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


$____________                                            December __, 2004


     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 ($2__________)
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 December 21, 2004, as amended
on December 29, 2004,  and as amended by  Supplement  #1 dated January 11, 2005.
The promissory notes shall be referred to collectively as the "Notes."

                              1. Terms of the Note

     1.1 Payment of Principal and Interest.

          (a) Prior to an Event of Default, the unpaid principal balance of this
     Note will accrue interest at 12% per annum.  Commencing on August 15, 2005,
     and  continuing  on each  February  15 and August 15  thereafter  until the
     Maturity Date the Company shall pay all accrued interest.

          (b) All  interest  will be computed on the basis of a 360 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 February 15, 2010 (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 Security and Collateral Agent Agreement.  This Note shall be subject to
all the terms and condition of the Security And Collateral Agent Agreement dated
as of January 26, 2005,  between  InvesTrust,  N.A. as the Collateral Agent, the
Company,  and Beard Technologies,  Inc. in the form attached hereto as Exhibit B
(the "Security Agreement") until the Security Agreement is terminated.

     1.6 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.

     1.7 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  February 15,  2010,  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.

     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 February 15, 2007, if the weighted
average sales 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  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:

     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.


     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 other distribution in shares of Common Stock to holders of Common Stock, (ii)
subdivide its  outstanding  Common Stock into a greater number of shares,  (iii)
combine its  outstanding  Common  Stock into a smaller  number of shares or (iv)
reclassify  its  outstanding  Common  Stock,  the  Conversion  Price  in  effect
immediately  prior  thereto  shall be  adjusted  so that the  Holder of any Note
thereafter surrendered for conversion shall be entitled to receive the number of
shares of Common  Stock  which it would  have  owned or have  been  entitled  to
receive had such Note been converted  immediately prior to the happening of such
event.  An adjustment  made pursuant to this Section 2.7 shall become  effective
immediately  after the record date in the case of a dividend or distribution and
shall  become  effective  immediately  after the  effective  date in the case of
subdivision, combination or reclassification.

     2.8 Notice of  Adjustment.  Whenever the  Conversion  Price is adjusted the
Company  shall  promptly mail to the Holder a notice of the  adjustment  briefly
stating the facts requiring the adjustment and the manner of computing it.

     2.9 Notice of Certain Transactions. In case:

          (a) the Company shall  declare a dividend (or any other  distribution)
     on its Common Stock (other than in cash out of retained earnings); or

          (b) of any  reclassification of the Common Stock of the Company (other
     than a subdivision  or combination of its  outstanding  Common Stock,  or a
     change  in par  value,  or from par value to no par  value,  or from no par
     value to par value), or of any consolidation or merger to which the Company
     is a party and for which  approval  of any  stockholders  of the Company is
     required,  or of the sale or  transfer of all or  substantially  all of the
     assets of the Company; or

          (c)  of the  voluntary  or  involuntary  dissolution,  liquidation  or
     winding-up of the Company;

the  Company  shall  cause  to  be  mailed to  each  the  Holder at its  address
appearing below or such other address as specified by the Holder, as promptly as
possible  but in any  event at  least  ten days  prior  to the  applicable  date
hereinafter  specified, a notice stating (i) the date on which a record is to be
taken for the  purpose of a  dividend,  or, if a record is not to be taken,  the
date as of which the  holders of Common  Stock of record to be  entitled to such
dividend is to be determined,  or (ii) the date on which such  reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is
expected to become  effective or occur,  and the date as of which it is expected
that  holders of Common  Stock of record  shall be entitled  to  exchange  their
Common  Stock  for   securities  or  other   property   deliverable   upon  such
reclassification,    consolidation,   merger,   sale,   transfer,   dissolution,
liquidation or winding-up.  Failure to give such notice,  or any defect therein,
shall not  affect the  legality  or  validity  of such  dividend,  distribution,
reclassification,    consolidation,   merger,   sale,   transfer,   dissolution,
liquidation or winding-up.

