Document:

CO-INVESTMENT AGREEMENT

 

This Co-Investment Agreement is made and entered into this 31st day of October 2006 (the “Agreement”), between Beard Technologies, Inc., an Oklahoma corporation (“BTI”), and PinnOak Resources LLC, a Delaware limited liability company (“PinnOak”).

WHEREAS, BTI has formed Beard Pinnacle, LLC (“Beard Pinnacle”) to construct and operate a pond fines recovery project at Pinnacle Mining Company, LLC;

WHEREAS, the equity owners of PinnOak (said owners referred to as the “PinnOak Parties”) have agreed to purchase a fifty percent ownership interest in Beard Pinnacle;

WHEREAS, BTI and PinnOak desire to develop a framework whereby PinnOak and/or the PinnOak Parties can invest in future pond fines recovery projects to be developed by BTI or one or more of its affiliates;

NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable considerations and intending to be legally bound hereby, the parties hereto agree as follows:

Article 1
Definitions

1.1          Defined Terms.  Each of the following terms enclosed by quotation marks in this Article shall be a defined term, and each term enclosed by parentheses and quotation marks in the preamble, recitals or body of this Agreement, or that is specified as a defined term in this Agreement, shall also be a defined term.  Wherever used in this Agreement, each term defined in this Agreement shall have the meaning ascribed to it in this Agreement.  Each term defined in this Agreement in the singular shall include the plural of that term, and each term defined in this Agreement in the plural shall include the singular of that term.

“Accepted Pond Project” shall have the meaning provided for that term in Subsection 2.2.6.

“Affiliate” means (i) any Person owning any of the equity ownership of a Party, (ii) any Person who can direct or cause the direction of the management and policies of a Party, whether by contract, ownership, order of a Governmental Authority or otherwise, (iii) any Person in which a Party owns more than ten percent (10%) of the equity ownership (a “Party Subsidiary”), (iv) any Person in which any Party and/or one or more Party Subsidiaries own more than ten percent (10%) of the equity voting ownership, or (v) any Person that a Party and/or one or more Party Subsidiaries can direct or cause the direction of the management and policies of that Person, whether by contract, ownership, order of a Governmental Authority or otherwise.

“Annual Net Cash Flow” shall have the meaning set forth in the BP Operating Agreement.

 

“Beard Entity” means (i) BTI, (ii) The Beard Company, an Oklahoma corporation and the sole shareholder of BTI, and (iii) any Affiliate of BTI or The Beard Company.

“BP Operating Agreement” means the Amended and Restated Operating Agreement attached hereto at Exhibit “A”, a conformed original of which shall be entered into by BTI and the PinnOak Parties. 

“Change of Control” shall be deemed to occur upon any Person other than a Permitted Transferee (i) owning or controlling (whether legally, beneficially, equitably, directly or indirectly) a majority of the equity interests of another Person, or (ii) having the ability to control (either directly or indirectly) the management, policies and day-to day operations of such Person.

“Fully Funded Project LLC” shall have the meaning provided for that term in Subsection 2.3.2.

“Governmental Authority” means any federal, provincial, state, county, city, municipal or tribal governmental body, commission, council, legislature, court, agency or board.

“Governmental Authorization” means any authorization, permit, license, certification or consent required by applicable Law or a Governmental Authority in connection with the performance of any Work.

“Guaranteed Third-Party Loan” means a USDA guaranteed loan obtained or to be obtained by a Project LLC from an Unrelated Third Person.

“Initial Project Meeting” shall have the meaning provided for that term in Subsection 2.2.2.

“Laws” means any and all constitutional provisions, decrees, rules, codes, regulations, statutes, ordinances, enactments, judicial and administrative orders, decisions and rulings adopted, enacted, promulgated or issued by any Governmental Authority, including the common law and legal duties owed to others.

“Membership Interest” means an ownership or equity interest in a Project LLC embodying and encompassing the owner’s rights in the Project LLC, as provided for in the Project LLC Operating Agreement with respect to that ownership or equity interest, including, without limitation, the owner’s share of profits and losses of the Project LLC, the owner’s right to receive distributions of a Project LLC’s assets, and the owner’s right to vote or participate in management, all as more particularly provided for in the Project LLC operating agreement.

“Partially Funded Project LLC” shall have the meaning provided for that term in Subsection 2.3.3.

“Parties” means BTI and PinnOak.

“Party Subsidiary” shall have the meaning provided for that term in the definition of Affiliate in this Section 1.1.

 

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“Permitted Assignment” shall have the meaning provided for that term in Section 4.4.

“Permitted Transferee” means any one or more of the following: (i) a PinnOak Party, (ii) a Person who is an owner of a PinnOak Party on the date hereof, (iii) a Person in which one or more of the current owners of the PinnOak Parties own more than seventy percent (70%) of such Person’s voting ownership or securities, and control the management, policies and day-to-day operations of such Person, or (iv) any other Person who obtains any voting ownership or securities of PinnOak or a PinnOak Party with the prior written consent of BTI, which consent shall not be unreasonably withheld.

