the notes receivable reflected on the books of Cibola for the periods in
question were for the issuance of preferred stock. They were entered into for
investment purposes. The notes receivable from The Beard Company, other than for
the purchase of the common stock, were for advances on the quarterly
distributions by Cibola and were paid in full by April 15 of the subsequent
year.
SEC October 7, 2005, comment 1, bullet point 2
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Attached as Attachment 1 is a Valuation Summary prepared by Lisle Compton (the
attached transmittal letter to Mr. Black and Notes to the Valuation Summary are
an integral part of the Valuation Summary). The first two pages of the
Attachment show a summary of the book value of Cibola on December 31 of each
year from 1996 through and including 2004, as well as its book value as of March
31 and June 30, 2005. Lisle Compton made several assumptions. In that regard, we
note the following:
1. All privately held securities are shown at cost. A substantial
discount could have been taken for many of those privately held
securities, as the vast majority of them are illiquid, minority
positions.
2. With respect to the notes receivable, those are also shown at cost,
without any discount for collectibility risks. All of the notes are
from private individuals or closely-held entities, so a discount for
collection risk would be appropriate. One of the notes included at
cost in 1997 (the year it was issued) ended up being written off as
uncollectible in 2000. Nevertheless, it was valued at cost in 1997
through 1999. Also, the Promissory Note from Beard for its purchase of
the common stock is included as a note receivable.
3. The value of the gas contracts (which is shown in the "Discounted
future cash flow stream (net of tax)" line) was calculated based on a
"risk free" cash flow analysis. There were basically two long term gas
contracts underlying that cash flow. The first was a contract to sell
a specified quantity of natural gas (the "Sales Contract") to a third
party at a price, which escalated at approximately 5% per year, that
would average, over the final year of the contract term, approximately
$3.35 per MMBtu. The other contracts were contracts to purchase
similar quantities of natural gas from Williams Energy (the "Purchase
Contracts") at predetermined prices which were less than the Sales
Contract prices. There was a substantial risk during the time period
at issue (and especially 2001-2002) that Williams Energy would default
in its obligation to deliver gas to Cibola under that contract
(because, as you may be aware, Williams Energy was, according to
published reports, apparently close to filing for bankruptcy
protection). If, whether due to its severe financial problems or for
other reasons, Williams Energy had ceased delivering gas, Cibola would
have been forced to purchase gas in the market to fulfill its
obligation.
4. Under the Sale Contract described above; that would have resulted in a
substantial loss to Cibola because the market price during that time
period was in excess of $3.35 per MMBtu. Our point is that a
substantial risk-based discount could justifiably be taken with
respect to the gas contract cash flow stream, but it was not taken for
purposes of this analysis.
As the Attachment indicates, the value of Cibola varied from a low of
$21,430,000 on December 31, 1996 to a high of $27,350,000 on June 30, 2005.
These values are all, however, well below the $50,000,000 liquidation preference
cited in the Certificates of Amendment Designating the Preferences, Limitations
and Relative Rights of Cibola Corporation Preferred Stock (previously provided
to you on July 7, 2005).
SEC October 7, 2005, comment 1, bullet point 3
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Cibola did not ask Lisle Compton to allocate the fair value of Cibola between
its preferred and common stock. However, given that the value of Cibola's
investment securities and cash flow stream were always significantly below the
redemption price/liquidation preference for the preferred stock, the preferred
stock should represent most, if not all, of the value of Cibola. Accordingly, no
allocation of the determined fair value of Cibola between its preferred and
common stock is provided.
The shares of Cibola owned by Beard are pledged as collateral on the note
payable issued by Beard in payment for such shares. There is no marketability
for the shares as they may not be sold by Beard to any third party. The
liquidation preference places the preferred shareholders in a senior position to
other equity. Given that the value of Cibola is less than the liquidation
payment, then the common shares have no value and Beard will receive nothing,
other than the cancellation of the Nonrecourse Secured Promissory Note and the
related security interest, upon the termination of the arrangement as a result
of the exercise of the Call Option by the minority shareholders.
SEC October 7, 2005, comment 1, bullet point 4 sub bullet 1
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Until December 31, 1995, Cibola or its predecessor conducted extensive gas
trading activities. However, effective as of December 31, 1995, Cibola
transferred substantially all of its active gas trading operations to Cibola
Energy Services Corporation, leaving Cibola owning only the Sales Contract. The
Purchase Contracts were entered into by Cibola shortly thereafter. Cibola Energy
Services Corporation was owned by Messrs. Dunning, Hartzog and Black. In July
1996, Cibola Energy Services Corporation, the entity which conducted actual gas
trading operations, was acquired by TransCanada Pipelines in exchange for stock
in TransCanada. As a result, Cibola does not have personnel with appropriate
experience to actively market natural gas. After 1996, Cibola management opted
not to actively market gas (outside of the Sales and Purchase Contracts
discussed above). After July 1996, Messrs. Dunning, Hartzog and Black's only
involvement in gas trading was through Cibola, which only held the
aforementioned Sales and Purchase Contracts (collectively, the "Gas Contracts").
As you will note from the Summary of Gas Contracts (Schedule 2), the Gas
Contracts all expired in August 2005. Now that the contracts have expired, the
minority shareholders on November 4, 2005 delivered a letter agreement to the
Company confirming their intention to exercise the Call Option effective as of
12:01 a.m. on December 1, 2005. This agreement was accepted by the Company on
November 7, 2005. A copy of this agreement is attached as Attachment 2.
SEC October 7, 2005, comment 1, bullet point 4 sub bullet 2
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The question regarding the fair value of the going concern aspect of the
business is answered by Lisle Compton's analysis in Attachment 1, which includes
the discounted future cash flow from the Gas Contracts. As noted in Appendix II
to such Attachment, Lisle Compton in their valuation did not adjust for the
possibility of a default risk. As pointed out in comment 1, bullet point 1
above, there was considerable risk during 2001-2002 that Williams Energy might
default on its obligation to deliver gas to Cibola which would have created a
substantial loss to Cibola.
Cibola is not currently engaged in (and has not been engaged in for about 10
years) what would normally be described as an actively operated business which
possesses any "goodwill" or "going concern" value, because Cibola's activities
were limited to managing the Gas Contracts (all of which have now terminated)
and its equity and debt securities. Cibola has only one employee and one small
office, both of which are located in Cody, Wyoming. Managing those investment
securities requires minimal day-to-day oversight.
SEC October 7, 2005, comment 1, bullet point 5, sub bullets 1 to 4
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When referring to "minority shareholders," we assume the SEC is referring to
Larry Hartzog, Mike Black's revocable trust, and Rick Dunning's family limited
partnership, which collectively own 20% of the common stock and 100% of the
preferred stock. There is no reason that those shareholders should be considered
a "group," as there is not, to the knowledge of Cibola's general counsel, any
voting agreement among them. They do, however, share in the desire to maintain
control over Cibola's operations, because those shareholders are knowledgeable
about the underlying Gas Purchase and Sale Contracts discussed elsewhere in this
response. Further, as discussed below in our response to bullet point 7, it is
not necessary for there to be any agreement between the minority shareholders to
act as a group to preclude the necessity of consolidation---there only needs to
be the possibility of their voting as a group to demonstrate the ability to
effectively participate in significant decisions and, in so doing, block the
requirement, in this case, of consolidation.
With respect to the SEC's question about how Cibola's decisions are made, the
decisions within Cibola are generally made in the same manner as any other
corporation. That is, the Board of Directors (on which only two of Beard's
executives serve; Messrs. Dunning, Hartzog and Black are the other three
directors) appoints the officers to carry out the policies dictated by the Board
and then monitors the officers' performance. The officers are responsible for
the day-to-day activities of Cibola. None of Beard's executives have served as
officers of Cibola in the last five years. Those shareholders holding the voting
common stock have the authority to remove the directors, and their vote is also
required to approve certain fundamental corporate transactions (such as sales of
substantially all of Cibola's assets, mergers, etc.). The majority shareholders
do not participate in the management of Cibola, nor do they have the authority
to act for or on behalf of Cibola. See bullet point 7 below. The Company is not
aware of any agreements or documents (other than the Articles of Incorporation
or Bylaws) which would alter this general decision-making process as it applies
to the corporate governance of Cibola.
Enclosed as Attachments 3 and 4 are copies of Cibola's Articles of Incorporation
and Bylaws, respectively.
SEC October 7, 2005, comment 1, bullet point 6
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See the attached Schedule 3 for an analysis of the effect of Cibola on the tax
return of Beard. As Schedule 3 indicates, there have been no "tax benefits" to
Beard.
SEC October 7, 2005, comment 1, bullet point 7
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The Company has again concluded, after an exhaustive analysis, as requested, of
Emerging Issues Task Force ("EITF") 96-16 that the financial statements of
Cibola should NOT be consolidated with those of The Beard Company. To reiterate,
it is the Company's position that it is the minority shareholders, and not the
majority shareholders, that control the operations of Cibola. Financial
Accounting Standards Board ("FASB") No. 94, Consolidation of All Majority-Owned
Subsidiaries, indicates that "consolidation is appropriate when one entity has a
controlling interest in another entity and that the usual condition for a
controlling interest is ownership of a majority voting interest, but the
STATEMENT ACKNOWLEDGES THAT IN SOME CIRCUMSTANCES CONTROL DOES NOT REST WITH THE
MAJORITY OWNER...THESE (MINORITY) RIGHTS MAY BE SO RESTRICTIVE AS TO CALL INTO
QUESTION WHETHER CONTROL RESTS WITH A MAJORITY OWNER (emphasis added)."
The Task Force for the EITF, in analyzing this issue, determined that in making
a determination as to whether the rights of the minority shareholder "should
preclude an investor from consolidating when the investor has a majority voting
interest in an investee is a matter of judgment that depends on the facts and
circumstances." The Task Force "further agreed that the framework in which such
facts and circumstances should be judged should be based on whether the minority
rights, individually or in the aggregate, provide for the minority
shareholder(s) to effectively participate in significant decisions that would be
expected to be made in the 'ordinary course of business". The EITF went on to
differentiate between "protective" and "participating" rights. The Task Force
"agreed that substantive minority rights that provide the minority shareholders
with the right to effectively participate in significant decisions that would be
expected to be related to the investee's ordinary course of business, although
also protective of the minority shareholder's investment, should overcome the
presumption in Statement 94 that the investor with a majority voting interest
should consolidate its investee."
Participation is defined as meaning "THE ABILITY TO BLOCK ACTIONS proposed by
the investor who has a majority voting interest...thus, the investor with the
majority voting interest must have the minority's agreement to take certain
actions...participation does not mean the ability of the minority to initiate
actions (emphasis added)." The 5-day Call Option of the minority shareholders to
force the sale by the majority shareholders of their common shares to the
minority shareholders, the fact that three minority shareholders hold seats on a
five-member Board of Directors, and the fact that all of the officers of the
entity are minority shareholders and it is they who direct the day-to-day
operations of Cibola constitute prima facie evidence that the minority
shareholders have "the ability to block actions proposed by the investor who has
a majority voting interest" and, further, that those minority shareholders have
the ability and the "right to effectively participate in significant decisions
that would be expected to be made in the ordinary course of business." The EITF
literature does not ask whether the minority shareholders could agree with the
majority shareholders on any aspect of running the business, on the contrary,
the literature asks whether the minority shareholders have the ability to block
actions of the majority investor. Clearly, the minority shareholders are so
empowered. The literature does not ask will the minority shareholders ever exert
this power - it asks COULD THEY EVER? And, because they could - the conclusion
is that the majority shareholder does NOT control Cibola and, as a result,
should not consolidate Cibola in its financial statements.
The EITF defines "protective" rights, those that would not preclude
consolidation by the investor of a majority voting interest of its investee, as
1. amendments to articles of incorporation of the investee,
2. pricing on transactions between the owner of a majority voting
interest and the investee and related self-dealing transactions,
3. liquidation of the investee or a decision to cause the investee to
enter bankruptcy or other receivership,
4. acquisitions and dispositions of assets greater than 20 percent of the
fair value of the investee's total assets (minority rights relating to
acquisitions and dispositions of 20 percent or less do not necessarily
lead to a conclusion that it is a substantive participating right -
see "Factors to Consider" below),
5. issuance or repurchase of equity interests.
The EITF defines "participating" rights, those that would create a presumption
that the investor of a majority voting interest should NOT consolidate its
investee, as:
1. selecting, terminating, and setting the compensation of management
responsible for implementing the investee's policies and procedures,
2. establishing operating and capital decisions of the investee,
including budgets in the ordinary course of business.
Response: See bullet point 5 above.
In listing the "Factors to Consider", the EITF noted the following:
a. Consideration should be given to situations in which a majority
shareholder owns such a significant portion of the investee that the
minority shareholder has a small economic interest.
Response: Although Beard owns 80% of the common stock with a purchased
value of approximately $1.4 million; the minority shareholders have
preferred stock with a par value of $16.2 million plus $375,000 in
common stock - indicative of rights more substantive than protective
for the minority shareholders. Beard's investment at risk is $1,440
(because its note for the purchase of the 80% of common stock is
nonrecourse) - an investment and risk dwarfed by that of the minority
shareholders. The recorded discounted value of the preferred stock, at
slightly over $2,100,000, still is far greater than the Company's
recorded investment of $1,440. In this case, the minority shareholders
have a far greater risk than that of the majority shareholder.
b. The corporate governance arrangements need to be considered to
determine at what level decisions are made at the shareholder level or
at the board level and the rights at each level should be considered.
