The Beard Company
TAX SHARING AGREEMENT
THIS AGREEMENT has been entered into on this 10th day of
April, 1996, by and among THE BEARD COMPANY ("Beard"), an Oklahoma
corporation CIBOLA CORPORATION ("Cibola"), a Wyoming corporation,
each being hereinafter referred to collectively as the "Group," and
the Cibola Shareholders, who are Richard R. Dunning, Larry D.
Hartzog and Michael C. Black, with reference to the following
circumstances:
A. Beard owns 80% and the Cibola Shareholders own 20%
of all of the issued and outstanding common stock of Cibola.
B. Beard has a fiscal year ending December 31 and has
elected to file consolidated income tax returns for Federal income
tax purposes with respect to the Federal income tax liability of
Beard and its affiliates.
C. Cibola is an affiliate of Beard for Federal
consolidated income tax return purposes and accordingly their
income or loss must be included in the consolidated Federal income
tax return to be filed by Beard.
D. Beard is obligated to pay the consolidated Federal
income tax liability of the Beard Group (hereafter defined),
including Cibola.
E. Beard has net operating loss carryovers which may
reduce or eliminate the consolidated Federal and, in certain cases,
state income tax liability of the Beard Group, including Cibola.
F. The parties have agreed to allocate the Federal and
state income tax liability of each member of the Beard Group,
computed as if each filed separate income tax returns, according to
the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises, the
parties agree as follows:
1. Beard agrees (i) to continue to file consolidated
Federal income tax returns, together with applicable state income
tax returns, for all years during which or during any portion of
which Cibola is a member of a group of which Beard is the parent
(the "Beard Group") within the meaning of Internal Revenue Code
Section 1504, and (ii) to pay the Federal and state income tax
liability of Cibola, together with any interest and penalties
assessed with respect thereto, for each year or partial year during
which it is included as an "affiliate" in Federal consolidated
income tax returns filed by Beard to the extent Cibola has made
payments to Beard pursuant to this agreement.
2. Subject to paragraph 4 hereof, so long as Cibola is
considered an "affiliate" of Beard for purpose of filing
consolidated income tax returns, Cibola shall pay to Beard for each
taxable year that a consolidated income tax return is filed for the
Group, an amount equal to Cibola's total Federal and state income
tax liability (together with any interest and penalties assessed
with respect thereto) computed as if determined on a separate
return basis for each such taxable year, or, if it is an affiliate
for only a portion of the taxable year of the Group, as if
determined on a separate return basis for the portion of the
taxable year that it is included in the consolidated income tax
return. The amount of such payments shall be estimated and paid on
the 15th day after the end of each calendar quarter during the
fiscal year of the Group; such estimates to be adjusted and
accounted for between the parties as soon as practicable after each
March 15th but in no event later than each September 15th.
3. If, as a result of an Internal Revenue Service audit
of the consolidated income tax liability of the Beard Group, a
change is finally determined to be required for any year which
would have no effect on the consolidated income tax liability of
the Group but would increase or decrease the Federal income tax
liability of Cibola for any period for which a consolidated return
was in effect and for which Cibola was an affiliate of Beard,
computed on a separate return basis, then (i) Cibola shall pay to
Beard an amount equal to any increase in Cibola's tax liability, as
so computed for such period or (ii) Beard shall pay to Cibola an
amount equal to any decrease in Cibola's tax liability as so
computed; provided, however, that no such adjustment shall be made
if and to the extent that such adjustment would cause Cibola to
make aggregate payments of more than the amounts specified in
paragraph 4 hereof. If, as a result of an Internal Revenue Service
audit of the consolidated Federal income tax liability of the Beard
Group, it is finally determined that the portion of the
consolidated Federal income tax liability (together with any
interest and penalties assessed with respect thereto) allocable to
Cibola exceeds the payments previously made to Beard by Cibola with
respect to such tax year, then Cibola shall pay to Beard the amount
of such excess. Similar adjustments shall be made between Beard
and Cibola with respect to any state income tax adjustments made as
a result of any state audit or tax adjustment. Should it be
finally determined that Cibola is not an "affiliate" of Beard for
the purpose of filing consolidated income tax returns, Beard shall
refund all payments made by Cibola to it under this agreement for
any taxable year that Cibola was not a member of the Group to the
extent such payments were not paid to the Internal Revenue Service
in respect of Cibola's actual tax liabilities with respect to any
such year.
4. Notwithstanding anything else herein to the
contrary, payments made to Beard pursuant to this agreement shall
not exceed the greater of (i) the aggregate of consolidated Federal
and state income tax liabilities (together with any interest and
penalties assessed with respect thereto) of the Beard Group
applicable to Cibola for each taxable year, or portion thereof,
during which it was a member of the Beard Group or (ii) with
respect to each taxable year or portion thereof of the Beard Group,
the sum of (a) the Capital Accumulation Percentage times the
separate return Federal taxable income of Cibola plus (b) the
separate return state income tax liability of Cibola plus (c)
$118,681.20. The Capital Accumulation Percentage shall mean the
greater of (a) 4.83333% or (b) 41.6667% of the excess of the
highest Federal income tax rate on the taxable income on
individuals (currently, 39.6%) over the highest Federal income tax
rate on capital gains on individuals (currently, 28%) in effect
during a taxable year for which a calculation is made under this
agreement using the Capital Accumulation Percentage.
5. Promptly after acquiring knowledge of any Internal
Revenue Service or state taxing authority's audit of the Beard
Group, Beard shall provide written notice of the existence of such
audit to Cibola. Cibola shall, at its own expense, defend, contest
or otherwise protect against any assessment, deficiency, liability,
claim, or penalty which may be assessed or otherwise result from
such audit (to the extent it affects the Federal or state income
tax liability of Cibola computed as if determined on a separate
return basis) and Beard shall provide all necessary and reasonable
cooperation in connection with any such audit or proposed tax
assessment, including, but not limited to, the services of
employees of Beard who are familiar with the transactions out of
which any such proposed assessment, deficiency, liability, claim,
or penalty may have arisen. Cibola shall have the right to control
the defense of any tax proceedings described in the preceding
sentence unless it is relieved of its liability hereunder with
respect to such defense by Beard. Unless relieved from liability
by Beard, Cibola shall compromise or defend, at its own expense and
through its own counsel, any such matter involving the Beard
Group's asserted liability to a taxing authority to the extent the
asserted liability is attributable to Cibola.
6. The Cibola Shareholders hereby consent and agree to
the distributions to be made to Beard by Cibola pursuant to this
agreement.
7. This agreement may be executed in any number of
identical counterparts, each of which shall be considered an
original for all purposes.
EXECUTED as of the day and year first above written.
THE BEARD COMPANY
By: HERB MEE, JR.
President
CIBOLA CORPORATION
By: MICHAEL C. BLACK
President
RICHARD R. DUNNING
Richard R. Dunning
LARRY D. HARTZOG
Larry D. Hartzog
MICHAEL C. BLACK
Michael C. Black