     2.10  Effect  of  Reclassification,   Consolidation,   Merger  or  Sale  on
Conversion  Privilege.  If any of the  following  shall occur,  namely:  (i) any
reclassification  or change of outstanding  shares of Common Stock (other than a
change in par value,  or from par value to no par value, or from no par value to
par  value,  or  as  a  result  of  a  subdivision  or  combination);  (ii)  any
consolidation,  combination or merger to which the Company is a party other than
a merger in which the Company is the continuing  corporation  and which does not
result in any  reclassification  of, or change  (other than a change in name, or
par value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination) in, outstanding shares of Common
Stock; or (iii) any sale or conveyance of all or substantially all of the assets
of the Company ("Asset Sale"),  then lawful  provision shall be made so that the
Holder shall thereafter be entitled to receive upon conversion of the Note, at a
per share valuation equal to the Conversion Price then in effect,  the number of
shares  of  stock or other  securities  or  property  of the  successor  Company
resulting from such reclassification, consolidation, consolidation, combination,
merger, or Asset Sale that the Holder of the would have been entitled to receive
in such reclassification,  consolidation, consolidation, combination, merger, or
Asset   Sale  if  the  Note  had  been   converted   immediately   before   such
reclassification,  consolidation,  consolidation,  combination, merger, or Asset
Sale,  all subject to further  adjustment  as  provided  herein.  The  foregoing
provisions   of  this  Section  2.10  shall   similarly   apply  to   successive
reorganizations,  consolidations,  mergers, sales and transfers and to the stock
or  securities  of any other  Company that are at the time  receivable  upon the
conversion of the Notes.

                          3. Subordination of the Note

     3.1 Note Subordinate to Senior Indebtedness.  The Obligations are and shall
be junior and  subordinate  in right of payment,  exercise of remedies,  and all
other  respects  to the  prior  indefeasible  payment  in  full  of  the  Senior
Indebtedness.  Without  limiting  the  foregoing,  the  priority of the security
interest granted in the Security  Agreement shall be subordinate in all respects
to the priority of any  security  interest or lien granted to or for the benefit
of the holders of the Senior Indebtedness.  So long as there is no default under
any of the Senior  Indebtedness  and the  Company's  payment of the  Obligations
would not result in a default thereunder, the Company may pay the Obligations in
accordance  with the terms of this Note.  The provisions of this Section 3.1 are
made for the benefit of the holders of Senior  Indebtedness.  The holders of the
Senior Indebtedness need not prove reliance on these subordination provisions.

     3.2  Default  on  Senior   Indebtedness.   In  the  event  and  during  the
continuation  of any default in the payment of principal,  premium,  interest or
any other payment due on any Senior Indebtedness, or in the event that any event
of default with respect to any Senior  Indebtedness  shall have  occurred and be
continuing and shall have resulted in such Senior Indebtedness becoming or being
declared  due and  payable  prior to the date on which it would  otherwise  have
become due and payable  (unless and until such event of default  shall have been
cured or waived or shall have ceased to exist and such  acceleration  shall have
been rescinded or annulled) or in the event any judicial  proceeding  such event
of default,  then no payment  shall be made by the Company  with  respect to the
principal  of, or interest  on, this Note;  provided,  however,  nothing in this
Section shall prohibit the Holder from  accelerating  the  Obligations due under
this Note. In the event that,  notwithstanding the foregoing,  any payment shall
be received by the Holder when such payment is  prohibited  by this Section 3.2,
such  payment  shall be held in trust for the benefit of, and shall be paid over
or  delivered  to,  the  holders  of  Senior  Indebtedness  or their  respective
representatives,  or to the trustee or trustees under any indenture  pursuant to
which any of such Senior  Indebtedness may have been issued, as their respective
interests  may  appear,  but only to the extent  that the  holders of the Senior
Indebtedness (or their  representative or  representatives  or a trustee) notify
the Holder  within 30 days of such  payment of the amounts then due and owing on
the Senior  Indebtedness  and only the amounts  specified  in such notice to the
Holder shall be paid to the holders of Senior Indebtedness;  provided,  however,
that holders of Senior  Indebtedness shall not be entitled to receive payment of
any such  amounts to the  extent  that such  holders  would be  required  by the
subordination provisions of such Senior Indebtedness to pay such amounts over to
the  obligees  on trade  accounts  payable or other  liabilities  arising in the
ordinary course of the Company's business.

     3.3 Definition of Senior Indebtedness.  "Senior Indebtedness" means, unless
expressly  subordinated  to or made on a parity  with the amounts due under this
Note, the principal of (and premium,  if any),  unpaid  interest on,  penalties,
amounts reimbursable, fees, expenses, costs of enforcement and any other amounts
due in connection with (i) indebtedness of the Company, or with respect to which
the Company is a guarantor,  to banks,  commercial  finance  lenders,  insurance
companies,   leasing  or  equipment  financing  institutions  or  other  lending
institutions  regularly  engaged in the  business  of lending  money  (excluding
venture  capital,  investment  banking or similar  institutions  which sometimes
engage in lending  activities but which are primarily  engaged in investments in
equity  securities),  which is for money  borrowed,  or  purchase  or leasing of
equipment  in the case of lease or other  equipment  financing,  whether  or not
secured,  and (ii)  any  such  indebtedness  or any  debentures,  notes or other
evidence of indebtedness issued in exchange for such Senior Indebtedness, or any
indebtedness  arising from the  satisfaction  of such Senior  Indebtedness  by a
guarantor.

