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Series A
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
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$___________
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_____________, 2006
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THE BEARD COMPANY, an Oklahoma
corporation (the "Company"), promises to pay to the order of
____________________________________________ at Suite 320, 5600
North May Avenue, Oklahoma City, Oklahoma 73112, or at such other
place as may be designated in writing by the Holder, the amount of
_____________________________________ DOLLARS ($________.00) and
interest thereon at the rate stated below.
The holder of this Note shall be referred to as
the "Holder."
This Note is part of a series of promissory
notes issued in connection with a private offering (the "Private
Placement Offering") made by the Company pursuant to a Private
Placement Memorandum dated October 3, 2006. The promissory notes
shall be referred to collectively as the "Notes."
1.
Terms of the Note
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1.1
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Payment of Principal and
Interest .
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(a) Prior
to an Event of Default, the unpaid principal balance of this Note
will accrue interest at 12% per annum. Commencing on February 28,
2007, and continuing on each August 30 and February 28 thereafter
until the Maturity Date the Company shall pay all accrued
interest.
(b) All
interest will be computed on the basis of a 365-day year for the
actual number of days in the period for which interest is
payable.
(c) The
entire unpaid principal balance of this Note plus all accrued
interest shall be due and payable without notice on August 30, 2008
(the "Maturity Date").
(d) All
payments received by the Holder shall be applied first to interest
and any balance shall be applied to principal. During the existence
of any Event of Default, the Holder may apply payments received as
the Holder may determine.
(e) The
obligations of the Company to pay principal and interest and any
other amounts under this Note are collectively referred to as the
"Obligations."
1.2
Payments . Whenever any payment required by this Note is due
on a day other than a Business Day, the payment shall be made on
the next succeeding Business Day and the payment shall include
interest for the days the payment due date was so extended.
1.3
Expenses . The Company will pay to the Holder its reasonable
attorneys' fees, court costs, and other expenses incurred in
collecting this Note.
1.4
Additional Interest . Any amount not paid when due shall
accrue interest at the rate specified above plus 3% per annum (the
"Additional Interest") and all Additional Interest shall be paid as
a condition precedent to curing any Event of Default hereunder.
1.5
Events of Default . Events of Default are: (a) the
Company’s failure to pay any Obligation when due that is not
cured within 30 days; (b) the occurrence of any "Event of Default"
as defined in the Security Agreement; or (c) the Company’s
failure to perform its obligations under Section 2.9 of this Note
when due.
1.6
Acceleration . Subject to the provisions of the Security
Agreement, upon the occurrence of an Event of Default, the Holder
may at any time thereafter declare the Obligations evidenced hereby
immediately due and payable.
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. The Company shall send Holder written notice
within 30 days of any change of conversion agent. References in
this Note to the "Conversion Agent" shall refer to the Company
unless the Company has appointed another conversion agent in which
case "Conversion Agent" shall mean the acting conversion agent
appointed by the Company.
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 30, 2008, 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,
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 is $1.00 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
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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 Conversion Agent (ii) surrender the Note to the Conversion
Agent, (iii) furnish appropriate endorsements and transfer
documents to the Conversion Agent 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 Stock 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
Conversion Agent 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 March 31, 2008, if the
weighted average closing price of the Company’s common stock
has been more than two times the Conversion Price for forty (40)
consecutive trading days, the Company may give the Note
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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 (31 st )
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 Conversion Agent. 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 the
Conversion Agent shall deliver 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 Conversion Agent may refuse to deliver the certificates
representing the Common Stock being issued in a name other than the
Holder’s name until the Conversion Agent 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 of Common Stock or
other securities issued upon conversion of this Notes shall bear
the following legend:
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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.
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The Company covenants that all shares of Common
Stock delivered upon conversion of the Notes, shall be duly
authorized, validly issued, fully paid and non-assessable and shall
be free from preemptive rights and free of any lien or adverse
claim.
2.7
Adjustment of Conversion Price . The Conversion Price shall
be that price set forth in Section 2.2 of this Note and shall be
adjusted from time to time by the Conversion Agent in the event the
Company shall (i) pay a dividend or
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