In all situations, any matters that can be put to a vote of the
shareholders must be considered to determine if other investors,
individually or in the aggregate, have participating rights by virtue
of their ability to vote on matters submitted to a shareholder vote.
Response: The minority shareholders have the right to select three of
the five board members and, per the Articles of Incorporation and the
Bylaws, all major decisions are made at the board level, not the
shareholder level. It is also important to note that any changes to
the Articles or the Bylaws require an affirmative vote of 85% of the
common shares then outstanding - not just a simple majority and more
than the 80% owned by Beard. This figure would require that one of the
minority shareholders join Beard (as the 80% majority shareholder) in
implementing any change - which means that the Company, even though it
owns 80% of the common shares, could not unilaterally make any changes
in the Articles of Incorporation or the Bylaws, and, by inference,
any changes in the officers of Cibola or how they direct the
day-to-day operations of Cibola or in any of the factors defined by
the EITF as "substantive participating rights." Again, the literature
does not ask would the minority shareholders block such actions - it
only asks could they? If the answer is "yes", AND IT IS, then the
minority shareholders have substantive participating rights. The
literature does not ask if the minority shareholders have an agreement
to vote as a group - it asks, if, in so doing ("individually OR in the
aggregate"), could they block any actions taken by the majority
shareholder. The threat of the Call Option insures that they most
certainly can - and it would be counterproductive for the majority
shareholder to ignore that obvious threat. The 5-day Call Option was
presumably placed in the agreement for a reason - and that reason is
to draw the line as to which group of shareholders has the final say
on corporate governance. That group is the minority shareholder group.
Further, given the fact that the value of the equity interests of the
minority shareholder group has always been so much larger than that of
Beard, and the fact that the minority shareholders have always had
much more at risk, the less likely it is that the minority shareholder
group would be willing to relinquish the ability to control Cibola to
Beard. Additionally, as Cibola prospered, the minority shareholders
stood to gain so much more because of the operation of the liquidation
preference in that the first $50,000,000 of value upon liquidation or
dissolution would go to the minority shareholder group. The
liquidation preference serves as another reason that the minority
shareholders, as the sole owners of the preferred stock, would be far
less willing to relinquish control to the majority shareholder. The
minority shareholders were and are the primary beneficiaries. For the
majority shareholder to become the primary beneficiary in terms of
value of Cibola upon liquidation or dissolution, Cibola would then
have to be worth $133,333,335 (see Schedule 4 attached) - an amount
that would have to be considered unlikely at best at any time since
the Company became a shareholder. The minority shareholders,
therefore, have a greater amount at risk and, commensurately, stand to
gain much more than the majority shareholder.
c. Relationships between the majority and minority shareholders (other
than investment in the common investee) that are of a related party
nature, as defined in FASB Statement No. 57, Related Party
Disclosures, should be considered in determining if the minority
shareholder's participating rights are substantive.
Response: There is no relationship between any of the minority
shareholders of Cibola and Beard, its officers or shareholders. There
is no relationship between any of the minority shareholders of Cibola,
except that Mr. Hartzog's wife's deceased first husband was Mr.
Dunning's wife's uncle.
d. Certain minority rights may deal with operating or capital decisions
that are not significant to the ordinary course of business of the
investee. The Task Force concluded that minority rights related to
items that are not considered significant for directing and carrying
out the activities of the investee's business should not affect the
accounting conclusions. Examples of such minority rights relate to
decisions about the location of investee headquarters, name of
investee, selection of auditors, and selection of accounting
principles for purposes of separate reporting of investee operations.
Response: All major decisions, including the payment of dividends, are
decided at the Board of Director level, a board controlled by the
minority shareholders.
e. Certain minority rights may provide for the minority shareholder to
participate in significant decisions that would be expected to be made
in certain business activities in the "ordinary course of business";
however, the Task Force concluded that existence of such a minority
right should not overcome the presumption that the majority should
consolidate, if it is remote that the event or transaction that
requires minority approval will occur. "Remote" is defined in FASB
Statement No. 5, Accounting for Contingencies, as "the chance of the
future event occurring is slight."
Response: Since the officers of Cibola, and three-fifths of the Board
of Directors, are minority shareholders then, by definition, the
minority shareholders participate in ALL significant business
decisions.
f. An owner of a majority voting interest who has a contractual right to
buy out the minority shareholder's(s') interest in the investee for
fair value or less should consider the feasibility of exercising that
contractual right when determining if the minority participating
rights are substantive. If such a buyout is prudent, feasible, and
substantially within the control of the majority owner, the majority
owner's contractual right to buy out the minority right rebuts the
presumption that the minority shareholder's(s') participating right is
a substantive right. The existence of the Call Option, for purpose of
this issue, negates minority shareholder's(s') participating rights
to veto an action of the majority shareholder, rather than create an
additional ownership interest for that majority shareholder. It would
not be "prudent, feasible and substantially within the control of the
majority owner" to buy out the minority shareholders if, for example,
(a) the minority shareholders control technology that is critical to
the investee or (b) the minority shareholders are the principal source
of funding for the investee.
Response: The majority shareholder does not, in actuality, have the
right to buy out the minority shareholders of Cibola. In point of
fact, the operation of the Call Option insures the reverse - the
minority shareholders have the option of buying out the majority
shareholder.
SEC October 7, 2005, comment 1, bullet point 8
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Assuming the equity method is the appropriate accounting method, please see the
attached Schedule 7 for an analysis of differences in the consolidated financial
statements of Beard for each period from the inception of the investment in 1996
through the second quarter of 2005 had the Company recorded 80% of the income of
Cibola as "earnings in unconsolidated affiliates". Note that the schedule shows
both the original method of recording the earnings and the recording of the full
80% and a full "other than temporary" impairment to arrive at the same net
income amount for the periods presented.
SEC October 7, 2005, comment 1, bullet point 8, sub bullet 1
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The Company, however, still is of the opinion that it recorded the transactions
related to Cibola properly. The comment letter indicates that any "other than
temporary" impairment necessary to reflect the net income from Cibola should be
based on the fair value of Cibola and not the value of the liquidation
preference. The Company is obliged to ask why this must be. SEC Staff Accounting
Bulletin Topic 5M, in discussing "Other than Temporary Impairment(s) of Certain
Investments in Debt and Equity Securities", states that "acting upon the premise
that a write-down may be required, management should consider ALL AVAILABLE
EVIDENCE to evaluate the realizable value of its investment (emphasis added)."
The bulletin goes on to say "unless evidence exi(s)ts (sic) to support a
realizable value equal to or greater than the carrying value of the investment,
a writedown to fair value accounted for as a realized loss should be recorded."
The Company has caused Cibola to be valued and, according to the valuations
submitted and attached to this response, at no time did Cibola have a value in
excess of $27,350,000 - a value well below the $50,000,000 liquidation payment
in the Certificates of Amendment Designating the Preferences, Limitations and
Relative Rights of Cibola Corporation Preferred Stock (previously provided as
indicated above). How could the Company record any amounts in excess of those
actually recorded when, subsequent to entering into the transaction, nothing
available to the Company or anything it had later received indicated it would
actually receive anything more? The Company had hoped at the time it became a
shareholder of Cibola that the value at the time of any "voluntary or
involuntary dissolution" would exceed $50,000,000 and it would earn its 80%
share of the excess. That possibility became less and less likely as events and
time transpired. Further, Beard management is of the opinion that, for the
Company to record its full 80% share of earnings for any year, the value of
Cibola would have to exceed $50,000,000 plus 100% of Cibola's earnings for that
year and all previous years the Cibola stock was owned by Beard. In other words,
the liquidation preference amount would have to grow each year. See Schedules 4
and 7 attached.
To illustrate, assume Cibola earned $2,500,000 each year from 1996 thru 2004, a
total of nine years, for a total of $22,500,000 in earnings over such period.
(Cibola actually averaged $2,656,000 in book income before tax expense during
this period.) For Beard to book its full 80% of Cibola's earnings for 1996, the
value of Cibola upon liquidation would have to equal $52,500,000 or $50,000,000
plus 100% of $2,500,000 earned by Cibola for the year 1996. For Beard to then
book its full 80% of the 1997 earnings of $2,500,000, the value of Cibola would
have to be $55,000,000 or $50,000,000 plus 100% of the $2,500,000 of Cibola
earnings for 1996 and 1997. This value would grow each year until, for example,
for Beard to book its full 80% share of earnings for 2004, the value of Cibola
upon liquidation would have to exceed $72,500,000 or $50,000,000 plus 100% of
$22,500,000. With the decline in the stock market (the Dow Jones Industrial
Average declined 37.8% in value from January 15, 2000 to October 9, 2002) and
the fact that Cibola did not supplement its original gas contracts in place with
additional contracts, the need for any valuations of Cibola declined with each
year. If Beard had refrained from booking any of these earnings amounts during
the interim period because the value of Cibola, up to then, was less than the
liquidation payment and Cibola was then somehow found to be valued at some
amount more than the $50,000,000 liquidation payment value should Beard then
book (in the then current year) its 80% of that excess amount given the
fluctuation in the value of the market and the real possibility of a decline in
value prior to the actual "voluntary or involuntary dissolution"? How could
Beard book earnings based upon a forecast of earnings affecting a value years in
advance? This is paramount to why the liquidation preference cannot be ignored.
Under normal circumstances, Beard should have booked its 80% share of Cibola's
earnings each year and looked to annual valuations for any impairment of its
investment. The existence of the liquidation preference, a contractually
intrinsic and inseparable part of the transaction, and a part of "all available
evidence" in the words of the SEC staff in Topic 5M and "all factors to be
considered" in paragraph 19h of APB 18, has removed this arrangement from the
arena of "normal circumstances." And, truly, valuations must be based upon facts
and circumstances. The liquidation preference constitutes a "fact and
circumstance" one cannot ignore for any accounting model used to determine the
value (and recoverability) of Beard's investment in Cibola.
The preferred shares, after considering the mandatory liquidation payment, are
subordinate to third party creditors but are senior in liquidation (to the
extent of the first $50,000,000 in value) to all other equity (that is, ALL of
the common shares) of Cibola. The financial statements of Beard would be
misleading to the investor if Beard recorded an 80% share of Cibola's earnings
without a full "other than temporary impairment", given the value of Cibola is,
and has always been, less than the liquidation payment. The statements would be
misleading because Beard simply will not receive those earnings. The Call Option
has been exercised by the minority shareholders, Beard will no longer be the
majority shareholder of Cibola as of December 1, 2005, and Cibola is, and always
has been, worth far less than the required liquidation payment. The full value
of Cibola, estimated to be $27,350,000 at June 30, 2005, but clearly less than
$50,000,000, less any payments to third party creditors, will now inure to the
benefit of the minority and, simultaneously, the preferred shareholders of
Cibola. Beard recorded the full and correct net amount of earnings in Cibola to
which it was entitled in the Beard financial statements already submitted. Had
Beard reported the full 80% share of Cibola earnings in each period from 1996
through the current date without a full "other than temporary impairment", one
is forced to ask, on behalf of the investor, what manner of disclosure would
suffice, at this juncture, that would adequately explain the retraction of the
many millions of Cibola earnings reported by Beard in its prior period financial
statements to which it would ultimately prove not to have been entitled? Beard
management chose, properly we believe, to be conservative in the amount of
earnings it reported from its investment in Cibola and in the amount of the
investment itself.
Accounting Principles Board ("APB") Opinion 18, paragraph 19h, states that "a
loss in value of an investment which is other than a temporary decline should be
recognized the same as a loss in value of other long-term securities. Evidence
of a loss might include, but would not necessarily be limited to, absence of an
ability to recover the carrying amount of the investment or inability of the
investee to sustain an earnings capacity which would justify the carrying amount
of the investment...ALL FACTORS are to be considered. (emphasis added)." If
Beard would have booked the additional earnings to bring the reported amount
equal to its 80% share, the investment in Cibola would likewise have grown. All
of the then existing evidence and the attached valuations, however, would
indicate that the Call Option and the liquidation preference would not allow
Beard to recover the increased amount of earnings or the amount recorded in the
investment account. This is the reasoning which prevented Beard from recognizing
the increased earnings amounts as they were earned by Cibola. While the earnings
were substantial, due to the inability to replace the gas contracts and the
downturn in the markets, Beard had no indication that the total value of Cibola
upon liquidation or dissolution would exceed the $50,000,000 liquidation
preference amount. Management cannot book earnings it does not have a reasonable
assurance of receiving. The financial statements of Cibola were reviewed each
month. While hope remained that the value of Cibola would exceed the liquidation
payment threshold, the evidence, from year to year through the years Beard has
held the investment, would not support that conclusion and the booking of any
additional earnings beyond the amounts received by Beard. The agreement between
Beard and Cibola was contractual in nature and involved numerous provisions. One
of those involved the ability of the minority shareholders to exercise the Call
Option and another involved the liquidation payment to the preferred
shareholders. Beard could not enforce the clauses which benefited Beard and
ignore those which did not. The liquidation payment and the Call Option are, as
noted in paragraph 19h of APB 18, "factors to be considered."
