SECURITY AND COLLATERAL AGENT AGREEMENT

 

                                                                    Exhibit 10.2

 

                     SECURITY AND COLLATERAL AGENT AGREEMENT

 

 

     THIS SECURITY AND COLLATERAL AGENT AGREEMENT is made as of January 26,

2005, by Investrust, N.A., a nationally chartered trust company (including any

successor thereto, the "Collateral Agent"), The Beard Company, an Oklahoma

corporation (the "Borrower"), and Beard Technologies, Inc., an Oklahoma

corporation ("BTI"), for the benefit of the holders (the "Note Holders") of

Borrower's 12% Convertible Subordinated Notes due February 15, 2010 (the

"Notes"). All terms used but not otherwise defined in this Agreement have the

same meanings as set forth in the Notes.

 

     The parties agree as follows:

 

     1. Appointment of Collateral Agent. In the Notes each of the Note Holders

appointed Collateral Agent to serve as collateral agent on the terms in this

Agreement and for the benefit of the Note Holders. Collateral Agent accepts this

appointment.

 

     2. Grant of Security Interest.

 

     (a) BTI grants to Collateral Agent, for the benefit of the Note Holders, a

security interest in all equipment of BTI now owned or hereafter acquired and

all additions and accessions thereto (the "Collateral").

 

     (b) This Agreement secures the following (the "Obligations"):

 

          (i) Borrower's obligations under the Notes and this Agreement;

 

          (ii) The repayment of (a) any amounts that Collateral Agent may

     advance or spend for the maintenance or preservation of the Collateral and

     (b) any other expenditures that Collateral Agent may make under this

     Agreement or for the benefit of the Note Holders;

 

          (iii) All amounts owed by Borrower or BTI under any modifications,

     renewals, or extensions of any of the foregoing obligations; and

 

          (iv) Any of the foregoing that arise after the filing of a petition by

     or against Borrower or BTI under the U.S. Bankruptcy Code, even if the

     obligations do not accrue because of the automatic stay under ss. 362 of

     the Bankruptcy Code or otherwise.

 

     3. Perfection of Security Interest. BTI authorizes Collateral Agent to

file, and ratifies any filing by the Collateral Agent prior to the execution of

this Agreement of, any financing statements, continuation statements,

certificates, and other documents requested by Collateral Agent to perfect or

renew the security interest created by this Agreement. BTI will execute and

deliver to Collateral Agent financing statements, certificates, and other

documents requested by Collateral Agent to perfect the security interest in any

Collateral now owned or hereafter acquired by Borrower or in any replacements or

proceeds of the Collateral.

 

     4. Termination of Security Interest. The Security Interest shall terminate

upon Borrower's delivery of a certificate (the "Termination Notice") signed by

an officer of Borrower certifying to Collateral Agent that Borrower has obtained

capital (by any combination of USDA-guaranteed financing, bank financing,

additional equity or debt offerings, the proceeds from the Notes, or a sale of

an equity interest in Borrower's subsidiary formed to perform the Pinnacle

Project) in an amount not less than $7,400,000 to finance the pond fines

recovery project in West Virginia for Pinnacle Mining Company, LLC (the

"Pinnacle Project"). Upon delivery of the Termination Notice, this Agreement

shall terminate and Collateral Agent shall cause the secured party of record for

any financing statements filed pursuant to this Agreement to promptly file a

termination statement for any financing statements so filed.

 

     5. Possession. BTI shall have possession of the Collateral, except where

expressly otherwise provided in this Agreement. Where Collateral is in the

possession of a third party, BTI will join with Collateral Agent in notifying

the third party of Collateral Agent's security interest and obtaining an

acknowledgment in an authenticated record from the third party that it is

holding the Collateral for the benefit of Collateral Agent.

 

     6. Covenants Concerning BTI and Collateral.

 

     (a) Inspection. Collateral Agent may inspect the Collateral at any time

upon reasonable notice.

 

     (b) No Disposition. Except as approved in writing by Collateral Agent, BTI

shall not sell, transfer, lease, or otherwise dispose of any item of Collateral,

other than replacing such items in the ordinary course of business, or grant any

other security interest in any of the Collateral.

 

     (c) Risk of Loss and Insurance. BTI has the risk of loss of the Collateral.

Collateral Agent is not responsible for any injury to, loss to, or loss in value

of the Collateral. BTI will continuously maintain insurance on the Collateral

with types and amounts of coverages no less than the lesser of (a) the types and

amounts as of the execution of this Agreement, and (b) such types and amounts as

are usual and customary in BTI's industry, with Collateral Agent named as loss

payee and as an additional insured. BTI will, upon request by Collateral Agent,

deliver to Collateral Agent certificates evidencing such coverage and evidence

of the payment of all premiums.

 

     (d) Maintenance. BTI will maintain the Collateral in operating condition,

ordinary wear and tear and casualty excepted.