“Person” means a natural person, corporation, general partnership, limited partnership, limited liability company, limited liability partnership, trust, governmental authority, tribal authority, joint venture, or other legal entity.

“PinnOak Parties” shall mean the equity owners of PinnOak identified on Schedule A attached hereto.

“Pond Fines Agreement” means that certain Amended and Restated Agreement for a Pond Fines Recovery Facility effective as of September 1, 2005 between BTI and Pinnacle Mining Company, LLC, as amended.

“Pond Project” shall have the meaning provided for that term in Subsection 2.1, but shall not include the Smith Branch Refuse Impoundment as depicted on Exhibit A to the Pond Fines Agreement.

“Preferential Right” means the option and preferential right granted to the PinnOak Parties under Section 2.1.

“Project LLC” shall have the meaning provided for that term in Subsection 2.2.2, but shall not include Beard Pinnacle.

“Project Proposal” shall have the meaning provided for that term in Subsection 2.2.2.

“Third Party Pond Project” means any Pond Project that is subject to the Preferential Right and at which an Unrelated Third Person owns or controls the right to conduct pond recovery operations at the pond site for that Pond Project, or has contractually agreed to allow a Beard Entity or a Project LLC to conduct those operations.

“Third Party Owner” means an Unrelated Third Person who owns or controls the right to conduct pond recovery operations at a pond site for a Third Party Pond Project.

“Transfer” means any and all ways by which a Person may dispose or be divested of all or any portion of the Preferential Right, or any right or interest therein, whether voluntary or involuntary, including, without limitation, a divestment or disposition of the Preferential Right by sale, grant, merger, consolidation, court order, exchange, gift, assignment, transfer, redemption, operation of applicable law, pledge, hypothecation, foreclosure or otherwise.

 

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“Unfunded Project LLC” means the Project LLC formed for an Accepted Pond Project for which a Beard Entity needs one hundred percent (100%) of the equity funding required for that Project LLC to qualify for a Guaranteed Third-Party Loan.

“Unrelated Third Person” means any Person other than a Beard Entity, PinnOak, a PinnOak Party or an Affiliate of a PinnOak Party.

	
             
 	
            1.2
 	
            Construction.  
 

1.2.1      The headings and titles in this Agreement are for guidance and convenience of reference only and do not limit or otherwise affect or interpret the provisions of this Agreement.  Each reference made in this Agreement to a Section, Subsection or Article refers to the applicable Section, Subsection or Article in this Agreement, unless the context clearly indicates otherwise.  

1.2.2      The words “this Agreement”, “herein”, “hereby”, “hereunder”, and “hereof” and words of similar import, refer to this Agreement as a whole and not to any particular part hereof unless the context clearly or expressly provides or indicates otherwise.  The words “this Article”, “this Section”, “this Subsection”, and words of similar import, refer only to the Articles, Sections or Subsections hereof in which those words occur.

1.2.3      Each reference made in this Agreement to an Exhibit refers to the applicable Exhibit attached hereto, unless the context clearly indicates otherwise.  Each Exhibit attached hereto is made a part hereof.  

 

Article 2 

PinnOak’s Preferential Right

	
             
 	
            2.1
 	
            Preferential Right.  
 

2.1.1      Subject to the terms of this Article and except as provided for in Subsection 2.1.2, PinnOak shall have the initial option and preferential right to participate in any pond recovery operation conducted by a Beard Entity intended to convert or facilitate the conversion of raw slurry consisting of coal fines, coal waste, thickener underflow or other materials deposited in a pond, impoundment or similar structure into commercially marketable clean coal and tailings (a “Pond Project”).  The Smith Branch Refuse Impoundment, which is identified in the definition of a Pond Project in Article 1, shall not be subject to this Article 2.

2.1.2      The Preferential Right described in Subsection 2.1.1 shall not apply or pertain to (i) research oriented coal or pond reclamation or recovery operation, technology, method or related services conducted by any Person in connection with any Pond Project, including, without limitation, any U.S. Department of Energy sponsored or funded operation, (ii) any entity conducting any such operation, method, technology or related service, and/or (iii) any intellectual property obtained, discovered, generated or employed with respect to any such operation, technology, method or service.

 

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2.1.3      Except as is permitted by the terms of Section 4.5 of this Agreement, neither PinnOak nor any PinnOak Party shall Transfer all or any portion of the Preferential Right or any right or interest therein or thereto to any Person other than a Permitted Transferee.  Any Transfer or purported Transfer of the Preferential Right or any right or interest therein or thereto to any Person other than a Permitted Transferee shall be null and void ab initio and without force or effect.  Except for Transfers to Permitted Transferees, BTI shall not have any obligation of any nature or kind with respect to, or be bound by any (i) Transfer of the Preferential Right or any right or interest therein or thereto, (ii) proposed Transfer of the Preferential Right or any right or interest
therein or thereto, or (iii) purported Transfer of the Preferential Right or any right or interest therein or thereto to any Person other than a Permitted Transferee.