Staff Accounting Bulletin 59, which formed the basis for Topic 5M referred to
above, lists three factors which might indicate that a decline might be "other
than temporary" and that a write-down of the carrying value is required: (i)
"the length of the time and the extent to which the market value has been less
than cost," (ii) "the financial condition and near-term prospects of the issuer,
including any specific events which may influence the operations of the issuer
such as changes in technology that may impair the earnings potential of the
investment or the discontinuance of a segment of the business that may affect
the future earnings potential," or (iii) "the intent and ability of the holder
to retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in market value." It has already been noted that
Cibola did not replace its gas contracts which would constitute an event which
would indicate how the company would grow - affecting whether the value would
exceed the liquidation preference amount - a consideration listed in the second
factor above. Note again that the minority shareholders could exercise the Call
Option upon five days notice. At any point in time that Cibola was not valued in
excess of the $50,000,000 liquidation payment, it would be extremely unlikely
that the five day period would be sufficient time to allow Cibola to grow to a
value in excess of that $50,000,000 which goes to the third of the three factors
listed above. Beard could not reasonably assure itself it could hold the
investment long enough for the value to exceed the liquidation value threshold
of $50,000,000.
For all these reasons and principally the operation of the Call Option and the
liquidation preference amount, Beard believes it recorded the correct amount of
earnings in Cibola to which it was and is entitled in the financial statements
already submitted.
SEC October 7, 2005, comment 1, bullet point 8, sub bullet 2
- ------------------------------------------------------------
The Company believes that the netting of the note payable against the gross
equity investment is the proper accounting treatment. AIN-APB 18 requires the
elimination of intercompany items for equity investments. The Company eliminated
all but the actual revenue received from the transaction; that is, the amounts
previously reflected in the financial statements. Further, had the financial
statements of Cibola been prepared in accordance with generally accepted
accounting principles in the United States, it is the Company's position that
the note receivable from Beard for the subscription price of the 80% of Cibola
common stock would have been netted against the equity section of the balance
sheet to show the same $1,440 reflected as the investment in Cibola on the books
of The Beard Company. See Rule 5-02.30 of Regulation S-X which indicates the
registrant should "show also the dollar amount of any common shares subscribed
but unissued, AND SHOW THE DEDUCTION OF SUBSCRIPTIONS RECEIVABLE THEREFROM
(emphasis added)." Further, see Staff Accounting Bulletin Topic 4.E which
extends this application to say "accounts or notes receivable arising from
transactions involving the registrant's capital stock should be presented as
deductions from stockholders' equity and not as assets." The Beard Company feels
that netting the note payable for the purchase of the Cibola common stock
against the investment in Cibola matches the concept proffered here and is a
more conservative presentation for the reader of its financial statements. See
Schedule 1.
The Company has prepared, as requested, however, the balance sheets for the
periods in question showing the full amount of the non-recourse note payable as
a liability and increasing the investment in Cibola by a like amount. The
Company has submitted revised balance sheets for December 31, 2004 and 2003
which show the note payable separately as a liability and the investment account
increased for a like amount, along with a notation regarding the impairment of
the investment. See Schedules 5 and 6.
SEC October 7, 2005, comment 2
- ------------------------------
The Company believes that the liability associated with the market value
associated with the Call Option is zero. Since Cibola is a private company,
there is no market for the Call Option of Cibola. The liability for the Call
Option should equal the carrying value of Beard's investment in the stock of
Cibola in excess of the expected proceeds from the sale of that stock. The
Cibola common stock owned by Beard was pledged as security on the note payable
to Cibola for its purchase so no sale to third parties has ever been possible.
Since there could only be a liability equal to the economic loss that the
Company would suffer if the Call Option was exercised, and that amount is zero,
then the amount of the liability is likewise zero; the amount the Company stands
to lose upon the transaction. Beard will write-off the remaining $13,000 in
basis in its investment in the Cibola common stock in the third quarter of 2005.
Finally, due to the fact the Company was conservative in its recording of its
share of Cibola's earnings, the Company requests the Commission's forbearance in
not asking the Company to reissue previously issued financial statements to
include the full 80% share of earnings with an impairment to arrive at the same
net earnings from its investment in Cibola. Inasmuch as the Call Option will be
exercised as of December 1, 2005, and Beard will no longer be a shareholder of
Cibola effective as of such date, we believe any notations on the face of the
balance sheet or any disclosures in the accompanying footnotes at this point in
time relative to the life of the Cibola investment regarding an almost
$19,000,000 impairment would raise more questions and alarm than any good such
notations and disclosures would accomplish. Additionally, since the potential
exposure to understatement rests primarily with a relatively small amount of
private investments and for the reasons listed above, the Company also
respectively requests that it not be required to cause an audit of the financial
statements of Cibola to be performed.
Please acknowledge receipt hereof by returning one copy of this letter with your
filing stamp endorsed thereon. A stamped, self-addressed envelope is enclosed
for your convenience.
Please contact the undersigned if there are any questions.
Respectfully submitted,
THE BEARD COMPANY
HERB MEE, JR. JACK A. MARTINE
Herb Mee, Jr. Jack A. Martine
President Controller
Enclosures
ATTACHMENT 1
Lisle Compton
Certified Public Accountants & Business Advisors [LOGO]
November 7, 2005
Mr. Michael C. Black
President
Cibola Corporation
1131 - 13th Street, Suite 206
Cody, WY 82414
Dear Mr. Black:
We have performed a calculation analysis, as that term is defined in the March
2005 Exposure Draft of the Statement on Standards for Valuation Services (SSVS)
of the American Institute of Certified Public Accountants (AICPA). Under that
calculation analysis, we performed certain valuation procedures on Cibola
Corporation (Cibola) annually from December 31, 1996 through December 31, 2004,
and March 31, 2005 and June 30, 2005. The specific valuation procedures are
described in Appendix III. The valuation procedures were performed solely to
assist you in providing an analysis of the fair value of Cibola as requested by
The Beard Company for purposes of responding to a Securities and Exchange
Commission inquiry. The resulting estimates of value should not be used for any
other purpose.
This calculation analysis was conducted in accordance with the SSVS. The
estimate of value that results from a calculation analysis is expressed as an
indication of value. In a calculation analysis, the valuation analyst and the
client agree on the specific valuation approaches or valuation methods the
valuation analyst will use or the extent of valuation procedures the valuation
analyst will perform to estimate the value of the subject interest. A
calculation analysis does not include all of the valuation procedures required
for a valuation analysis, as that term is defined in the SVSS. Had a valuation
analysis been performed, the results may have been different and the difference
may have been significant. In our opinion, based on our calculations as
contained to this report, which are based solely upon the valuation procedures
agreed upon as referred to above, the resulting indication of value of Cibola
approximated the following
December 31, 1996 $ 21,430,000
December 31, 1997 22,250,000
December 31, 1998 24,150,000
December 31, 1999 25,340,000
December 31, 2000 23,650,000
December 31, 2001 23,430,000
December 31, 2002 22,790,000
December 31, 2003 25,570,000
December 31, 2004 27,160,000
March 31, 2005 27,160,000
June 30, 2005 27,350,000
Refer to Appendix I for the summary by component.
This indication of value is subject to (1) the Statement of General Assumptions
and Limiting Conditions (Appendix II); (2) Summary of Methodologies Used and
Factors Not Considered (Appendix III), and (2) the Representation of the
Valuation Analyst (Appendix IV).
Sincerely,
Lisle Compton Cole & Almen LLP
W. CURTIS ALMEN TODD J. LISLE
W. Curtis Almen Todd J. Lisle
CPA CFA CMA CFM CCM CPA/ABV CIA CFE
Lisle Compton Cole & Almen LLP
2601 NW Expressway Suite 200 W Oklahoma City OK 73112
Tel 405.842.7977 Fax 405.842.7984 www.okccpa.com
Appendix I: Summary by Component
Dec 31, 1996 Dec 31, 1997 Dec 31, 1998 Dec 31, 1999 Dec 31, 2000 Dec 31 2001
-----------------------------------------------------------------------------------------------
Cash and cash equivalents $ 1,695,103 1,923,991 2,225,449 1,820,300 1,731,758 4,715,968
Certificates of deposits -- 100,000 400,000 1,296,000 1,439,000 420,000
Deposits -- -- -- -- -- --
Accrued interest 48,174 44,773 79,982 111,895 91,387 60,244
Notes receivable 2,509,530 3,110,406 3,647,564 3,756,781 2,188,694 2,125,944
Investments
Marketable equity securities -- 189,062 417,200 2,815,451 3,462,675 2,231,428
Equity securities in privately held
companies -- -- -- 85,456 85,456 85,456
Mutual funds 231,026 1,614,576 2,410,412 3,758,492 3,008,286 2,332,823
Debt securities 157,311 441,678 1,463,921 618,104 1,898,323 2,628,562
Other -- -- -- 200,000 353,500 375,650
-----------------------------------------------------------------------------------------------
Total investments 388,337 2,245,316 4,291,533 7,477,503 8,808,240 7,653,919
-----------------------------------------------------------------------------------------------
Total value of assets on hand 4,641,144 7,424,486 10,644,528 14,462,479 14,259,079 14,976,075
Income taxes payable (69,198) (104,944) (112,302) (125,923) (53,124) (64,661)
-----------------------------------------------------------------------------------------------
Net value of assets on hand 4,571,946 7,319,542 10,532,226 14,336,556 14,205,955 14,911,414
Discounted future cash flow of net
proceeds of gas contracts
(net of tax) 16,857,795 14,933,689 13,614,130 11,002,770 9,442,074 8,521,705
----------------------------------------------------------------------------------------------
Net value $ 21,429,741 22,253,231 24,146,356 25,339,326 23,648,029 23,433,119
----------------------------------------------------------------------------------------------
Rounded $ 21,430,000 22,250,000 24,150,000 25,340,000 23,650,000 23,430,000
-----------------------------------------------------------------------------------------------
Dec 31, 2002 Dec 31, 2003 Dec 31, 2004 Mar 31, 2005 Jun 30, 2005
--------------------------------------------------------------------------------
Cash and cash equivalents $ 2,906,053 2,745,304 3,748,073 3,517,909 3,609,747
Certificates of deposits 577,000 122,000 -- -- --
Deposits 729,600 729,600 -- -- --
Accrued interest 89,871 159,799 505,636 658,172 794,641
Notes receivable 2,805,944 5,297,226 8,714,307 9,805,238 10,721,238
Investments
Marketable equity securities 4,705,159 5,944,718 5,874,560 5,930,605 5,803,773
Equity securities in privately held
companies -- 1,600,000 2,588,000 2,629,944 2,629,944
Mutual funds 1,216,413 1,853,895 1,984,145 1,644,448 1,696,395
Debt securities 2,689,371 2,248,360 1,435,712 1,337,550 1,261,046
Other 183,150 178,650 195,650 235,650 235,650
-------------------------------------------------------------------------------
Total investments 8,794,093 11,825,623 12,078,067 11,778,197 11,626,808
-------------------------------------------------------------------------------
Total value of assets on hand 15,902,561 20,879,552 25,046,083 25,759,516 26,752,434
Income taxes payable (27,443) -- -- (21,762) (114,927)
-------------------------------------------------------------------------------
Net value of assets on hand 15,875,118 20,879,552 25,046,083 25,737,754 26,637,507
Discounted future cash flow of net
proceeds of gas contracts
(net of tax) 6,917,834 4,691,398 2,115,175 1,424,104 714,178
-------------------------------------------------------------------------------
Net value $ 22,792,952 25,570,950 27,161,258 27,161,858 27,351,685
-------------------------------------------------------------------------------
Rounded $ 22,790,000 25,570,000 27,160,000 27,160,000 27,350,000
-------------------------------------------------------------------------------
Appendix II: Statement of General Assumptions and Limiting Conditions
The indication of value arrived at herein is valid only for the stated purpose
as of the date of the valuation.
Public information and industry and statistical information have been obtained
from sources we deem to be reputable; however, we make no representation as to
the accuracy or completeness of such information, and have accepted the
information without any verification.
We do not provide assurance on the achievability of the results forecasted by
Cibola because events and circumstances frequently do not occur as expected;
differences between actual and expected results may be material; and achievement
of the forecasted results is dependent on actions, plans, and assumptions of
management.
This report and the indication of value arrived at herein are for the exclusive
use of our client for the sole and specific purposes as noted herein.
Furthermore, the report and indication of value are not intended by the author,
and should not be construed by the reader, to be investment advice in any manner
whatsoever. The indication of value represents the considered opinion of Lisle
Compton Cole & Almen LLP, based on information furnished to them by Cibola and
other sources.
Neither all nor any part of the contents of this report (especially the
indication of value, the identity of any valuation specialist(s), or the firm
with which such valuation specialists are connected, or any reference to any of
their professional designations) should be disseminated to the public through
advertising media, public relations, news media, sales media, mail, direct
transmittal, or any other means of communication, without the prior written
consent and approval of Lisle Compton Cole & Almen LLP.
Future services regarding the subject matter of this report, including, but not
limited to, testimony or attendance in court, shall not be required of Lisle
Compton Cole & Almen LLP, unless previous arrangements have been made in
writing.