                        4. Piggyback Registration Rights

     4.1  Participation.  Subject to Section 4.2 and 4.3 hereof,  if at any time
after the date hereof the  Company  proposes  to file a  Registration  Statement
(other  than a  registration  on Form S-4 or S-8 or any  successor  form to such
Forms or any registration of securities as it relates to an offering and sale to
management of the Company  pursuant to any employee stock plan or other employee
benefit plan  arrangement)  with respect to an offering that includes any shares
of Common Stock,  then the Company shall give notice of the proposed filing (the
"Piggyback   Notice")  to  all  Registrable   Security  Holder  as  promptly  as
practicable  (but in no event less than fifteen (15) days before the anticipated
filing date). The Piggyback Notice shall offer the Registrable  Security Holders
the  opportunity to register such number of shares of Registrable  Securities as
the  Registrable  Security  Holders  may  request  and  shall  set forth (i) the
anticipated  filing date of such  Registration  Statement and (ii) the number of
shares of Common  Stock that is proposed  to be  included  in such  Registration
Statement.  The Company shall include in such Registration Statement such shares
of Registrable Securities for which it has received written requests to register
such shares within ten (10) days after the Piggyback Notice has been given.

     4.2 Underwriter's Cutback. Notwithstanding the foregoing, if a Registration
pursuant to this  Article 4 involves an  underwritten  offering and the managing
underwriter or underwriters of such proposed  underwritten  offering delivers an
opinion to the Registrable Security Holders that the total or kind of securities
which such Registrable Security Holders and any other persons or entities intend
to include in such offering are  reasonably  likely to  significantly  adversely
affect the  price,  timing or  distribution  of the  securities  offered in such
offering, then the Company shall include in such Registration:

          (a) If such Registration was a primary  registration by the Company of
     its securities, the Company will include in such Registration to the extent
     of the number of securities which the managing  underwriter  advises can be
     sold in such Underwritten  Offering:  first, the securities proposed by the
     Company to be sold for its own account;  second, any Registrable Securities
     requested to be included in such  Registration by the Registrable  Security
     Holders,  pro rata on the basis of the  number of  securities  sought to be
     sold by the  requesting  Registrable  Security  Holders;  and third,  other
     securities  of the Company  proposed  to be included in such  Registration,
     allocated  among the Company and the holders thereof in accordance with the
     priorities then existing among the Company and such holders.

          (b) If such  Registration  was requested other than by the Registrable
     Security  Holders  or  the  Company,  the  Company  will  include  in  such
     Registration  to the extent of the number of securities  which the managing
     underwriter advises can be sold in such Underwritten  Offering:  first, the
     securities  proposed  to be  sold by the  security  holder  initiating  the
     Registration;  second, any Registrable  Securities requested to be included
     in such  Registration,  pro rata on the basis of the  number of  securities
     sought to be sold by the requesting  Registrable  Security Holders;  third,
     any securities of the Company  proposed by any other Persons to be included
     in such  Registration,  pro rata on the basis of the  number of  securities
     proposed to be sold by the  requesting  Persons;  and fourth the securities
     proposed by the Company to be sold for its own account.

     4.3 Limitation on Participation. Holders of Registrable Securities that are
able to sell 100% of their Registrable  Securities  without  registration  under
Rule 144 of the  Securities  Act of 1933,  as amended,  within a period of three
consecutive months are not entitled to any Piggyback  Registration  Rights under
this Article 4.

     4.4 Expenses.  The Company will pay all Registration Expenses in connection
with each  registration  of Registrable  Securities  requested  pursuant to this
Article 4.

     4.5  Company  Control.  The  Company  may  decline  to file a  Registration
Statement  after  giving  the  Piggyback  Notice,  or  withdraw  a  Registration
Statement  after  filing  and  after  such  Piggyback  Notice,  but prior to the
effectiveness  of the  Registration  Statement,  provided that the Company shall
promptly notify each  Registrable  Security Holder in writing of any such action
and  provided  further  that the  Company  shall  bear all  reasonable  expenses
incurred by such  Registrable  Security  Holder or otherwise in connection  with
such withdrawn Registration Statement.

                5. Collateral Agent; Grant of Security Interest

     5.1 Appointment of Collateral  Agent. By acceptance of this Note the Holder
appoints  InvesTrust,  N.A. (with its successors  and assigns,  the  "Collateral
Agent") as  collateral  agent under the Security  Agreement and  authorizes  the
Collateral  Agent to take the actions and to exercise the powers provided in the
Security Agreement.