	
             
 	
            2.2
 	
            Identification of Pond Project.  
 

2.2.1      BTI shall notify PinnOak within thirty (30) days after a Beard Entity identifies a Pond Project with respect to which it intends to participate.  

2.2.2      Promptly after PinnOak’s receipt of that notification, BTI and PinnOak shall schedule a meeting to be held at BTI’s principal place of business in  Pittsburgh, Pennsylvania, or at such other location agreed upon by the Parties (the “Initial Project Meeting”), at which BTI shall provide PinnOak with a detailed and comprehensive presentation and evaluation of the proposed Pond Project (a “Project Proposal”), which shall include (i) the equity funding levels and concomitant percentages of equity ownership available to PinnOak, as determined in accordance with the provisions of Section 2.3, in a limited liability company to be formed by the Beard Entity to develop the proposed Pond Project (the “Project LLC”), (ii) BTI’s estimates of the commercially marketable coal
reserves, the cost of development, the probable net profits, and the timing of developmental activities attributable to the proposed Pond Project, and (iii) a date by which the equity funding must be made. 

2.2.3      Prior to the Initial Project Meeting, PinnOak shall sign and provide BTI with a legally binding and enforceable non-disclosure and non-compete agreement, which shall be in a form and substance reasonably acceptable to BTI and PinnOak, covering the Project Proposal and the proposed Pond Project.

2.2.4      PinnOak shall have thirty (30) days after the Initial Project Meeting to provide BTI with their affirmative written election to accept in all material respects the Project Proposal made at the Initial Project Meeting.  If PinnOak does not provide BTI with that affirmative election before the expiration of that 30-day period, PinnOak shall be conclusively deemed to have rejected that Project Proposal.  

2.2.5      BTI shall promptly and comprehensively respond to all reasonable inquiries from PinnOak concerning the Project Proposal during that 30-day period. 

2.2.6      If PinnOak accepts a Project Proposal in accordance with Subsection 2.2.4 (an “Accepted Pond Project”), PinnOak shall be obligated to participate in the Accepted Pond Project in accordance with the terms provided for that Accepted Pond Project in the Initial Project Meeting, as may be or have been modified in writing by agreement of the Parties.  

 

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2.2.7      PinnOak’s involvement and participation in each Accepted Pond Project shall be (i) limited to its becoming an equity owner together with BTI and/or one or more other Beard Entities in the Project LLC formed by BTI for that Accepted Pond Project and (ii) subject to the terms of an operating agreement for that Project LLC having substantially the same terms as the BP Operating Agreement, except conforming to the allocation of annual net cash flow as determined in accordance with this Agreement for that Project LLC, and except for such other exceptions agreed upon in writing by the Parties.  Under no circumstances shall PinnOak’s participation and involvement in any Accepted Pond Project be as a cotenant or sublessee.  Notwithstanding the allocation of Annual Net Cash Flow for any Project LLC, as
determined in accordance with this Agreement, the Beard Entities shall own not less than fifty percent (50%) of the aggregate equity ownership or membership interest in each Project LLC, unless one or more of the Beard Entities assign a portion of such membership interest to an Unrelated Third Person, including, without limitation, a Third Party Owner or its affiliate with respect to a Third Party Pond Project.

2.2.8      Each Project LLC and BTI shall enter into a pond fines recovery facility agreement having terms similar to those contained in the Pond Fines Agreement, but which shall be expressly tailored for the Accepted Pond Project.  BTI and each Project LLC shall enter into a contract operating agreement designating BTI as the contract operator of that Accepted Pond Project.  BTI’s obligations and compensation as contract operator under each such contract operating agreement shall be substantially similar to the obligations and compensation provided for or referenced in the Amended and Restated Contract Operating Agreement entered into between BP and BTI concerning the Pond Recovery Operations.

2.2.9      If PinnOak rejects or is deemed to have rejected a Project Proposal, then no Beard Entity shall have any obligation or responsibility of any nature or kind to PinnOak with respect to that Pond Project or Project Proposal provided there is no material modification of the terms of the Project Proposal and the Project Proposal accurately describes the Pond Project.

2.2.10    The Preferential Right shall terminate upon the occurrence of the earliest of midnight on (i) July 31, 2012 or (ii) the thirty-first (31st) day after BTI has made its sixth (6th) Project Proposal to PinnOak.

	
             
 	
            2.3
 	
            Equity Participation; Distributions of Annual Net Cash Flow.
 

The management of each Project LLC formed for an Accepted Pond Project shall be provided and set forth in the Project LLC’s operating agreement the terms and conditions of which shall be the same in all material respects as the BP Operating Agreement.  The allocation of each Project LLC’s distribution of Annual Net Cash Flow, if any, among its owners shall be determined in accordance with this Section 2.3. 

 

	
             
 	
            2.3.1
 	
            Unfunded Projects.  
 