Appendix III: Summary Of Methodologies Used And Factors Not Considered
Specific methodologies you requested that we base our valuation on, as well as
specific factors not considered in our analysis which, if considered, could have
resulted in a materially different indication of value, are as follows:
o Cash and cash equivalents
o Methodology used -
o The financial statement amount represents actual balances. For
purposes of this analysis, we used the amount as indicated on the
respective financial statements.
o Certificates of deposit
o Methodology used -
o Financial statement amount is based on historical cost, which is
considered to approximate fair value. For purposes of this
analysis, we used the amount as indicated on the respective
financial statements.
o Factors not considered -
o We did not perform in depth analysis of the impact of time to
maturity and interest rate fluctuation on the valuation.
o Deposits
o Methodology used -
o From 2002 to 2004, Cibola had a deposit held by the third party
handling the receipt and payment of the natural gas contracts.
Cibola received interest on the deposit held by the third party.
Financial statement amount is based on the amount on deposit. For
purposes of this analysis, we used the amount as indicated on the
respective financial statements. Upon termination of the
relationship with this third party in 2004, the entire amount was
repaid to Cibola. For purposes of this analysis, we used the
amount as indicated on the respective financial statements.
o Accrued interest
o Methodology used -
o Accrued interest relates to fixed income securities and notes
receivable. Some of the notes receivables have significant
amounts accrued. For purposes of this analysis, we used the
amount as indicated on the respective financial statements.
o Factors not considered -
o We did not reduce the amount of the accrued interest on the notes
receivable (for time or possible default). See further
discussions in the notes receivable section.
o Notes receivable
o Methodology used -
o Financial statement value is based on historical cost until it is
determined that an allowance is required. For the purpose of this
analysis, we used the amount as indicated on the respective
financial statements.
o Factors not considered -
o We did not adjust the notes receivable value for the effect of
any difference in interest rate on the underlying notes
receivable to the market rate for the notes considering the
credit risk and terms associated with the respective notes.
o Investments - Marketable equity securities
o Methodology used -
o For financial statement purposes, Cibola classified their
publicly trade stock portfolio as "available for sale" and
reports them on the financial statements at fair value based on
quoted market prices. For purposes of this analysis, we used the
amount as indicated on the respective financial statements.
o Investments - Stacks (Private Companies)
o Methodology used -
o Generally accepted accounting principles require that investments
in equity securities that do not have a readily determinable fair
values that are not to be accounted for the equity method are
carried at cost, adjusted for other-than-temporary impairments.
For these types of investments, Cibola recorded the investments
at cast (as there were considered to be no "other-than-temporary
impairments".) For purposes of this analysis, we used the amount
as indicated on the respective financial statements.
o Factors not considered -
o We did not perform a valuation analysis of the private companies
in which Cibola holds an interest.
o Investments - Mutual Funds
o Methodology used -
o Financial statement amount reflects market, based on respective
dosing price. For purposes of this analysis, we used the amount
as indicated on the respective financial statements.
o Investments - Debt Securities
o Methodology used -
o For financial statement purposes, Cibola classified their
investments in debt securities as "available for sale" and
reports them on the financial statements at fair value based on
quoted market prices. One security does not have a readily
determinable market price. For financial statement purposes,
Cibola reported this investment at historical cost which equals
face value. Book value of this security was $500,000 at December
31, 2002 and reduced to $185,000 at June 30, 2005 as a result of
receipts of monthly principal payments. For purposes of this
analysis, we used the amount as indicated on the respective
financial statements.
o Factors not considered -
o We did not adjust the value of the fixed income security that had
no readily determinable market price for the effect of any
difference in interest rate to the market rate for the fixed
income securities considering the credit risk and terms.
o Investments - Other -
o Methodology used -
o This category includes investments in privately held partnerships
and similar type of entities. For these types of investments,
Cibola recorded the investments at historical cost (as there were
considered to be no "other-than-temporary impairments".) For
purposes of this analysis, we used the amount as indicated on the
respective financial statements.
o Factors not considered -
o We did not perform a valuation analysis of these other
investments.
o Income taxes payable
o Methodology used -
o Financial statement amount is based on the accrued income tax
liability owed at the respective balance sheet date. For the
purpose of this analysis, we used the amount as indicated on the
respective financial statements.
o Discounted future cash flow of net proceeds of gas contracts (net of tax)
o Methodology used -
o Calculation is based on the future expected cash flow through
August 2005 from (1) the purchase and (2) sale of gas at the
respective contract volumes and prices. The present value of the
cash flow stream is discounted at a risk free rate. We considered
the US Treasury rates at the respective date with a maturity
equivalent to the weighted years outstanding. Accounts receivable
and accounts payable are not addressed elsewhere, as the receipt
and payment 25 days after month end is considered in the analysis
of discounted future cash flow stream.
o Approximately half of the volumes to fulfill the sales contract
was not covered by a purchase contract until February 1997. At
December 31, 1996, we calculated the present value of the cash
flow stream based on the purchase contract entered into during
February 1997.
o Factors not considered -
o We did not adjust for possible default risk of any of the
counterparties to the natural gas transactions. In conjunction
with the default risk, we did not adjust for the impact of the
difference between the natural gas prices at the respective dates
and the contract prices.
Appendix IV: Representation of the Valuation Analyst
We certify that, to the best of our knowledge and belief:
1. The reported analyses, opinion, and indications are subject to the
assumptions and limiting conditions, and are our personal, unbiased
professional analyses, opinions, and indications of value.
2. We have relied, without independent verification, on the accuracy,
completeness, and fairness of all financial and other information that were
publicly available.
3. We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved. Curt Almen maintains the accounting
records of Cibola and prepares the monthly financial statements.
4. Our compensation is not contingent on any action or event resulting from
the analyses, opinions, and indications in, or the use of, this report.
5. Our analyses, opinions, and indications were developed, and this report has
been prepared, in conformity with the AICPA Statement on Standards for
Valuation Services (draft exposure dated March 2005).
6. No one provided significant professional assistance to the persons signing
this report.
Lisle Compton Cole & Almen LLP
W. CURTIS ALMEN TODD J. LISLE
W. Curtis Almen Todd J. Lisle
CPA CFA CMA CFM CCM CPA/ABV CIA CFE
ATTACHMENT 2
November 4, 2005
VIA HAND DELIVERY
The Beard Company
Attn: Herb Mee, Jr., President
W.M. Beard, Chairman
Enterprise Plaza, Suite 320
5600 N. May Ave.
Oklahoma City, OK 73112
Gentlemen:
Reference is made to that certain Call Option Agreement dated April 10,
1996 between The Beard Company ("Beard") and Richard R. Dunning, Larry D.
Hartzog, and Michael C. Black (collectively, the "Shareholders") pursuant to
which Beard granted the Shareholders an option (the "Option") to purchase
144,000 shares of the voting common stock (the "Shares") of Cibola Corporation,
a Wyoming corporation ("Cibola").
Upon receipt from Beard of an originally countersigned version of this
letter indicating Beard's agreement to the terms set forth herein, we will
immediately deliver to Beard the notice contemplated under Section 3(a)(iii) of
the Call Option Agreement of our election to exercise the Option for all of the
Shares. The Shares will be purchased by us (or our designees) in the percentages
set forth on Exhibit "A" hereto. In that notice we will also, in accordance with
the Call Option Agreement, each severally represent to Beard that we are
acquiring the Shares for our own account, not as a nominee or agent, and not
with a view toward, or for resale in connection with, any redistribution
thereof, and jointly and severally agree to guarantee the prompt and full
payment of any obligations of Cibola under the Tax Sharing Agreement. Also, our
notice will include statements that (i) payment of the option price shall be
Cibola's cancellation of the Nonrecourse Secured Promissory Note dated April 10,
1996 (the "Note"); that is, it shall be treated as if we had paid to Beard
whatever the outstanding balance of the Note is, with Beard then paying that
amount to Cibola in satisfaction and cancellation of Beard's obligations under
the Note, and (ii) upon such cancellation of the Note, we agree that the
security interest created by that certain Security Agreement dated April 10,
1996 between Cibola, as Secured Party, and Beard, as Debtor, shall be
terminated, and we shall cause Cibola to execute such documents as Beard may
reasonably request evidencing the cancellation of the Note and the termination
of such security interest.
To consummate the transactions contemplated by the exercise of the Option,
we will require that (i) Beard deliver to us original Stock Certificate No. 004
for 144,000 shares, duly endorsed, and accompanied by a duly executed stock
power, and (ii) Messrs. Mee and Beard deliver to Cibola their respective
resignations from the Cibola board of directors.
We will require that the exercise of the Option, the transfer of the Shares
and the resignations described above be effective as of 12.01 a.m. on December
l, 2005.
As stated above, we will send Beard a notice exercising the Option provided
that Beard agrees that, with respect to the Tax Sharing Agreement, all items of
income accruing to Cibola and arising out of either (i) any and all capital
gains realized by Cibola as a result of transactions of its securities between
October 20, 2005 and through and including November 30, 2005, and (ii) any
payments for sales of natural gas occurring on or after September 1, 2005 by
Cibola shall be excluded for purposes of the calculations under the Tax Sharing
Agreement.
We further agree that (i) this letter may be executed in two or more
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same letter, and the signature of
any party to any counterpart shall be deemed a signature to, and may be appended
to, any other counterpart, and (ii) any counterpart hereof signed and
transmitted by any party hereto (or their counsel) by facsimile machine,
telecopier or electronic mail shall be treated as an original provided that any
such transmission by electronic mail shall be effective only if transmitted in
..pdf format, .tif format or other format in which the text is not readily
modifiable by any recipient thereof.
Please sign below to indicate your agreement to the terms set forth in this
letter.
Sincerely,
RICHARD R. DUNNING
Richard R. Dunning, individually and
on behalf of the general partner of
Dunning Family Limited Partnership
LARRY D. HARTZOG
Larry D. Hartzog
MICHAEL C. BLACK
Michael C. Black, individually and as
Trustee of the Michael C. Black
Revocable Trust
AGREED TO AND ACCEPTED
THIS 7th DAY OF NOVEMBER, 2005:
The Beard Company
By: HERB MEE
Name: Herb Mee
Title: President
cc: Gary F. Fuller, Esq. (McAfee & Taft)
EXHIBIT "A"
Richard R. Dunning 61.6%
Larry D. Hartzog 20.8%
Michael C. Black 17.6%
ATTACHMENT 3
ARTICLES OF INCORPORATION
OF
CIBOLA CORPORATION
For the purposes of establishing a corporation for the transaction of
the business and the promotion and conduct of the objects and purposes
hereinafter stated under the provisions and subject to the requirements of the
Wyoming Business Corporation Act, as it may be amended from time to time
(hereinafter referred to as the "Act"), the undersigned does make and file these
Articles of Incorporation and does hereby certify as follows:
FIRST: The name of the Corporation is:
Cibola Corporation
SECOND: The address of its registered office in the State of Wyoming is
1720 Carey Avenue, Cheyenne, Wyoming 82001. The name of its registered agent at
such address is CT Corporation System.
THIRD: The nature of the businesses or purposes to be conducted or promoted
are:
To conduct any lawful business, to exercise any lawful purpose and power,
and to engage in any lawful act or activity for which corporations may be
organized under the Act, and in general, to possess and exercise all the
powers and privileges granted by the Act or by any other law of Wyoming
together with any powers incidental thereto, so far as such powers and
privileges are necessary or convenient to the conduct, promotion or
attainment of the businesses or purposes of the Corporation.
FOURTH: The existence of this Corporation shall commence as of the date and
time upon which these Articles of Incorporation are filed with the Wyoming
Secretary of State in accordance with the provisions of Section 17-16-203 of the
Act and shall continue until June 30, 2006, unless the Corporation is sooner
terminated by voluntary or involuntary dissolution.
FIFTH: The total number of shares of Common Stock that this Corporation
shall have authority to issue is One Hundred Eighty Thousand (180,000) shares.
The par value of each such share of Common Stock shall be One Cent ($0.01),
amounting in the aggregate to One Thousand Eight Hundred Dollars ($1,800.00).
Each share of Common Stock shall entitle the holder thereof to one vote, in
person or by proxy, on any matter presented for the consideration of the
shareholders of the Corporation. Holders of shares of Common Stock shall be
entitled to receive dividends if, as and when declared by the Board of Directors
of the Corporation. Shares of Common Stock shall not be convertible into shares
of any other class of stock of the Corporation.
The total number of shares of Preferred Stock that this Corporation shall
have authority to issue is Sixteen Thousand Two Hundred (16,200) shares. The par
value of each such share of Preferred Stock shall be One Thousand Dollars
($1,000.00), amounting in the aggregate to Sixteen Million Two Hundred Thousand
Dollars ($16,200,000.00). The Preferred Stock may be issued from time to time in
one or more series and (a) may have such voting powers, full or limited, or may
be without voting powers; (b) may be subject to redemption at such time or times
and at such prices; (c) may be entitled to receive dividends (which may be
cumulative or noncumulative) at such rate or rates, on such conditions, and at
such times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or series of stock; (d) may have such
rights upon the dissolution of, or upon any distribution of the assets of, the
Corporation; (e) may be made convertible into, or exchangeable for, shares of
any other class or classes or of any other series of the same or any other class
or classes of stock of the Corporation, at such price or prices or at such rates
of exchange, and with such adjustments; and (f) shall have such other relative,
participating, optional or special rights, qualifications, limitations or
restrictions thereof as shall hereafter be stated and expressed in the
resolution or resolutions providing for the issue of such Preferred Stock from
time to time adopted by the Board of Directors pursuant to authority so to do
which is hereby vested in the Board of Directors.