 

     (e) Taxes. BTI will pay before delinquency any tax or other governmental

charge on the Collateral.

 

     (f) Existence. BTI shall preserve its corporate existence and not, in one

transaction or a series of related transactions, merge into or consolidate with

any other entity or sell all or substantially all of its assets. BTI shall not

change the state of its incorporation and shall not change its corporate name

without providing Collateral Agent with 30 days prior notice.

 

     (g) Personal Property. BTI will not affix any Collateral to any real

property in any manner that would change the nature of the property from that of

personal property.

 

     (h) Liens. BTI will not create, incur or permit to exist on the Collateral

any security interest, mortgage, pledge, lien, claim, charge, or encumbrance,

whether statutory, consensual, or otherwise (collectively, "Liens") and shall

defend the Collateral and Collateral Agent's first priority security interest in

the Collateral against the claims of all other persons.

 

     (i) Use. BTI shall use the Collateral and operate its business in

compliance with all applicable laws, regulations, and ordinances.

 

     7. BTI's Representations and Warranties. BTI represents and warrants to

Collateral Agent that:

 

     (a) Title. BTI owns the Collateral free and clear of all Liens. There is no

financing statement covering or purporting to cover any interest of BTI in the

Collateral filed in any jurisdiction.

 

     (b) State of Organization and Name. BTI is and has always been a

corporation organized and in good standing under the laws of the State of

Oklahoma. BTI's exact legal name is as stated in the introductory paragraph of

this Agreement. Prior to April 1994, BTI's legal name was White Eagle, Inc.

Since April 1994 BTI has never had or done business under any name other than

its current name.

 

     (c) Company Authorization. The execution, delivery, and performance by BTI

of this Agreement are within BTI's corporate powers, have been duly authorized

by all necessary corporate action, require no action by or in respect of, or

filing with, any governmental authority, and do not contravene, or constitute a

default under, any provision of applicable law or regulation or of the

certificate of incorporation or bylaws of BTI or of any judgment, injunction,

order, or decree or any indenture, mortgage, deed of trust, credit agreement, or

loan agreement, or any other material agreement or material instrument binding

upon BTI, or result in the creation or imposition of any Lien on any of the

Collateral.

 

     (d) Litigation. There is no action, suit, or proceeding pending against, or

to the knowledge of BTI threatened against or affecting, BTI before any court or

arbitrator or any governmental authority.

 

     (e) Collateral. All of the Collateral is and will be in operating condition

and not subject to any licensing, patent, royalty, trademark, trade name, or

copyright agreements with any third parties or any infringement claims, and the

use, sale, or other disposition of any of the Inventory by Collateral Agent

after an Event of Default shall not require the consent of any person and shall

not constitute a breach or default under any contract or agreement to which BTI

is a party or to which any of the Collateral is subject.

 

     8. Default. BTI will be in default under this Agreement if any of the

following (each an "Event of Default") occurs:

 

     (a) Default under Notes. Any Event of Default by Borrower under the Notes;

 

     (b) Unauthorized Transfer. BTI fails to perform any obligation under this

Agreement or any of BTI's representations or warranties in this Agreement are or

become inaccurate in any respect and such default or inaccuracy continues after

[30] days notice from Collateral Agent;

 

     (c) Attachment. Any of the Collateral becomes subject to attachment,

execution or levy;

 

     (d) Bankruptcy. Borrower or BTI voluntarily files a petition for bankruptcy

or reorganization; a petition in bankruptcy is filed against Borrower or BTI; a

receiver or other representative is appointed for Borrower or BTI or its

business or assets; or Borrower or BTI makes an assignment for the benefit of

its creditors; and

 

     (e) Evidence of Lack of Priority. Collateral Agent's security interest in

the Collateral is or becomes not prior to all other security interests.

 

      9. Remedies Upon Event of Default. Upon the written demand by Note Holders

holding a majority of the aggregate outstanding principal amounts of the Notes

(the "Majority Holders"), upon an Event of Default:

 

     9.1 General. Collateral Agent may preserve any remedy at law (including

those available to secured parties under the Uniform Commercial Code) or in

equity to collect, enforce, or satisfy any obligations.

 

     9.2 Specific. Collateral Agent may pursue any of the following remedies

separately, successively, or simultaneously:

 

     (a) File suit and obtain judgment and, in conjunction with any action, seek

any ancillary remedies provided by law, including levy of attachment and

garnishment.

 

     (b) Take possession of any Collateral if not already in its possession

without demand and without legal process. Upon Collateral Agent's demand, BTI

shall assemble and make the Collateral available to Collateral Agent as it

directs. BTI grants to Collateral Agent the right to enter into or on any

premises where Collateral may be located.

 

     (c) Without taking possession, sell, lease or otherwise dispose of the

Collateral a