 

(a)          If PinnOak exercises the Preferential Right to participate in any Unfunded Project LLC (i.e., a Project LLC formed for an Accepted Pond Project for which a Beard Entity needs 100% of the equity funding required for that Project LLC to qualify for a Guaranteed Third-Party Loan), then PinnOak shall contribute all the equity funding necessary for that 

 

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Unfunded Project LLC to qualify for a Guaranteed Third-Party Loan in accordance with the equity funding schedule provided for in the Project Proposal for that Unfunded Project LLC.  

(b)          Upon an Unfunded Project LLC’s receipt of the equity funding provided for in Subsection 2.3.1 (a) from PinnOak, the Unfunded Project LLC shall issue an equity or membership interest in that Unfunded Project LLC to PinnOak up to a maximum of 50% of the aggregate membership interests.  One or more of the Beard Entities shall own the remaining equity or membership interest in that Unfunded Project LLC.  

(c)          The management and operation of each Unfunded Project LLC shall be governed by an operating agreement signed by the members thereof, which shall be the same in all material respects as the BP Operating Agreement except that BTI shall own fifty percent (50%) of the membership interests in such Unfunded Project LLC.  

(d)          The distribution of Annual Net Cash Flow, if any, generated by an Unfunded Project LLC shall be as follows:

	
            Annual Net Cash Flow
 	
            Beard’s Distributive Share
 	
            PinnOak’s Distributive Share

 
 
	
            First $500,000
 	
            0.00%
 	
            100.00%
 
	
            Next $300,000
 	
            100.00%
 	
            0.00%
 
	
            Next $1,000,000
 	
            40.00%
 	
            60.00%
 
	
            Next $500,000
 	
            45.00%
 	
            55.00%
 
	
            All Remaining
 	
            50.00%
 	
            50.00%
 

 

(e)          If PinnOak exercises the Preferential Right to acquire less than fifty percent (50%) of all the equity or membership interest in an Unfunded Project LLC, then PinnOak’s percentage distributive share of Annual Net Cash Flow from that Unfunded Project LLC shall be equal to the result obtained by multiplying each corresponding “PinnOak’s Distributive Share” percentage, as set forth in the chart in Subsection 2.3.1(d), by a fraction, the numerator of which is the percentage equity ownership in the Project LLC acquired by PinnOak and the denominator of which is fifty percent (50%).

	
             
 	
            2.3.2
 	
            Fully Funded Project.  
 

(a)          With respect to any Pond Project for which one or more Beard Entities has provided one hundred percent (100%) of the equity funding (whether by one or more capital contributions consisting of cash, cash equivalents and/or other personal property, such as equipment) required by the Project LLC formed for that Accepted Pond Project to qualify for a Guaranteed Third-Party Loan (a “Fully Funded Project LLC”), PinnOak shall be entitled to exercise the Preferential Right to purchase up to, but not more than fifty percent (50%) of all the equity ownership in that Fully Funded Project LLC from the Beard Entities owning it for a purchase price equal to the result obtained by multiplying the sum of the amount of cash and cash equivalents contributed by the Beard Entities plus the fair
market value of any equipment contributed by the Beard Entities as of the date of the closing of that sale to PinnOak by the percentage equity ownership which PinnOak elected to acquire in that Fully Funded Project LLC.  Each Fully Funded Project LLC shall be governed by an operating agreement signed by 

 

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the members thereof, which shall be the same in all material respects as the BP Operating Agreement provided, that the voting rights of members shall reflect the membership interests of the members.

 

(b)          If PinnOak exercises the Preferential Right to acquire fifty percent (50%) of all the equity or membership interest in a Fully Funded Project LLC, then the Parties shall be entitled to the following percentage distributive shares of Annual Net Cash Flow, if any, from that Fully Funded Project LLC:

	
            Annual

Net Cash Flow

 
 	
            Beard’s

Distributive Share
 	
            PinnOak’s

Distributive Share

 
 
	
            First $500,000
 	
            50.00%
 	
            50.00%
 
	
            Next $300,000
 	
            100.00%
 	
            0.00%
 
	
            Next $1,000,000
 	
            70.00%
 	
            30.00%
 
	
            Next $500,000
 	
            72.50%
 	
            27.50%
 
	
            All Remaining
 	
            75.00%
 	
            25.00%
 

 

(c)          If PinnOak elects to acquire less than fifty percent (50%) of all equity or membership interest in a Fully Funded Project LLC, then PinnOak’s percentage distributive share of Annual Net Cash Flow for each annual period from that Fully Funded Project LLC shall be equal to the result obtained by multiplying each corresponding “PinnOak’s Distributive Share” percentage, as set forth in the chart in Subsection 2.3.2(b), by a fraction, the numerator of which is the percentage equity ownership in the Project LLC acquired by PinnOak and the denominator of which is fifty percent (50%). 

	
             
 	
            2.3.3
 	
            Partially Funded Projects.
 