At any time and from time to time when authorized by resolution of the
Board of Directors and without any action by its shareholders, the Corporation
may issue or sell any shares of its stock of any class or series, whether out of
the unissued shares thereof authorized by these Articles of Incorporation as
originally filed, or by an amendment thereof, or out of shares of its stock
acquired by it after the issue thereof. In each case, the consideration to be
received by the Corporation for any such shares so issued or sold shall be such
as shall be fixed from time to time by the Board of Directors.
SIXTH: The name and mailing address of the incorporator is CT Corporation
System, 1720 Carey Avenue, Cheyenne, Wyoming 82001.
SEVENTH: Except as may otherwise be provided in these Articles of
Incorporation or in the Bylaws of the Corporation, as the same may be amended
from time to time, the Board of Directors shall have all powers and authority
which may be granted to a board of directors of a corporation under the Act,
including but not limited to the following:
(a) To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation.
(b) To set apart out of any of the funds of the Corporation available
for dividends a reserve or reserves for any proper purpose and to abolish
any such reserve in the manner in which it was created.
(c) To designate one or more committees.
(d) To provide indemnification for directors, officers, employees,
and/or agents of the Corporation to the fullest extent permitted by law,
subject however, to the rules against limitation on liability of directors
as set forth in Section 17-16-834 of the Act, as amended from time to time.
(e) To determine from time to time whether and to what extent, and at
what times and places and under what conditions and regulations, the
accounts and books of the Corporation shall be opened to the inspection of
the shareholders, and no shareholder shall have any right to inspect any
account or book or document of the Corporation, except as conferred by the
Act or authorized by the Board of Directors, or by a resolution of the
shareholders.
EIGHTH: The number of directors constituting the entire Board shall be not
less than three nor more than five. The exact number of directors shall be fixed
from time to time by the Board of Directors pursuant to a resolution adopted by
a majority of the entire Board; provided, however, that the number of directors
shall not be reduced so as to shorten the term of any director at the time in
office, and further provided, that the number of directors constituting the
entire Board shall be three until otherwise fixed by a resolution adopted by a
majority of the entire Board.
The Board of Directors shall be divided into three classes, as nearly equal
in number as the then total number of directors constituting the entire Board
permits, with respect to the time for which they shall severally hold office.
Directors of the first class first chosen by the shareholders of the Corporation
shall hold office for one year or until the first annual meeting of shareholders
following their election; directors of the second class first chosen by the
shareholders of the Corporation shall hold office for two years or until the
second annual meeting of shareholders following their election; and directors of
the third class first chosen by the shareholders of the Corporation shall hold
office for three years or until the third annual meeting of shareholders
following their election; and, in each case, until their successors to the class
of directors whose term shall expire at that time shall be elected to hold
office for a term of three years, so the term of office of one class of
directors shall expire in each year. Each director elected shall hold office
until his successor shall be elected and shall qualify.
Newly created directorships resulting from any increase in the authorized
number of directors or any vacancies in the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office or other
cause shall be filled by a majority vote of the remaining directors, though less
than a quorum, and any director so chosen shall hold office until the next
election of the class for which such director shall have been chosen and until
his successor shall be elected and qualified.
A director may be removed by the shareholders only for cause and only by
the affirmative vote of the holders of at least 85% of the then outstanding
voting shares of the Corporation.
TENTH: Except as otherwise required by law or as otherwise provided in
these Articles of Incorporation or in the Bylaws of the Corporation, any matter
properly submitted to a vote of the shareholders at a meeting of shareholders
duly convened at which there is a quorum present shall be deemed approved upon
an affirmative vote of a majority of the outstanding shares of Common Stock
present at the meeting, in person or by proxy. No holders of any class of stock
other than Common Stock shall be entitled to vote upon any matter, except as may
be required by law. Written ballots shall not be required for the election of
directors.
ELEVENTH: Any action required by the provisions of the Act to be taken at
any annual or special meeting of shareholders may be taken without a meeting if
prior notice of the proposed action is given to all shareholders (including
holders of nonvoting shares of capital stock), and if a consent or consents in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote thereon. Prompt notice of the taking of such
action without a meeting shall be given to each shareholder not entitled to vote
thereon. Any such notice shall have been given promptly if such notice is
delivered or mailed to such shareholders within three (3) days of the taking of
such action.
Notwithstanding anything to the contrary in this Article Eleventh, if the
Act requires that notice of any proposed action be given to nonvoting
shareholders and the action is to be taken by consent of the voting
shareholders, the Corporation shall give its nonvoting shareholders written
notice of the proposed action at least ten (10) days before the action is taken.
Such notice shall contain or be accompanied by the same material that, under the
Act, would have been required to be sent to nonvoting shareholders in a notice
of meeting at which the proposed action would have been submitted to the
shareholders for action.
TWELFTH: In addition to any other indemnification granted to directors of
the Corporation contained in these Articles of Incorporation, the Bylaws of the
Corporation, or adopted by resolution of the shareholders or directors of the
Corporation, no director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that this indemnification shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its shareholders, (ii) for acts
or omissions not in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) under Section 17-16-833 of the Act, or (iv) for
any transaction from which the director derived an improper personal benefit.
THIRTEENTH: Notwithstanding anything to the contrary herein or in the Act,
neither these Articles of Incorporation nor the Bylaws of the Corporation shall
be amended, altered or repealed except by the affirmative vote of the holders
of at least 85% of the then outstanding voting shares of the Corporation.
FOURTEENTH: Notwithstanding anything to the contrary herein or in the Act,
no merger, consolidation, share acquisition, share exchange or other business
combination of any type involving the Corporation nor any sale of all or
substantially all of the assets of the Corporation shall be effected without the
affirmative vote of the holders of at least 85% of the then outstanding voting
shares of the Corporation.
IN WITNESS WHEREOF, the undersigned, being the incorporator herein named,
does, for the purpose of forming a corporation pursuant to the Wyoming Business
Corporation Act, execute these Articles of Incorporation and does hereby further
certify that the fact hereinabove stated are true as set forth as of this 10th
day of April, 1996.
CT CORPORATION SYSTEM
By: JOHN J. METZKE
Name: John J. Metzke
Title: Designated Agent
ATTACHMENT 4
BYLAWS
OF
CIBOLA CORPORATION
ARTICLE I.
Offices
Section 1.1 Registered Office. The initial registered office of Cibola
Corporation (hereinafter referred to as the "Corporation") shall be located at
1720 Carey Avenue, Cheyenne, Wyoming 82001. This office may be changed as
provided in Section 1.2.
Section 1.2 Offices. The Corporation may change its registered office and
may establish or discontinue, from time to time, such other offices and places
of business within the State of Wyoming as the Board of Directors deems proper
for the conduct of the Corporation's business.
ARTICLE II.
Meetings of Shareholders
Section 2.1 Annual Meeting. An annual meeting of shareholders for the
purpose of electing directors and transacting such other business as may come
before it shall be held at such place within the State of Wyoming, on such date
and at such time as shall be designated by the Board of Directors or the
President.
Section 2.2 Special Meetings. Special meetings of the shareholders, unless
otherwise prescribed by statute, may be called by the Board of Directors or by
the President. Business transacted at any special meeting of the shareholders
shall be limited to the purposes stated in the notice.
Section 2.3 Notice of Meetings. Written notice of each meeting of
shareholders shall be given to each shareholder of record entitled to vote at
the meeting at the shareholder's address as it appears on the stock books of the
corporation. The notice shall state the time and the place of the meeting and
shall be delivered or mailed not less than ten (10) nor more than sixty (60)
days before the date of the meeting. If mailed, such notice shall be deemed to
be given when deposited in the United States mail, postage prepaid, directed to
the shareholder at his or her address as it appears on the stock books of the
Corporation. Whenever notice is required to be given hereunder, a written waiver
of notice signed by the shareholder entitled to notice, whether before or after
the time stated in the notice, shall be deemed equivalent to notice. Also,
attendance of a person at a meeting shall constitute a waiver of notice of such
meeting except when a person attends for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
Section 2.4 Quorum and Adjournment. The presence, in person or by proxy, of
the holders of a majority of the shares of stock entitled to vote on every
matter that is to be voted on without regard to class or series shall constitute
a quorum at all meetings of the shareholders. In the absence of a quorum, the
holders of a majority of such shares of stock present in person or by proxy may
adjourn such meeting, from time to time, without notice other than announcement
at the meeting, until a quorum shall attend. At any such adjourned meeting at
which a quorum may be present, any business may be transacted which might have
been transacted at the meeting as originally called, but only those shareholders
entitled to vote at the meeting as originally called shall be entitled to vote
at any adjournment thereof.
Section 2.5 Officers at Shareholders' Meetings. The Chairman of the Board
of Directors shall preside at all meetings of shareholders. In his absence, the
chairman shall be elected as the first order of business by a majority of the
shares of voting capital stock in attendance at the meeting.
Section 2.6 List of Shareholders Entitled to Vote. No later than two (2)
business days after notice of any shareholders' meeting is given, a complete
list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each shareholder and the number of
shares registered in the name of each shareholder, shall be prepared by or for
the Secretary and shall be open to the examination of any shareholder for any
purpose germane to the meeting, during ordinary business hours, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the
Corporation's principal office. Such list shall be available for inspection at
the meeting.
Section 2.7 Fixing Date for Shareholders of Record. In order that the
Corporation may identify the shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than seventy (70) days before
the date of such meeting, nor more than seventy (70) days prior to any other
action. If no record date is fixed, the record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice of the
meeting is given, or if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held. The record date for
determining shareholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is given. The
record date for determining shareholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of shareholders of record entitled
to notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 2.8 Voting and Proxies. Except as otherwise provided in the Wyoming
Business Corporation Act (the "Act") or the Corporation's Articles of
Incorporation and subject to the provisions for fixing the date for shareholders
of record:
(a) Each shareholder shall at every meeting of the shareholders be
entitled to one vote for each share of capital stock having voting rights
held by that shareholder as to the matter being voted upon.
(b) Each shareholder entitled to vote at a meeting of shareholders or
to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for that shareholder
by proxy, but no such proxy shall be voted or acted upon after eleven
months from its date, unless the proxy expressly provides for a longer
period.
(c) Each matter properly presented to any meeting shall be decided by
a majority of the votes present and entitled to vote on the matter.
Section 2.9 Voting Procedures. When any matter is submitted to a vote of
the shareholders, the chairman shall decide upon the qualifications of voters,
have the votes counted and declare the results. The chairman shall decide
whether voting is to be conducted by written ballot, a show of hands, or voice
vote.
Section 2.10 Consent of Shareholders in Lieu of Meeting. Any action that
may be taken at any annual or special meeting of shareholders may be taken
without a meeting if prior notice of the proposed action is given to all
shareholders (including holders of nonvoting shares of capital stock) and if a
consent or consents in writing, setting forth the action so taken, is signed by
all of the shareholders entitled to vote thereon. Prompt notice of the taking of
such action without a meeting shall be given to each shareholder not entitled to
vote thereon. Any such notice shall have been given promptly if such notice is
delivered or mailed within three (3) days of the taking of such action to each
such shareholder in the manner provided in Section 2.3.
Notwithstanding anything to the contrary in this Section 2.10, if the Act
requires that notice of any proposed action be given to nonvoting shareholders
and the action is to be taken by consent of the voting shareholders, the
Corporation shall give its nonvoting shareholders written notice of the proposed
action at least ten (10) days before the action is taken. Such notice shall
contain or be accompanied by the same material that, under the Act, would have
been required to be sent to nonvoting shareholders in a notice of meeting at
which the proposed action would have been submitted to the shareholders for
action.
ARTICLE III.
Directors
Section 3.1 Number and Term of Office. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. The number of directors constituting the entire Board shall be not
less than three nor more than five. The exact number of directors shall be fixed
from time to time by the Board of Directors pursuant to a resolution adopted by
a majority of the entire Board; provided, however, that the number of directors
shall not be reduced so as to shorten the term of any director at the time in
office.
The Board of Directors shall be divided into three classes, as nearly equal
in number as the then total number of directors constituting the entire Board
permits, with respect to the time for which they shall severally hold office.
Directors of the first class first chosen by the shareholders of the Corporation
shall hold office for one year or until the first annual meeting of shareholders
following their election; directors of the second class first chosen by the
shareholders of the Corporation shall hold office for two years or until the
second annual meeting of shareholders following their election; and directors of
the third class first chosen by the shareholders of the Corporation shall hold
office for three years or until the third annual meeting of shareholders
following their election; and, in each case, until their successors to the class
of directors whose term shall expire at that time shall be elected to hold
office for a term of three years, so the term of office of one class of director
shall expire in each year. Each director elected shall hold office until his
successor shall be elected and shall qualify.
Newly created directorships resulting from any increase in the authorized
number of directors or any vacancies in the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office or other
cause shall be filled by a majority vote of the remaining directors, though less
than a quorum, and any director so chosen shall hold office until the next
election of the class for which such director shall have been chosen and until
his successor shall be elected and qualified.
Section 3.2 Place of Meetings. Meetings of the Board of Directors may be
held at any place within the State of Wyoming from time to time as designated by
the Chairman of the Board or by the body or person calling such meeting.
