CONVERTIBLE SUBORDINATED PROMISSORY NOTE

Series B

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

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

(a)          Prior to an Event of Default, the unpaid principal balance of this Note will accrue interest at 12% per annum. Commencing on November 30, 2006, and continuing on each May 30 and November 30 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 November 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 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.

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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 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.

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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:

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