(a)          With respect to any Pond Project for which a Beard Entity is providing some but less than one hundred percent (100%) of all the equity funding required for the Project LLC formed for that Pond Project (a “Partially Funded Project LLC”) to qualify for a Guaranteed Third-Party Loan, PinnOak may exercise the Preferential Right to fund the remaining equity capital necessary for the Partially Funded Project LLC to qualify for that loan, subject to the terms provided in Section 2.4.  In such event, the equity or membership interest to be issued to PinnOak in the Partially Funded Project LLC shall be an amount equal to fifty percent (50%) multiplied by a fraction, the numerator of which is the total equity or capital contribution made by PinnOak and the denominator of which is the sum
of all equity or capital contributions made by all of the Parties.  Each Partially Funded Project LLC shall be governed by an operating agreement signed by the members thereof which shall be the same in all material respects as the BP Operating Agreement provided, that the voting rights of members shall reflect the membership interest of the members.

(b)          PinnOak’s percentage distributive shares of Annual Net Cash Flow from a Partially Funded Project LLC shall be determined by multiplying each corresponding percentage distributive share of Annual Net Cash Flow set forth in the chart in Subsection 2.3.1(d) for 

 

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PinnOak by a fraction, the numerator of which is the percentage equity ownership in the Project LLC acquired by PinnOak and the denominator of which is fifty percent (50%).

(c)          If PinnOak exercises the Preferential Right to fund the remaining equity capital necessary for a Partially Funded Project LLC to qualify for a Third-Party Guaranteed Loan, then the Beard Entity’s percentage distributive percentage shares of Annual Net Cash Flow from that Partially Funded Project LLC shall be determined by subtracting each corresponding percentage distributive share of Annual Net Cash Flow of PinnOak for that Partially Funded Project LLC from one hundred percent (100%).  

2.3.4      Non Guaranteed Projects.  If a Project Proposal provides for one hundred percent (100%) of the funding of a Project LLC’s pond recovery operations from a loan, which is not a Guaranteed Third-Party Loan, then PinnOak may exercise the Preferential Right to acquire up to a thirty percent (30%) equity ownership interest in that Project LLC.  PinnOak’s percentage distributive share of Annual Net Cash Flow from that Project LLC shall be equal to the result obtained by multiplying each corresponding “PinnOak’s Distributive Share” percentage, as set forth in the chart in Section 2.3.2(b), by a fraction, the numerator of which is the percentage equity ownership in the Project LLC acquired by PinnOak from the Beard Entities and the denominator of which is fifty
percent (50%).  The management and operation of each non-guaranteed project LLC shall be governed by an operating agreement signed by the members thereof, which shall be the same in all material respects as the BP Operating Agreement provided that the voting rights of members shall reflect the membership interests of the members.

	
             
 	
            2.4
 	
            Third Party Projects.  
 

2.4.1      Each Beard Entity involved in any negotiations or discussions concerning any prospective Third Party Pond Project shall use its good faith efforts (fairly taking into consideration PinnOak’s rights by virtue of the Preferential Right) to obtain a commercially reasonable and feasible agreement or arrangement with each Third Party Owner of the pond site for that Pond Project.  

2.4.2      Notwithstanding anything to the contrary in Section 2.1, 2.2 or 2.3, the Prospect Proposal for any Third Party Pond Project shall provide PinnOak with the option to acquire by virtue of the Preferential Right no less than fifty percent (50%) of the Beard Entities’ cumulative equity or membership interest of the Project LLC formed for that Third Party Pond Project.  

2.4.3      If PinnOak exercises the Preferential Right to acquire an ownership interest in a Project LLC formed for a Third Party Pond Project, the distribution of cumulative Annual Net Cash Flow attributable to PinnOak’s ownership in that Project LLC shall be made as provided for in Section 2.3.1(d) except that each “PinnOak’s Distributive Share” percentage set forth in the chart in Section 2.3.1(d) shall be replaced by the result obtained by multiplying that “PinnOak Distributive Share” percentage by a fraction, the numerator of which is the percentage ownership in that Project LLC acquired by PinnOak and the denominator of which is one hundred percent (100%).

 

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2.4.4      If there is any direct conflict between, or any ambiguity or uncertainty resulting from the construction of, any provision in this Section 2.4 and any provision in Section 2.1, 2.2 and/or 2.3 or (ii) any disagreement between the Parties concerning the distribution of Annual Net Cash Flow from a Project LLC, the Parties shall use their good faith, reasonable efforts to resolve the ambiguity, uncertainty or conflict by reference to the attachments to the Pond Fines Agreement titled “Terms of Equity Financing by PinnOak for the Pinnacle Project” and the “PinnOak Preferential Right to Purchase”.

Article 3 

Representations and Warranties

3.1          Representations and Warranties of PinnOak Parties.  PinnOak hereby represents and warrants to BTI as follows:

(a)           Organization.  PinnOak is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of Delaware, and is duly authorized and qualified, and has all applicable Governmental Authorizations required under applicable Laws to conduct its business as it is presently conducted.

(b)           Authorization.  This Agreement has been duly authorized, signed, and delivered by PinnOak.