Section 3.3 Annual Meetings. The newly elected Board of Directors shall
meet as soon as practicable without further notice after each annual meeting of
shareholders at the place at which such meeting of shareholders took place,
provided a majority of the whole Board of Directors is present. If such a
majority is not present, such meeting may be held at any other time or place
which may be specified in a notice given in the manner provided for special
meetings of the Board of Directors or in a waiver of notice thereof.
Section 3.4 Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times as may be determined by the Board of Directors. No
notice shall be required for any regular meeting.
Section 3.5 Special Meetings. Special meetings of the Board of Directors
shall be called by the Chairman of the Board or the President. Notice of any
special meeting shall be mailed to each director at that director's residence or
usual place of business not later than three (3) days before the day on which
the meeting is to be held, or shall be given to that director by telegraph, by
overnight express mail service, personally, or by telephone, not later than
twenty-four (24) hours before the time of such meeting. Notice of any meeting of
the Board of Directors need not be given to any director if that director signs
a written waiver thereof either before or after the time stated therein.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except when the director attends the meeting for the express
purpose of objecting, at the beginning of the meeting or promptly upon his
arrival, to the transaction of any business because the meeting is not lawfully
called or convened and does not thereafter vote for or assent to action taken at
the meeting.
Section 3.6 Action Without Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board of Directors or of such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the Board of Directors or of such
committee.
Section 3.7 Presiding Officer and Secretary at Meetings. Each meeting of
the Board of Directors shall be presided over by the Chairman of the Board of
Directors, or in his or her absence, by the President, and if neither is
present, then by such member of the Board of Directors as shall be chosen at the
meeting.
Section 3.8 Quorum. A majority of the total number of directors shall
constitute a quorum for the transaction of business. In the absence of a quorum,
a majority of those present (or if only one be present, then that one) may
adjourn the meeting, without notice other than announcement at the meeting,
until such time as a quorum is present. The vote of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 3.9 Meeting by Telephone. Members of the Board of Directors or of
any committee thereof may participate in a meeting of the Board of Directors or
of such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Such participation shall constitute presence in person at such
meeting.
Section 3.10 Compensation. Directors shall receive such fees and expense
reimbursements for their services as directors or as members of committees as
set by the Board of Directors. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
Section 3.11 Resignations. Any director, member of a committee or other
officer may resign at any time by giving written notice thereof to the Chairman
of the Board or the President. Such resignation shall be effective at the time
of its receipt, unless a date certain is specified for it to take effect.
Acceptance of any resignation shall not be necessary to make it effective.
Section 3.12 Removal of Directors. At any meeting of the shareholders
called for such purpose, any director may be removed from office, but only for
cause and only by the affirmative vote of the holders of at least 85% of the
then outstanding shares of voting capital stock of the Corporation.
Section 3.13 Filling of Vacancies. Newly created directorships resulting
from any increase in the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be filled by a
majority vote of the remaining directors, though less than a quorum, and any
director so chosen shall hold office until the next election of the class for
which such director shall have been chosen and until his successor shall be
elected and qualified.
ARTICLE IV.
Committees
The Board of Directors may, by resolution passed by a majority of the whole
Board of Directors, designate one or more committees, each such committee to
consist of one or more directors of the Corporation. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in such resolution or
resolutions, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have any power or
authority in reference to those matters described in subparagraph (e) of Section
17-16-825 of the Act.
ARTICLE V.
The Officers
Section 5.1 Designation. The Corporation shall have such officers with such
titles and duties as set forth in these Bylaws or in a resolution of the Board
of Directors adopted on or after the effective date of these Bylaws.
Section 5.2 Election and Qualification. The officers of the Corporation
shall be elected by its Board of Directors and shall consist of a President, may
but need not consist of one or more Vice Presidents, a Secretary, a Treasurer,
one or more Assistant Secretaries and Assistant Treasurers, and such other
officers and agents as the Board of Directors may deem advisable. None of the
officers of the Corporation need be directors.
Section 5.3 Term of Office. Officers shall be chosen in such manner and
shall hold their offices for such term as determined by the Board of Directors.
Each officer shall hold office from the time of his or her election and
qualification to the time at which his or her successor is elected and
qualified, or until his or her earlier resignation, removal or death.
Section 5.4 Resignation. Any officer of the Corporation may resign at any
time by giving written notice of such resignation to the Chairman of the Board
of Directors or to the President. Any such resignation shall take effect at the
time specified therein or, if no time be specified, upon receipt thereof by the
Chairman of the Board of Directors or the President. The acceptance of such
resignation shall not be necessary to make it effective.
Section 5.5 Removal. Any officer may be removed at any time, with or
without cause, by the Board of Directors.
Section 5.6 Compensation. The compensation of each officer shall be
determined by the Board of Directors.
Section 5.7 Chairman of the Board. The chairman of the board, if one has
been elected, shall preside at all meetings of the board, stockholders and
committees of which he is a member. He shall have such powers and perform such
duties as may be authorized by the board of directors.
Section 5.8 Chief Executive Officer. If the board of directors has elected
a chairman of the board, it may designate the chairman of the board as the chief
executive officer of the corporation. If no chairman of the board has been
elected, or in his absence or inability to act, or if no such designation has
been made by the board of directors, the president shall be the chief executive
officer of the corporation. The chief executive officer shall (i) have the
over-all supervision of the business of the corporation and shall direct the
affairs and policies of the corporation, subject to any directions which may be
given by the board of directors, (ii) shall have authority to designate the
duties and powers of officers and delegate special powers and duties to
specified officers, so long as these designation3 shall not be inconsistent with
the statutes, these bylaws or action of the board of directors, and (iii) shall
in general have all other powers and shall perform all other duties incident to
the chief executive officer of a corporation and. such ether powers and duties
as may be prescribed by the board of directors from time to time.
Section 5.9 The President. The President shall be the chief executive
officer of the Corporation and, subject to the control of the Board of
Directors, shall have general and active charge, control and supervision of all
of the business and affairs of the Corporation. The President shall report to
the Board of Directors and shall direct the implementation of the decisions,
policies and procedures established by the Board of Directors. The President
shall have general authority to execute bonds, deeds and contracts in the name
and on behalf of the Corporation and in general to exercise all the powers
generally delegated to the chief executive officer of a corporation.
Section 5.10 Vice President. Each Vice President shall have such powers and
shall perform such duties as shall be assigned to him or her by the Board of
Directors. During the absence of the President or during his inability to act, a
Vice President designated by the Board of Directors shall exercise the powers
and shall perform the duties of the President, subject to the direction of the
Board of Directors.
Section 5.11 Secretary. The Secretary shall attend meetings of the Board of
Directors and shareholders and record votes and minutes of such proceedings,
subject to the direction of the Chairman; assist in issuing calls for meetings
of shareholders and directors; keep the seal of the Corporation and affix it to
such instruments as may be required from time to time; keep the stock transfer
books and other books and records of the Corporation; act as stock transfer
agent for the Corporation; attest the Corporation's execution of instruments
when requested and appropriate; make such reports to the Board of Directors as
are properly requested; and perform such other duties incident to the office of
Secretary and those that may be otherwise assigned to the Secretary from time to
time by the President or the Chairman of the Board of Directors.
Section 5.12 Treasurer. The Treasurer shall have custody of all corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation. The Treasurer shall deposit
or disburse all moneys and other property in the name and to the credit of the
Corporation as may be designated by the President or the Board of Directors. The
Treasurer shall render to the President and the Board of Directors at the
regular meetings of the Board of Directors, or whenever they may request it, an
account of all his or her transactions as Treasurer and of the financial
condition of the Corporation. The Treasurer shall perform such other duties
incident to the office of Treasurer as the President or the Board of Directors
shall from time to time designate.
Section 5.13 Other Officers. Each other officer of the Corporation shall
have such powers and shall perform such duties as shall be assigned to him or
her by the Board of Directors.
ARTICLE VI.
Certificates of Stock,
Transfers of Stock and
Registered Shareholders
Section 6.1 Stock Certificates. The interest of each holder of stock of the
Corporation shall be evidenced by a certificate or certificates signed by or in
the name of the Corporation by the Chairman of the Board of Directors, or the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary of the Corporation certifying the
number of shares owned by the holder thereof in the Corporation. Any of or all
of the signatures on the certificate may be a facsimile. If any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, the certificate may be issued by
the Corporation with the same effect as if he/she were such officer, transfer
agent or registrar at the date of issuance.
Section 6.2 Classes/Series of Stock. The corporation may issue one or more
classes of stock and one or more series of stock within any class thereof, as
stated and expressed in the Articles of Incorporation or of any amendment
thereto. The powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate that the Corporation shall issue to represent such class or series
of stock, provided that, in accordance with the Act, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each shareholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 6.3 Transfer of Stock. Subject to the transfer restrictions
permitted by Section 17-16-627 of the Act and to stop transfer orders directed
in good faith by the Corporation to any transfer agent to prevent possible
violations of federal or state securities laws, rules or regulations, the shares
of stock of the Corporation shall be transferrable upon its books by the holders
thereof in person or by their duly authorized attorneys or legal
representatives, and upon such transfer the old certificates shall be
surrendered to the Corporation by the delivery thereof to the person in charge
of the stock and transfer books and ledgers, or to such other persons as the
directors may designate, by whom they shall be cancelled, and new certificates
shall be issued. A record shall be made of each transfer and whenever a transfer
shall be made for collateral security, and not absolutely, it shall be so
expressed in the entry of the transfer.
Section 6.4 Holders of Record. Prior to due presentment for registration of
transfer, the Corporation may treat the holder of record of a share of its stock
as the complete owner thereof exclusively entitled to vote, to receive
notifications and otherwise entitled to all the rights and powers of a complete
owner thereof, notwithstanding notice of the contrary.
Section 6.5 Lost, Stolen, Destroyed, or Mutilated Certificates. A new
certificate of stock may be issued to replace a certificate theretofore issued
by the Corporation, alleged to have been lost, stolen, destroyed or mutilated,
and the Board of Directors or the President may require the owner of the lost or
destroyed certificate or his or her legal representatives, to give such sum as
they may direct to indemnify the Corporation against any expense or loss it may
incur on account of the alleged loss of any such certificate.
Section 6.6 Dividends. Subject to the provisions of the Articles of
Incorporation and applicable law, the directors may, out of funds legally
available therefor at any annual, regular, or special meeting, declare dividends
upon the capital stock of the Corporation as and when they deem expedient.
Dividends may be paid in cash, in property, or in shares of stock of the
Corporation. Before declaring any dividends there may be set apart out of any
funds of the Corporation available for dividends such sum or sums as the
directors from time to time in their discretion deem proper working capital to
serve as a reserve fund to meet contingencies or as equalizing dividends or for
such other purposes as the directors shall deem in the best interest of the
Corporation.
ARTICLE VII.
Indemnification of Officers and Directors
Section 7.1 Indemnification. The Corporation shall indemnify its officers
and directors (and its former officers and directors) to the fullest extent and
in the manner permitted under the Act.
Section 7.2 Other Indemnification. The indemnification herein provided
shall not limit the Corporation from providing any other indemnification
permitted by law nor shall it be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 7.3 Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against and incurred by him or her in any such
capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify him or her against such liability
under these provisions.
ARTICLE VIII.
Miscellaneous
Section 8.1 Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 8.2 Corporate Seal. The corporate seal shall be in such form as the
Board of Directors may from time to time prescribe and the same may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
Section 8.3 Severability. The invalidity or unenforceability of any
provision hereof shall not affect the validity or enforceability of the
remaining provisions hereof.
Section 8.4 Amendment of Articles of Incorporation. Notwithstanding
anything to the contrary in the Corporation's Articles of Incorporation or the
Act, the Corporation's Articles of Incorporation shall not be amended, altered
or repealed except by the affirmative vote of at least 85% of the then
outstanding shares of voting capital stock of the Corporation.
Section 8.5 Approval of Mergers, etc. Notwithstanding anything to the
contrary in the Corporation's Articles of Incorporation or the Act, no merger,
consolidation, share acquisition, share exchange or other business combination
of any type involving the Corporation nor any sale of all or substantially all
of the assets of the Corporation shall be effected without the affirmative vote
of at least 85% of the then outstanding shares of voting capital stock of the
Corporation.
ARTICLE IX.
Amendment of Bylaws
Notwithstanding anything to the contrary in the Corporation's Articles of
Incorporation or the Act, these Bylaws may not be amended, altered or repealed
except by the affirmative vote of at least 85% of the then outstanding shares of
voting capital stock of the Corporation.
CT CORPORATION SYSTEM, in its
capacity as incorporator
By: JOHN J. METZKE
Name: John J. Metzke
Title: Designated Agent
Schedule 1
THE BEARD COMPANY
-----------------
ISSUANCE OF CIBOLA PREFERRED AND COMMON STOCK
A Schedule Attached to and Made a Part of The Beard Company's
-------------------------------------------------------------
Response to the SEC's Comment Letter Dated
------------------------------------------
October 7, 2005
---------------
- -------------------------------------------------------------------------------
The following entry was made to record the exchange of all of the
outstanding shares of Mainline Enertech Corporation common stock for 16,200
shares of Cibola Corporation preferred stock:
Common Stock (Mainline Enertech Corporation) 153,000.00
Adjusted Paid in Capital (Mainline Entertech Corporation) 1,974,928.75
Preferred Stock - Discount 14,072,071.25
Preferred Stock - Series A 9,979,000.00
Preferred Stock - Series B 3,370,000.00
Preferred Stock - Series C 2,851,000.00
----------------------------------
Totals 16,200,000.00 16,200,000.00
==================================
The exchange was treated as an exchange of equity interests between
enterprises under common control. These transactions generally should be
recorded at the carrying value of the transferring enterprise in a manner
consistent to a pooling-of-interests and not at fair value.