     5.2 Security Interest. The Company shall cause its wholly owned subsidiary,
Beard Technologies, Inc. to enter into the Security Agreement for the benefit of
all of the holders of the Notes.

     5.3  Indemnification.  To the  extent  that  the  Collateral  Agent  is not
reimbursed  and  indemnified  by Borrower  or BTI as  required  in the  Security
Agreement,  to the extent of its Pro Rata Share the Holder shall  reimburse  and
indemnify  the  Collateral  Agent  from  and  against  any and all  liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
expenses,  advances,  or disbursements of any kind or nature whatsoever that may
be imposed on, incurred by, or asserted  against the Collateral Agent in any way
relating to or arising out of the Notes, the Security  Agreement,  or any action
taken or omitted by the  Collateral  Agent  under the  Security  Agreement.  The
Holder  shall not be liable for any  portion of such  liabilities,  obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, advances
or disbursements  for which there has been a final judicial  determination  that
such liability  resulted from the Collateral Agent's gross negligence or willful
misconduct.  The  obligations of the Holder under this section shall survive the
payment  in  full  of the  Obligations  and  the  termination  of  the  Security
Agreement.

     5.4 Pro Rata  Share.  "Pro Rata  Share"  means the  percentage  obtained by
dividing (i) the principal amount  outstanding under this Note by (ii) the total
principal amount outstanding under all of the Notes.

     5.5  Communication  with  Collateral  Agent. By acceptance of this Note the
Holder agrees to promptly  provide,  upon written  request of Collateral  Agent,
written  confirmation  of the Holder's status as the holder of this Note and the
amounts of principal, interest, and other sums owing on this Note.

                                6. Miscellaneous

     6.1 Governing  Law. This Note and the legal  relations  between the Company
and the Holder  shall be governed  by the laws of the State of Oklahoma  without
giving effect to any conflict of law provision (whether of the State of Oklahoma
or any other  jurisdiction)  that would cause the  application of the law of any
other jurisdiction.

     6.2 Pari Passu Notes.  The payment of all or any portion of the Obligations
shall be pari passu in right of payment  and in all other  respects to the other
Notes  issued by the Company in the Private  Placement  Offering.  If the Holder
receives  payments in excess of its Pro Rata Share of the Company's  payments to
the  holders of all of the Notes,  the Holder  shall hold the excess  payment in
trust for the  benefit  of the  holders  of the  other  Notes and shall pay such
amounts held in trust to the other holders upon demand by the holders.

     6.3 Usury.  All  agreements  between  the Company and Holder are limited so
that  in no  event  whatsoever,  whether  by the  disbursement  of  proceeds  or
otherwise,  shall the  amount of  interest  or  finance  charge  (as  defined by
applicable  law) paid or agreed to be paid by the  Company to the Holder  exceed
the highest lawful  contractual  rate of interest or the maximum  finance charge
permissible  under  applicable law. If fulfillment of any agreement  between the
Company and the Holder,  at the time the  performance of such agreement  becomes
due,  involves  exceeding such highest lawful  contractual  rate or such maximum
permissible  finance charge,  then the obligation to fulfill the agreement shall
be  reduced  so that  such  obligation  does  not  exceed  such  highest  lawful
contractual rate or maximum  permissible  finance charge. If by any circumstance
the Holder shall ever receive as interest or finance charge an amount that would
exceed the amount allowed by applicable  law, the excess shall be deemed applied
to the principal of the  Obligations.  All interest and finance  charges paid or
agreed  to be paid to the  Holder  shall  be  prorated,  allocated,  and  spread
throughout the full period of this Note.  This paragraph shall control all other
provisions  of this  Note,  the  Security  Agreement,  and any  other  documents
executed in connection with this Note.

     6.4  Notices.  Any  notice,  request  or other  communication  required  or
permitted   hereunder  shall  be  given  in  accordance  with  the  Subscription
Agreement.

     IN WITNESS WHEREOF,  the Company has executed this instrument effective the
date first above written

                                     THE BEARD COMPANY, an Oklahoma corporation


                                     By
                                          Herb Mee, Jr., President
<PAGE>
                                                                     EXHIBIT A

                                CONVERSION NOTICE

To convert this Note into common stock of the Company, check the box:   [  ]

To convert only part of this Note, state the amount:

                                                  [  $----------  ]

If you want the stock certificate made out in another person's name, fill in the
form below:

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           (Insert other person's social security or tax I.D. number)
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              (Print or type assignee's name, address and zip code)
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Date: ____________________
                                              (Signature)

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(Sign exactly as your name appears on this Note)

<PAGE>
                                                                       EXHIBIT B



                           FORM OF SECURITY AGREEMENT