(c)           Enforceability.  This Agreement constitutes the legal, valid and binding agreement of PinnOak, enforceable against PinnOak in accordance with its terms, except as enforceability may be limited by general principles of equity and by bankruptcy, insolvency, reorganization or similar Laws and judicial decisions affecting the rights of creditors generally.

3.2          Representations and Warranties of BTI.  BTI hereby represents and warrants to PinnOak as follows:

(a)          Organization.  BTI is a corporation duly organized, validly existing and in good standing under the Laws of the State of Oklahoma and is duly authorized and qualified, and has all applicable Governmental Authorizations required under applicable Laws to conduct its business as it is presently conducted.

(b)          Authorization.  This Agreement has been duly authorized, signed and delivered by BTI.

(c)          Enforceability.  This Agreement constitutes the legal, valid and binding agreement of BTI, enforceable against BTI in accordance with its terms, except as enforceability may be limited by general principles of equity and by bankruptcy, insolvency, reorganization or similar Laws and judicial decisions affecting the rights of creditors generally.

3.3          Survival of Representations.  The representations and warranties contained in Sections 3.1 and 3.2 shall survive the execution and delivery of this Agreement.

 

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Article 4 

Miscellaneous

	
             
 	
            4.1
 	
            Modification and Waiver.  
 

4.1.1      This Agreement may not be altered, amended, revised, modified or supplemented except by a written agreement signed by all the Parties expressly specifying the provisions altered, amended, revised, modified or supplemented.  Any Party to whom performance is owed under this Agreement may by an instrument in writing extend the time for or waive the performance of any of the obligations of another Party or waive compliance by such other Party with any of the provisions contained herein.  

4.1.2      The failure of any Party at any time or times to require performance of any provision hereof shall in no manner affect that Party’s right at a later date to enforce that provision.  No waiver by any Party of any breach of this Agreement, whether by conduct or otherwise, in any one or more instances shall be construed as a further or continuing waiver of that breach or a waiver of any condition or of any other breach of this Agreement.

	
             
 	
            4.2
 	
            Notices.  
 

4.2.1      All notices and elections required or permitted hereunder shall be given in writing and delivered in person, sent by bonded overnight courier (e.g., Federal Express, UPS), sent by U.S. Mail postage prepaid, return receipt requested, or by facsimile transmission (provided any such facsimile transmission is confirmed orally or by written confirmation) addressed to the appropriate Party at the address for that Party set forth below.  

	
             
 	
            (a)
 	
            If to BTI:
 

5600 North May Avenue, Suite 320

Oklahoma City, Oklahoma 73112

	
             
 	
            Attention:
 	
            Herb Mee, Jr., Vice President
 

Telephone:  (405) 842-2333

	
             
 	
            Facsimile:  
 	
            (405) 842-9901
 

	
             
 	
            E-Mail:  
 	
            hmee@beardco.com
 

 

 

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            (b)
 	
            If to PinnOak:
 

601 Technology Drive

Pointe Plaza, Suite 300

Canonsburg, PA 15317

	
             
 	
            Attention:
 	
            Michael Nemser, Chief
 

Financial Officer

 

Telephone:  (724) 338-9104

	
             
 	
            Facsimile:  
 	
            (724) 743-4531
 

	
             
 	
            E-Mail:  
 	
            mfn@nb.net
 

 

4.2.2      The address and facsimile number of any Party may be changed by notice given in the manner provided in this Section 4.2.  Any notice given in accordance with this Section shall be deemed to have been given when delivered to the addressee in person, or if transmitted by facsimile transmission, upon receipt of the oral or written confirmation of receipt. A Party may change the address, telephone number, and facsimile number to which such communications are to be addressed or made by giving written notice to the other Party in the manner provided in this Section.

4.3          Publicity.  The Parties shall consult with each other with regard to all publicity and other releases concerning this Agreement and the transactions contemplated hereby and, except as required by applicable Law, by any Governmental Authority or stock exchange, neither shall issue any such publicity or other release without the prior written consent of the other, which consent shall not be unreasonably withheld.

4.4          Non-assignment.  BTI acknowledges that PinnOak may (1) distribute any Membership Interest acquired hereunder to the PinnOak Parties immediately following receipt thereof, (2) any PinnOak Party may transfer a Membership Interest to one or more other PinnOak Parties at any time and from time to time, (3) assign the right to acquire any Membership Interest to be acquired hereunder to the PinnOak Parties, or (4) assign this Agreement to PinnOak Parties (each a “Permitted Assignment”) if that distribution or assignment, as applicable, does not result in BP, BTI or PinnOak’s noncompliance with or violation of any applicable state or federal securities Laws, including, without limitation, the Securities Act of 1933, as amended.  Except for the
Permitted Assignment, this Agreement shall not be assignable by any Party without the written consent of all the other Parties, which consent shall not be unreasonably withheld.  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective permitted successors, distributees, and assigns.

