THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER ANY FEDERAL OR STATE SECURITIES
LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE
DISPOSED OF ABSENT
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE
STATE
SECURITIES LAWS UNLESS AND UNTIL THE HOLDER HEREOF PROVIDES (i)
INFORMATION
REASONABLY NECESSARY TO CONFIRM THAT SUCH REGISTRATION IS NOT
REQUIRED OR (ii)
AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH REGISTRATION IS NOT
REQUIRED.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$_________________
_________________, 2005
FOR VALUE RECEIVED, the undersigned, THE BEARD COMPANY, an Oklahoma
corporation
(the "Company"), promises to pay to the order of __________________
(the payee,
its successors and permitted assigns are hereinafter called the
"Holder"), at
Suite 320, 5600 North May Avenue, Oklahoma City, Oklahoma 73112, or
at such
other place as may be designated in writing by the Holder, the
principal sum of
_____________ DOLLARS ($______________), together with interest
thereon pursuant
to the terms stated below:
RECITAL:
A. This Note is a statement of the rights of the Holder and the
conditions to
which the Note is subject and the Holder, by acceptance hereof,
agrees as set
forth below.
B. This Note is part of a series of Notes issued in connection with
a private
offering (the "Private Placement Offering") made by the Company
pursuant to a
Private Placement Memorandum dated June 29, 2005.
1. Terms of the Note
1.1
Payment of Principal
and Interest.
(a)
Prior to Default the unpaid principal balance of this Note will
bear
interest at the per annum rate equal to twelve percent (12%).
Interest will be
paid semi-annually on February 28th and August 31st of each year,
commencing on
February 28, 2006, until this Note is paid in full. All interest
will be
computed on the basis of a 360-day year of 12 months of 30
days.
(b)
At the time of the issuance of this Note, the Holder may elect in
the
subscription agreement entered into between Holder and the Company
subscribing
to the Note (the "Subscription Agreement") to have the interest
paid either (i)
in cash, or (ii) in shares of the Company's Common Stock (defined
below).
Holder's election in the Subscription Agreement regarding the form
of interest
payment is irrevocable once made; provided, however, that the
Company reserves
the right to pay the interest on the Notes in cash, notwithstanding
a Note
holder's election to receive their interest in Common Stock, if, in
the opinion
of the Company the issuance of such Common Stock could result in a
violation of
federal or state securities laws or any other applicable laws.
If
Holder elects to receive interest payments in the form of Common
Stock,
the number of shares Holder will receive, as of each interest
payment date will
be determined by dividing the applicable interest payment by the
weighted
average closing price of the Company's Common Stock during the 20
trading days
preceding the interest payment date multiplied by 85%. No
fractional shares of
Common Stock shall be issued as payment of interest on the Note. If
any
fractional share of Common Stock would be issuable upon an interest
payment, the
Company shall make an adjustment thereof in cash at the current
market value
thereof. For these purposes, the current market value of a share of
Common Stock
shall be the closing price on the first business day immediately
preceding the
day on which the interest payment was due.
(c)
The entire unpaid principal balance of this Note plus all accrued
and
unpaid interest thereon will be due and payable on the Maturity
Date.
1.2
Maturity Date. As used in this Note, "Maturity Date" means the
earlier
of: (a) the date the Holder notifies the Company that the unpaid
principal
balance of this Note is due based on the occurrence of an Event of
Default
(defined below); or (b) August 31, 2009.
1.3
Allocation of Payments. All payments on this Note will be applied
first
to the payment of accrued interest and the balance will be applied
in reduction
of the principal balance hereof.
1.4
Payments. If any payment under this Note becomes due and payable on
a
day other than a business day, the maturity thereof will be
extended to the next
succeeding business day and such extension of time will in such
case be included
in the computation of payments of interest.
1.5
Expenses. The Company agrees that if, and as often as, this Note
is
placed in the hands of an attorney for collection or to defend or
enforce any of
the Holder's rights hereunder or under any instrument securing
payment of this
Note, the Company will pay the Holder's reasonable attorneys' fees,
all court
costs and all other expenses incurred by the Holder in connection
therewith.
1.6 Default Interest. Any
sum not paid when due, by acceleration or
otherwise, will bear interest at the per annum rate equal to twelve
percent
(14%) (the "Default Interest") and all the Default Interest shall
be paid at the
time of and as a condition precedent to curing any Event of Default
hereunder.
1.7
Events of Default. Events of Default include: (a) default for 30
days
in payment when due of the principal on the Notes; (b) default for
30 days in
the payment when due of interest on the Notes; or (c) default in
the performance
of Section 2.9 of this Agreement.
2. Conversion of the Note
2.1
Conversion Agent. The Company shall initially serve as its own
conversion agent. The Company may appoint another Conversion Agent
at any time.
2.2
Conversion Privilege. At any time following the date of
original
issuance of this Note and prior to the close of business on the
business day
immediately preceding August 31, 2009, the Holder of this Note may
convert such
Note or any portion thereof into shares of the Company's common
stock (the
"Common Stock") (the shares of Common Stock issuable upon such
conversion along
with the shares of Common Stock paid as interest on the Note
pursuant to Section
1.1(b) of this Note are referred to herein collectively as the
"Conversion
Shares"), at the Conversion Price then in effect. The number of
shares of Common
Stock issuable upon conversion of this Note shall be determined by
dividing the
principal amount of the Note or portion thereof surrendered for
conversion by
the Conversion Price in effect on the conversion date. The initial
conversion
price of the Note shall be $_____ per share (the "Conversion
Price") and is
subject to adjustment as provided in Section 2.7.