See FAS 141, paragraph D12:
When accounting for a transfer of assets or exchange of shares between
entities under common control, the entity that receives the net assets or the
equIty interests shall initially recognize the assets and liabilities
transferred at their carrying amounts in the accounts of the transferring entity
at the date of transfer.
See also 1.034 in EITF 90-5, "Exchanges of Ownership Interests Between
Enterprises Under Common Control":
The EITF reached a consensus that the carrying amounts of the assets and
liabilities of the transferring enterprise to be recorded by the receiving
enterprise are the historical cost amounts in the consolidated financial
statements of the parent.
There were no notes receivable as a result of the issuance of the preferred
stock to the minority shareholders.
- -------------------------------------------------------------------------------
The following entry was made to record the sale of 144,000 shares of Cibola
common stock to The Beard Company for $1,440 cash and a note receivable for
$1,438,560:
Cash 1,440.00
Notes receivable 1,438,560.00
Common Stock 1,440.00
Adjusted Paid in Capital 1,438,560.00
----------------------------------
1,440,000.00 1,440,000.00
==================================
Note: See The Beard Company's response to SEC October 7, 2005, comment 1,
bullet point 8, subbullet point 2:
In brief, Beard believes the Note Receivable above for $1,438,560 should
have been shown on Cibola's books as a deduction from stockholder's equity in
accordance with Rule 5-02.30 of Regulation S-X.
Were this done, the accounting for the sale of the stock would match the
accounting for the purchase of the same stock in that The Beard Company netted
the note payable against its investment in Cibola.
Schedule 2
THE BEARD COMPANY
-----------------
SUMMARY OF CIBOLA GAS CONTRACTS
A Schedule Attached to and Made a Part of The Beard Company's Response to
-------------------------------------------------------------------------
the SEC's Comment Letter Dated
------------------------------
October 7, 2005
---------------
Cibola Corporation
Summary of Gas Contracts
Date of
Contract Type Counterparty Contract Term Quantity Price
------------- ------------ -------- ---- -------- -----
- ----------------------------------------------------------------------------------------------------------------------------
Sales Contract 1990 Sep 1990 - Aug 1991 18,240 mmbtu per day $ 1.700
-----------
Sep 1991 - Aug 1992 18,240 mmbtu per day $ 1.790
-----------
Sep 1992 - Aug 1993 18,240 mmbtu per day $ 1.880
-----------
Sep 1993 - Aug 1994 18,240 mmbtu per day $ 1.970
-----------
Sep 1994 - Aug 1995 18,240 mmbtu per day $ 2.070
---------------------------------------------------------
Sep 1995 - Aug 1996 12,160 mmbtu per day $ 2.170
-----------
Sep 1996 - Aug 1997 12,160 mmbtu per day $ 2.280
-----------
Sep 1997 - Aug 1998 12,160 mmbtu per day $ 2.390
-----------
Sep 1998 - Aug 1999 12,160 mmbtu per day $ 2.510
-----------
Sep 1999 - Aug 2000 12,160 mmbtu per day $ 2.640
---------------------------------------------------------
Sep 2000 - Aug 2001 6,080 mmbtu per day $ 2.770
-----------
Sep 2001 - Aug 2002 6,080 mmbtu per day $ 2.910
-----------
Sep 2002 - Aug 2003 6,080 mmbtu per day $ 3.050
-----------
Sep 2003 - Aug 2004 6,080 mmbtu per day $ 3.210
-----------
Sep 2004 - Aug 2005 6,080 mmbtu per day $ 3.370
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Purchase Contract Williams Energy Services Company Sep 8 1995 Jan 1996 - Dec 1996 12,160 mmbtu per day $ 1.620
----------------------- -----------
Jan 1997 - Dec 1997 12,160 mmbtu per day $ 1.685
----------------------- -----------
Jan 1998 - Dec 1998 12,160 mmbtu per day $ 1.775
----------------------- -----------
Jan 1999 - Dec 1999 12,160 mmbtu per day $ 1.885
----------------------- -----------
Jan 2000 - Aug 2000 12,160 mmbtu per day $ 1.970
---------------------------------------------------------
Sep 2000 - Dec 2000 6,080 mmbtu per day $ 1.970
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Purchase Contract Williams Energy Services Company Sep 25 1996 Jan 2001 - Aug 2005 3,000 mmbtu per day $ 1.900
- ----------------------------------------------------------------------------------------------------------------------------
Purchase Contract Williams Energy Services Company Feb 28 1997 Jan 2001 - Aug 2005 3,080 mmbtu per day $ 2.000
- ----------------------------------------------------------------------------------------------------------------------------
SCHEDULE 3
THE BEARD COMPANY
-----------------
EFFECT OF INCLUSION OF CIBOLA IN BEARD'S CONSOLIDATED FEDERAL INCOME TAX RETURN
FROM 1996 THRU 2004
A Schedule Attached to and Made a Part of The Beard Company's
-------------------------------------------------------------
Response to the SEC's Comment Letter Dated
------------------------------------------
October 7, 2005
---------------
- -------------------------------------------------------------------------------
Line 28 Taxable
Form 1120 Taxable Income of
before NOL Income of Remainder of
YEAR Carryforward (a) Cibola (b) Beard Group (c)
---- ---------------- ---------- ---------------
1996 1,587,592.98 1,978,149.00 (390,556.02)
1997 12,338,922.23 3,093,348.36 9,245,573.87
1998 541,575.09 3,256,403.73 (2,714,828.64)
1999 357,305.45 3,629,192.03 (3,271,886.58)
2000 557,262.03 2,791,460.74 (2,234,198.71)
2001 (1,562,469.56) 1,949,732.90 (3,512,202.46)
2002 (308,653.67) 2,471,874.52 (2,780,528.19)
2003 416,007.86 2,918,640.10 (2,502,632.24)
2004 4,467,661.87 3,365,377.22 1,102,284.65
Notes:
- ------
(a) Amounts presented are prior to any net operating loss ("NOL")
carryforwards (or line 29a) of Form 1120: NOL c/f
-------
1996 68,256,632.00
2004 54,633,698.72
(b) Prior to dividends received deduction (line 29b of Form 1120) pertaining
to Cibola dividend income.
(c) Amount of taxable income prior to dividends received deduction of remainder
of Beard consolidated group.
(d) This schedule demonstrates that the Beard group received no tax benefits as
a result of the inclusion of Cibola in the consolidated tax return of The
Beard Company - other than the utilization of the NOL's of the remainder of
the Beard group.
Schedule 4
THE BEARD COMPANY
-----------------
CALCULATION TO DETERMINE PRIMARY BENEFICIARY
A Schedule Attached to and Made a Part of The Beard Company's Response to
-------------------------------------------------------------------------
the SEC's Comment Letter Dated
------------------------------
October 7, 2005
---------------
- --------------------------------------------------------------------------------
Note: The liquidation preference at Cibola indicates the first $50,000,000 in
value, after payment of liabilities existing at dissolution or
liquidation, is for the benefit of the preferred shareholders who also are
the minority common shareholders (20%). The Beard Company would receive
80% of the value in excess of $50,000,000.
So, the purpose of this schedule is to determine at what value would
Beard receive more upon dissolution/liquidation than the
minority/preferred shareholders.
The calculation below shows that Cibola would have to be worth
$133,333,335 at liquidation or dissolution for Beard to become the primary
beneficiary of Cibola.
As follows for a liquidation value of $133,333,335 for Cibola:
Minority Group Beard Totals
-------------- ----- ------
First $50,000,000 50,000,000.00 0.00 50,000,000.00
Next $83,333,335
80% to TBC 0.00 66,666,668.00 66,666,668.00
20% to minority 16,666,667.00 0.00 16,666,667.00
------------------------------------------------------------
Totals 66,666,667.00 66,666,668.00 133,333,335.00
============================================================
This schedule also shows that, until this value is achieved, the minority
shareholders stand to gain the most reward upon the operation of Cibola.
SCHEDULE 5
THE BEARD COMPANY
-----------------
HISTORY OF CIBOLA EARNINGS - FROM INCEPTION OF BEARD AS MAJORITY SHAREHOLDER
A Schedule Attached to and Made a Part of The Beard Company's Response to the SEC's Comment Letter Dated
--------------------------------------------------------------------------------------------------------
October 7, 2005
---------------
- -----------------------------------------------------------------------------------------------------------------------------------
Cibola earnings 80% of Additional amount Running total of
Cibola earnings originally Cibola earnings of Cibola Impairments
before payments reported before payments Earnings to report for Balance Sheet
Year to Beard by Beard to Beard and to fully impair Disclosure
---- -------- -------- -------- ------------------- ----------
1996 2,056,097.08 98,855.34 1,644,877.66 1,546,022.32 1,546,022.32
1997 3,227,506.78 184,954.38 2,582,005.42 2,397,051.04 3,943,073.37
1998 3,375,384.63 274,461.27 2,700,307.70 2,425,846.43 6,368,919.80
1999 3,773,048.52 308,107.96 3,018,438.82 2,710,330.86 9,079,250.66
2000 1,335,047.96 237,418.71 1,068,038.37 830,619.66 9,909,870.32
2001 1,935,713.32 141,562.26 1,548,570.66 1,407,008.40 11,316,878.71
2002 986,841.74 122,750.94 789,473.39 666,722.45 11,983,601.16
2003 2,995,249.37 237,506.92 2,396,199.50 2,158,692.58 14,142,293.74
2004 4,221,301.90 290,049.91 3,377,041.52 3,086,991.61 17,229,285.35
------------------ ---------------------------------------- --------------------
Subtotal 23,906,191.30 1,895,667.69 19,124,953.04 17,229,285.35
3/31/2005 1,206,053.70 83,635.38 964,842.96 881,207.58 18,110,492.93
6/30/2005 1,147,069.50 85,256.65 917,655.60 832,398.95 18,942,891.88
------------------ ---------------------------------------- --------------------
Subtotal 2005 2,353,123.20 168,892.03 1,882,498.56 1,713,606.53
================== ======================================== ====================
Total thru 6/30/05 26,259,314.50 2,064,559.72 21,007,451.60 18,942,891.88
================== ======================================== ====================
Averages for 1996 thru 2004
2,656,243.48 2,124,994.78
Averages for 1996 thru 2005
2,764,138.37 2,211,310.69
SCHEDULE 6
THE BEARD COMPANY AND SUBSIDIARIES
----------------------------------
Balance Sheets
A Schedule Attached to and Made a Part of The Beard Company's Response to the SEC's Comment Letter Dated
--------------------------------------------------------------------------------------------------------
October 7, 2005
---------------
December 31, December 31,
Assets 2004 2003
------ ---------------------- ----------------------
Current assets:
Cash and cash equivalents $ 127,000 $ 216,000
Accounts receivable, less allowance for doubtful
receivables of $97,000 in 2004 and 2003 167,000 89,000
Prepaid expenses and other assets 82,000 34,000
Assets of discontinued operations held for resale 40,000 55,000
---------------------- ----------------------
Total current assets 416,000 394,000
---------------------- ----------------------
Note receivable, less allowance for doubtful receivable of
$30,000 in 2004 and 2003 (note 6) - -
Investments and other assets, net of impairment
of $17,229,000 in 2004 and $14,142,000 in 2003 (note 5) 1,560,000 1,520,000
Property, plant and equipment, at cost (note 7) 2,090,000 1,843,000
Less accumulated depreciation, depletion and amortization 1,457,000 1,392,000
---------------------- ----------------------
Net property, plant and equipment 633,000 451,000
---------------------- ----------------------
Intangible assets, at cost (note 8) 292,000 183,000
Less accumulated amortization 189,000 168,000
---------------------- ----------------------
Net intangible assets 103,000 15,000
---------------------- ----------------------
$ 2,712,000 $ 2,380,000
====================== ======================
Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
Trade accounts payable $ 177,000 $ 133,000
Accrued expenses (note 3) 314,000 325,000
Short-term debt - 32,000
Short-term debt - related entities 200,000 661,000
Current maturities of long-term debt (note 9) 241,000 5,000
Current maturities of long-term debt - related entities (note 9) 333,000 -
Liabilities of discontinued operations held for resale 95,000 92,000
---------------------- ----------------------
Total current liabilities 1,360,000 1,248,000
---------------------- ----------------------
Long-term debt less current maturities (note 9) 367,000 1,215,000
Long-term debt - related entities (note 9) 4,879,000 5,107,000
Other long-term liabilities 250,000 143,000
Shareholders' equity (deficiency):
Convertible preferred stock of $100 stated value;
5,000,000 shares authorized; 27,838 shares issued
and outstanding 889,000 889,000
Common stock of $.0006665 and $.001333 par value per share;
15,000,000 and 7,500,000 authorized; 4,839,565 and 2,328,845
shares issued and outstanding in 2004 and 2003, respectively 3,000 3,000
Capital in excess of par value 38,193,000 37,941,000
Accumulated deficit (43,214,000) (44,151,000)
Accumulated other comprehensive loss (15,000) (15,000)
---------------------- ----------------------
Total shareholders' equity (deficiency) (4,144,000) (5,333,000)
---------------------- ----------------------
Commitments and contingencies (notes 4, 10, and 14)
$ 2,712,000 $ 2,380,000
====================== ======================
SCHEDULE 7
THE BEARD COMPANY
-----------------
AMOUNT OF CIBOLA EARNINGS BOOKED - ADDITIONAL EARNINGS POSSIBLE - AND "OTHER THAN TEMPORARY" IMPAIRMENT
From 1996 thru June 30, 2005