4.5          Change of Control.  PinnOak shall assign (i) all of its interest, rights, ownership, obligations and duties with respect to the Preferential Right and (ii) the Membership Interests acquired hereunder to the PinnOak Parties immediately prior to the consummation of any transaction that would result in PinnOak having a Change of Control unless BTI shall have provided its written consent to such transaction, which consent shall not be unreasonably withheld.  BTI may withhold its consent to any transaction if such Change of Control results 

 

12

 

from a Transfer to any Person who engages on a regular basis in the coal extraction or mining industry or is owned or controlled by any such Person.

4.6          Counterparts.  This Agreement may be signed in any number of counterparts, including counterparts transmitted by facsimile, with the same effect as if the signatures to each counterpart were upon the same physical copy of this Agreement, each of which counterparts shall be deemed an original, but all of which shall constitute one and the same instrument.

4.7          Entire Agreement.  This Agreement and the agreements referred to herein embody the entire agreement and understanding of the Parties with respect to the subject matter hereof and thereof, and supersede all prior agreements or understandings (whether written or oral) with respect to the subject matter hereof and thereof.  This Agreement shall be binding upon the Parties and their respective successors, assigns, and distributees including, without limitation, the PinnOak Parties.  As a condition to the Permitted Assignment, PinnOak shall obtain a legally binding and enforceable written agreement from each of the PinnOak Parties agreeing to be bound by the terms and provisions of this Agreement and to sign the BP Operating Agreement.

4.8          Governing Law.  This Agreement shall be governed by and construed in accordance with the Laws of the State of Oklahoma without regard to the conflicts of Laws principles thereof.

4.9          No Third Party Beneficiaries.  Nothing herein expressed or implied is intended to confer upon any Person, other than the Parties or their respective permitted assigns and successors, any rights, remedies, obligations or liabilities under or by reason of this Agreement. 

4.10       Expenses.  Except as specifically provided herein, each Party shall pay all legal and other costs and expenses incurred by such Party in connection with this Agreement and the transactions contemplated hereby.

4.11       Further Assurances.  Each Party shall cooperate and shall take such further action and shall sign and deliver such further documents as may be reasonably requested by any other Party in order to carry out the provisions and purposes of this Agreement.  

Signed by the Parties as of the day first above written.

“BTI”

Beard Technologies, Inc.

	
             
 	
            By:  
 	
            /s/ Herb Mee, Jr.
 

	
             
 	
            Name:  
 	
            Herb Mee, Jr.
 

	
             
 	
            Title:  
 	
            Vice President
 

 

 

13

 

“PinnOak”

PinnOak Resources, LLC

	
             
 	
            By  
 	
            /s/ Michael F. Nemser
 

Name:  Michael F. Nemser

	
             
 	
            Title:  
 	
            CFO
 

 

 

14

 

Exhibit “A”

 

(BP Operating Agreement)

 

 

Schedule “A”

 

 

	
             
 
	
             

Questor Partners Fund II, LP

 
 
	
            Questor Side-By-Side Partners II, LP

 
 
	
            Questor Side-By-Side Partners II 3(c)1, LP

 
 
	
            Questor Partners Fund II AIV-1, LLC

 
 
	
            The Regent Investment Company, LP

 
 
	
            Statler Family Investment Company, LP

 
 
	
            PinnOak Resources Employee Equity Incentive Plan, LLCBUSINESS LOAN AGREEMENT

THIS AGREEMENT is made effective as of March 28, 2006, by and among THE BEARD COMPANY, an Oklahoma corporation, having an address of Enterprise Plaza, Suite 320, 5600 North May Avenue, Oklahoma City, Oklahoma 73112 (“Borrower”) and FIRST FIDELITY BANK. N.A., a national banking association, whose address is 5101 North Classen, Oklahoma City, Oklahoma 73118 (“Lender”).

WHEREAS, the Borrower and the Lender have agreed to one or more extensions of credit by the Lender to the Borrower which shall be subject to the terms and conditions of this Agreement and, therefore, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows:

1.    Definitions.  Terms used in this Agreement with their initial letters capitalized shall have the meanings set forth in Section 11 of this Agreement, except where the context otherwise requires.

2.            Loan.  Subject to the terms and conditions hereof, and the terms and conditions of the other Loan Documents, the Lender agrees to extend credit to the Borrower and the Borrower agrees to such extensions of credit from the Lender, in the maximum principal amount of $350,000.00, but not to exceed the Borrowing Base Amount.  Such extensions of credit shall be evidenced by and payable in accordance with the terms and conditions of the Note.  

