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