Upon
conversion of only a portion of the principal balance of the
Notes
surrendered for conversion, the Company shall issue and deliver
upon the written
order of the Holder, at the expense of the Company, a new Note for
any remaining
unpaid principal balance so surrendered as well as a certificate or
certificates
for the number of shares of Common Stock to which such Holder is
entitled, as
provided below. The Holder is not entitled to any rights of a
holder of Common
Stock until such Holder has converted this Note into Common
Stock.
2.3
Conversion Procedure. To convert this Note, the Holder must (i)
complete and manually sign the Conversion Notice, a form of which
is attached
hereto as Exhibit A and deliver it to the Company (ii) surrender
the Note to the
Company, (iii) furnish appropriate endorsements and transfer
documents to the
Company and (iv) pay any transfer or other tax, if required. The
date on which
the Holder satisfies all of the foregoing requirements is the
conversion date.
As soon as practicable after the conversion date, the Company shall
deliver to
the Holder through its transfer agent a certificate for the number
of whole
shares of Common Stock issuable upon the conversion.
No
fractional shares of Common shall be issued upon conversion of the
Note.
If more than one Note shall be surrendered for conversion at one
time by the
same holder, the number of full shares which shall be issuable upon
conversion
shall be computed on the basis of the aggregate principal amount of
the Notes
(or specified portions thereof to the extent permitted hereby) so
surrendered.
If any fractional share of Common Stock would be issuable upon the
conversion of
any Note or Notes, the Company shall make an adjustment thereof in
cash at the
current market value thereof. For these purposes, the current
market value of a
share of Common Stock shall be the closing price on the first
business day
immediately preceding the day on which the Note or Notes are deemed
to have been
converted.
The
person in whose name the certificate is registered shall be deemed
to
be a stockholder of record on the conversion date; provided,
however, that no
surrender of this Note on any date when the stock transfer books of
the Company
shall be closed shall be effective to constitute the person or
persons entitled
to receive the shares of Common Stock upon such conversion as the
record holder
or holders of such shares of Common Stock on such date, but such
surrender shall
be effective to constitute the person or persons entitled to
receive such shares
of Common Stock as the record holder or holders thereof for all
purposes at the
close of business on the next succeeding day on which such stock
transfer books
are open; provided, further, that such conversion shall be at the
Conversion
Price in effect on the date that this Note shall have been
surrendered for
conversion, as if the stock transfer books of the Company had not
been closed.
Upon conversion of this Note, Holder shall no longer be a Holder of
this Note.
No
payment or adjustment will be made for accrued interest on a
converted
Note or for dividends or distributions on shares of Common Stock
issued upon
conversion of a Note, but if any Holder surrenders this Note for
conversion
between the record date for the payment of an installment of
interest and the
next interest payment date, then, notwithstanding such conversion,
the interest
payable on such interest payment date shall be paid to the Holder
on such record
date.
If
the Holder converts more than one Note at the same time, the number
of
shares of Common Stock issuable upon the conversion shall be based
on the
aggregate principal amount of Notes converted.
2.4
Forced Conversion. At any time after February 28, 2007, if the
weighted
average closing price of the Company's common stock has been more
than two times
the Conversion Price for sixty (60) consecutive trading days, the
Company may
give the Note holders written notice that they must convert their
Notes within
thirty (30) days after the date of such notice or that the Notes
will terminate
and become void as of 5:00 p.m., New York time on the thirty-first
(31st) day
(the "Forced Conversion Date") after the date of such notice.
Upon
such Forced Conversion, the person or persons entitled to receive
the
shares of Common Stock issuable upon such conversion will be
treated for all
purposes as the record holder or holders of such Common Stock on
the Forced
Conversion Date whether or not such holder or holders shall have
surrendered
their Notes to the Company. Upon the Forced Conversion Date, the
principal
balance of the Notes shall be deemed paid and all interest on the
Notes shall
cease to accrue. As soon as practicable after the surrender in
accordance with
the procedures set forth in Section 2.3, the Company shall then
issue and
deliver, at the office of the Company to such holder a certificate
or
certificates for the number of shares of Common Stock to which such
holder shall
be entitled.
2.5
Taxes on Conversion. If the Holder converts a Note, he shall pay
any
documentary, stamp or similar issue or transfer tax due on the
issue of shares
of Common Stock upon such conversion. The Company may refuse to
deliver the
certificates representing the Common Stock being issued in a name
other than the
Holder's name until the Company receives a sum sufficient to pay
any tax which
will be due because the shares are to be issued in a name other
than the
Holder's name. Nothing herein shall preclude any tax withholding
required by law
or regulations.
2.6
Company To Provide Stock. The Company shall reserve out of its
authorized but unissued Common Stock a sufficient number of shares
of Common
Stock to permit the conversion of all outstanding Notes for shares
of Common
Stock. The shares