A Schedule Attached to and Made a Part of The Beard Company's Response to the SEC's Comment Letter Dated
--------------------------------------------------------------------------------------------------------
October 7, 2005
---------------
For the 12 For the 12 For the 12 For the 12
Months Months Months Months
Description 12/31/1996 12/31/1997 12/31/1998 12/31/1999
----------- ---------- ---------- ---------- ----------
Version 1 - Full "other than temporary" impairment
- --------------------------------------------------
Earnings (loss) from unconsolidated affliliates,
as reported (for entities other than Cibola
and including a rounding factor) (140,855.34) 89,045.62 (345,461.27) (228,107.96)
Cibola earnings, as originally reported 98,855.34 184,954.38 274,461.27 308,107.96
--------------------------------------------------------------
Subtotal - Earnings (loss) from unconsolidated affliliates,
as originally reported (rounded to $000's) (42,000.00) 274,000.00 (71,000.00) 80,000.00
Additional Cibola earnings to arrive at 80% share of
Cibola earnings 1,546,022.32 2,397,051.04 2,425,846.43 2,710,330.86
--------------------------------------------------------------
Subtotal - Earnings (loss) from unconsolidated affliates,
as adjusted 1,504,022.32 2,671,051.04 2,354,846.43 2,790,330.86
Impairment to Cibola - based upon value to The Beard
Company considering liquidation preferences (1,546,022.32) (2,397,051.04) (2,425,846.43) (2,710,330.86)
--------------------------------------------------------------
Subtotal - Earnings (loss) from unconsolidated affliliates,
as adjusted and after impairment (rounded to $000's) (42,000.00) 274,000.00 (71,000.00) 80,000.00
==============================================================
Version 2 - Based upon estimated value of Cibola ignoring $50,000,000 liquidation payment threshold
- ---------------------------------------------------------------------------------------------------
Earnings (loss) from unconsolidated affliliates,
as reported (for entities other than Cibola
and including a rounding factor) (140,855.34) 89,045.62 (345,461.27) (228,107.96)
Cibola earnings, as originally reported 98,855.34 184,954.38 274,461.27 308,107.96
--------------------------------------------------------------
Subtotal - Earnings (loss) from unconsolidated affliliates,
as originally reported (rounded to $000's) (42,000.00) 274,000.00 (71,000.00) 80,000.00
Additional Cibola earnings to arrive at 80% share of
Cibola earnings 1,546,022.32 2,397,051.04 2,425,846.43 2,710,330.86
--------------------------------------------------------------
Subtotal - Earnings (loss) from unconsolidated affliates,
as adjusted 1,504,022.32 2,671,051.04 2,354,846.43 2,790,330.86
Impairment to Cibola earnings - based upon value to
The Beard Company ignoring liquidation preferences 0.00 0.00 0.00 0.00
Impairment calculation based upon value of Cibola and
Ignoring the $50,000,000 liquidation payment threshold
- ------------------------------------------------------
Fair market value of Cibola per Attached Valuation 21,300,000.00 22,160,000.00 24,100,000.00 25,280,000.00
The Beard Company's ownership 80.00% 80.00% 80.00% 80.00%
--------------------------------------------------------------
The Beard Company's 80% share of value of Cibola
(ignoring the $50,000,000 liquidation payment) 17,040,000.00 17,728,000.00 19,280,000.00 20,224,000.00
Beard Company's investment in Cibola - start of period 13,444.13 52,727.76 58,559.97 95,832.39
Earnings reported 98,855.34 184,954.38 274,461.27 308,107.96
Distributions during the period
for the current period (59,571.71) (139,838.54) (192,073.02) (212,099.17)
from the prior period's earnings 0.00 (39,283.63) (45,115.83) (82,388.25)
--------------------------------------------------------------
Subtotal - distributions (59,571.71) (179,122.17) (237,188.85) (294,487.42)
--------------------------------------------------------------
Beard Company's investment in Cibola - end of period 52,727.76 58,559.97 95,832.39 109,452.93
Additional earnings to report - current period 1,546,022.32 2,397,051.04 2,425,846.43 2,710,330.86
Addt'l earnings to book - cumulative from prior periods 0.00 1,546,022.32 3,943,073.36 6,368,919.79
--------------------------------------------------------------
Adjusted investment balance after addt'l earnings 1,598,750.08 4,001,633.33 6,464,752.18 9,188,703.58
--------------------------------------------------------------
Excess (deficiency) of value of Cibola over investment
account in Cibola on Beard's books (as adjusted) 15,441,249.92 13,726,366.67 12,815,247.82 11,035,296.42
==============================================================
For the 12 For the 12 For the 12 For the 12
Months Months Months Months
Description 12/31/2000 12/31/2001 12/31/2002 12/31/2003
----------- ---------- ---------- ---------- ----------
Version 1 - Full "other than temporary" impairment
- --------------------------------------------------
Earnings (loss) from unconsolidated affliliates,
as reported (for entities other than Cibola
and including a rounding factor) (1,071,418.71) (308,562.26) (360,750.94) (1,506.92)
Cibola earnings, as originally reported 237,418.71 141,562.26 122,750.94 237,506.92
--------------------------------------------------------------
Subtotal - Earnings (loss) from unconsolidated affliliates,
as originally reported (rounded to $000's) (834,000.00) (167,000.00) (238,000.00) 236,000.00
Additional Cibola earnings to arrive at 80% share of
Cibola earnings 830,619.66 1,407,008.40 666,722.45 2,158,692.58
--------------------------------------------------------------
Subtotal - Earnings (loss) from unconsolidated affliates,
as adjusted (3,380.34) 1,240,008.40 428,722.45 2,394,692.58
Impairment to Cibola - based upon value to The Beard
Company considering liquidation preferences (830,619.66) (1,407,008.40) (666,722.45) (2,158,692.58)
--------------------------------------------------------------
Subtotal - Earnings (loss) from unconsolidated affliliates,
as adjusted and after impairment (rounded to $000's) (834,000.00) (167,000.00) (238,000.00) 236,000.00
===============================================================
Version 2 - Based upon estimated value of Cibola ignoring $50,000,000 liquidation payment threshold
- ---------------------------------------------------------------------------------------------------
Earnings (loss) from unconsolidated affliliates,
as reported (for entities other than Cibola
and including a rounding factor) (1,071,418.71) (308,562.26) (360,750.94) (1,506.92)
Cibola earnings, as originally reported 237,418.71 141,562.26 122,750.94 237,506.92
--------------------------------------------------------------
Subtotal - Earnings (loss) from unconsolidated affliliates,
as originally reported (rounded to $000's) (834,000.00) (167,000.00) (238,000.00) 236,000.00
Additional Cibola earnings to arrive at 80% share of
Cibola earnings 830,619.66 1,407,008.40 666,722.45 2,158,692.58
--------------------------------------------------------------
Subtotal - Earnings (loss) from unconsolidated affliates,
as adjusted (3,380.34) 1,240,008.40 428,722.45 2,394,692.58
Impairment to Cibola earnings - based upon value to
The Beard Company ignoring liquidation preferences 0.00 0.00 0.00 0.00
Impairment calculation based upon value of Cibola and
Ignoring the $50,000,000 liquidation payment threshold
- ------------------------------------------------------
Fair market value of Cibola per Attached Valuation 23,610,000.00 23,420,000.00 22,790,000.00 25,570,000.00
The Beard Company's ownership 80.00% 80.00% 80.00% 80.00%
--------------------------------------------------------------
The Beard Company's 80% share of value of Cibola
(ignoring the $50,000,000 liquidation payment) 18,888,000.00 18,736,000.00 18,232,000.00 20,456,000.00
Beard Company's investment in Cibola - start of period 109,452.93 38,108.59 48,434.85 11,216.95
Earnings reported 237,418.71 141,562.26 122,750.94 237,506.92
Distributions during the period
for the current period (212,754.25) (106,571.54) (124,978.12) (189,506.90)
from the prior period's earnings (96,008.80) (24,664.46) (34,990.72) (45,772.82)
--------------------------------------------------------------
Subtotal - distributions (308,763.05) (131,236.00) (159,968.84) (235,279.72)
--------------------------------------------------------------
Beard Company's investment in Cibola - end of period 38,108.59 48,434.85 11,216.95 13,444.15
Additional earnings to report - current period 830,619.66 1,407,008.40 666,722.45 2,158,692.58
Addt'l earnings to book - cumulative from prior periods 9,079,250.65 9,909,870.31 11,316,878.71 11,983,601.16
--------------------------------------------------------------
Adjusted investment balance after addt'l earnings 9,947,978.90 11,365,313.56 11,994,818.11 14,155,737.89
--------------------------------------------------------------
Excess (deficiency) of value of Cibola over investment
account in Cibola on Beard's books (as adjusted) 8,940,021.10 7,370,686.44 6,237,181.89 6,300,262.11
===============================================================
For the 12 Three Three Undistributed
Months Months Months Earnings as of
Description 12/31/2004 3/31/2005 6/30/2005 Total 6/30/2005
----------- ---------- --------- --------- ----- ---------
Version 1 - Full "other than temporary" impairment
- --------------------------------------------------
Earnings (loss) from unconsolidated affliliates,
as reported (for entities other than Cibola
and including a rounding factor) 85,950.09 364.62 (256.65) (2,281,559.72)
Cibola earnings, as originally reported 290,049.91 83,635.38 85,256.65 2,064,559.72
- ------------------------------------------------------------------------------------------------------- ---------------
Subtotal - Earnings (loss) from unconsolidated affliliates,
as originally reported (rounded to $000's) 376,000.00 84,000.00 85,000.00 (217,000.00)
Additional Cibola earnings to arrive at 80% share of
Cibola earnings 3,086,991.61 881,207.58 832,398.95 18,942,891.88
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Subtotal - Earnings (loss) from unconsolidated affliates,
as adjusted 3,462,991.61 965,207.58 917,398.95 18,725,891.88
Impairment to Cibola - based upon value to The Beard
Company considering liquidation preferences (3,086,991.61) (881,207.58) (832,398.95) (18,942,891.88)
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Subtotal - Earnings (loss) from unconsolidated affliliates,
as adjusted and after impairment (rounded to $000's) 376,000.00 84,000.00 85,000.00 (217,000.00)
============================================ ===============
Version 2 - Based upon estimated value of Cibola ignoring $50,000,000 liquidation payment threshold
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Earnings (loss) from unconsolidated affliliates,
as reported (for entities other than Cibola
and including a rounding factor) 85,950.09 364.62 (256.65) (2,281,559.72)
Cibola earnings, as originally reported 290,049.91 83,635.38 85,256.65 2,064,559.72
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Subtotal - Earnings (loss) from unconsolidated affliliates,
as originally reported (rounded to $000's) 376,000.00 84,000.00 85,000.00 (217,000.00)
Additional Cibola earnings to arrive at 80% share of
Cibola earnings 3,086,991.61 881,207.58 832,398.95 18,942,891.88
- ------------------------------------------------------------------------------------------------------- ---------------
Subtotal - Earnings (loss) from unconsolidated affliates,
as adjusted 3,462,991.61 965,207.58 917,398.95 18,725,891.88
Impairment to Cibola earnings - based upon value to
The Beard Company ignoring liquidation preferences 0.00 0.00 0.00
Impairment calculation based upon value of Cibola and
Ignoring the $50,000,000 liquidation payment threshold
- ------------------------------------------------------
Fair market value of Cibola per Attached Valuation 27,160,000.00 27,160,000.00 27,350,000.00
The Beard Company's ownership 80.00% 80.00% 80.00%
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The Beard Company's 80% share of value of Cibola
(ignoring the $50,000,000 liquidation payment) 21,728,000.00 21,728,000.00 21,880,000.00
Beard Company's investment in Cibola - start of period 13,444.15 92,229.82 97,079.56 13,444.13
Earnings reported 290,049.91 83,635.38 85,256.65 2,064,559.72
Distributions during the period
for the current period (211,264.24) 0.00 0.00 (1,448,657.49)
from the prior period's earnings 0.00 (78,785.64) (83,635.38) (530,645.53) (85,256.65)
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Subtotal - distributions (211,264.24) (78,785.64) (83,635.38) (1,979,303.02) Rec'd
-------------------------------------------- =============== 7/15/05
Beard Company's investment in Cibola - end of period 92,229.82 97,079.56 98,700.83 98,700.83
Additional earnings to report - current period 3,086,991.61 881,207.58 832,398.95 18,942,891.88
Addt'l earnings to book - cumulative from prior periods 14,142,293.74 17,229,285.35 18,110,492.93 NA
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Adjusted investment balance after addt'l earnings 17,321,515.17 18,207,572.49 19,041,592.71 19,041,592.71
- -------------------------------------------------------------------------------------------------------
Excess (deficiency) of value of Cibola over investment
account in Cibola on Beard's books (as adjusted) 4,406,484.83 3,520,427.51 2,838,407.29
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