3.            Conditions of Lending.  The obligation of the Lender to perform this Agreement and to extend the Loan as described herein is subject to the performance of the following conditions precedent: (i) this Agreement, the Note, the Loan Documents, and all other documents required by the Lender shall have been duly executed, acknowledged (where appropriate) and delivered to the Lender, all in form and substance satisfactory to the Lender; (ii) Borrower and any Guarantor shall have furnished to the Lender such financial statements and other information as the Lender shall have requested; (iii) no Events of Default shall have occurred and be continuing under this Agreement or the Loan Documents and all representations
and warranties contained herein shall be true and correct; (iv) Borrower shall have delivered to the Lender such authorizations and other documents reasonably required by Lender to authorize the execution, delivery and performance of the Loan Documents, all in form and substance satisfactory to the Lender; (v) Lender shall have received satisfactory evidence that no litigation, investigation or proceeding before or by an arbitrator, administrative agency or court is continuing or threatened against the Borrower, any Guarantor or the Collateral; (vi) Borrower shall have provided to the Lender evidence satisfactory to Lender of the existence of insurance on Borrower’s properties, assets and business in such amounts and against such risks as Lender shall deem appropriate in its sole discretion, with endorsements to all such insurance policies of the Borrower naming Lender as a loss payee or an additional insured as Lender’s interest may appear; (vii) Borrower shall have paid
all of the Lender’s costs and expenses, including reasonable fees of legal counsel, incurred in the preparation of the Loan Documents and in closing and perfecting the Liens and rights of the Lender under the Loan Documents; and (viii) Borrower shall have provided Lender with any such other information as Lender might reasonably request.  

3.1          Real Estate and Oil and Gas Secured Loan.  The Lender shall have received such of the following items as may be indicated, all of which shall be satisfactory to Lender after reasonable opportunity for review by Lender and its representatives:

	
             
 	
            (a)
 	
            Title Evidence.  The Lender shall have received satisfactory evidence of the Borrower’s ownership interest in the Oil and Gas Properties.
 

	
             
 	
            (b)
 	
            Engineering Information.  The Lender shall have received satisfactory engineering reports and other information concerning the production capabilities of the Oil and Gas Properties.
 

	
             
 	
            (c)
 	
            Division Orders, Evidence of Production Payments, Division Order Title Opinions.  Lender shall have received copies of all division orders, evidence of production payments, and division order title opinions applicable to the Oil and Gas Properties, review of which must be acceptable to Lender.
 

	
             
 	
            (d)
 	
            Environmental Information.  The Lender shall have received, reviewed and approved environmental information with respect to the Oil and Gas Properties, the results of which shall be satisfactory to the Lender.  
 

	
             
 	
            (e)
 	
            UCC and Lien Search.  The Lender shall have received a UCC and lien search with respect to the Borrower, the results of which shall be satisfactory to the Lender.
 

	
             
 	
            (f)
 	
            Inspections.  At the Lender's sole election, the Lender may conduct such physical inspections of the Collateral as the Lender deems necessary, the results of which shall be satisfactory to the Lender.
 

	
             
 	
            (g)
 	
            Loan Documents.  The Lender shall have received all of the Loan Documents fully executed by Borrower.
 

	
             
 	
            (h)
 	
            Other Information.  The Borrower shall have provided the Lender with any such other information concerning the Borrower or Collateral as the Lender might reasonably require.
 

	
             
 	
            (i)
 	
            No Default.  No Event of Default shall have occurred and be continuing under any of the Loan Documents.
 

 

4.            Representations and Warranties.  To induce the Lender to extend the Loan and enter into this Agreement, the Borrower represents and warrants to the Lender during the term of the Loan and any and all renewals and extensions thereof, as follows: (i) this Agreement and the Loan Documents, when duly executed and delivered, will constitute legal, valid, and binding obligations of the Borrower, fully enforceable in accordance with their respective terms; (ii) all financial statements and information which have been or may hereafter be furnished to the Lender in connection herewith, do or shall fairly represent the financial condition of the Borrower and any Guarantor as of the dates and the results of operations for
the periods for which the same are furnished, and shall be accurate, correct and complete; (iii) there is no action, suit, investigation or proceeding pending or threatened against the Borrower, any Guarantor or any of the Collateral; (iv) Borrower and any Guarantors have timely filed all tax returns that are required to be filed and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Guarantor; (v) except for Permitted Liens, all of the Collateral is free and clear of all Liens, and Borrower (or any other party for whom Lender has been provided proper evidence of ownership) has good and marketable title to such Collateral; (vi) there is no material fact that Borrower has not disclosed to Lender which could have a material adverse effect on the properties, business, 

 

prospects or condition (financial or otherwise) of Borrower or any Guarantor; (vii) Borrower and all Guarantors are not in violation of any law, rule, regulation, order or decree which is applicable to Borrower, any Guarantor or their properties; (viii) the Collateral is insured in accordance with the coverages approved by Lender, with the Lender named as a loss payee or an additional insured to the extent of its interest therein and Borrower and all other applicable parties are in full compliance with all such insurance contracts, the same are in full force and effect and are enforceable in accordance with their terms; and (ix) no Event of Default has occurred and is continuing 

4.1           Survival of Representations.  All of the representations and warranties made by the Borrower herein will survive the delivery of the Loan Documents and any renewal and extension of the Loan hereunder.  All statements contained in any certificate or other instrument delivered by or on behalf of the Borrower or any Guarantor under or pursuant to this Agreement or in connection with the transactions contemplated hereby shall constitute representations and warranties made by the Borrower hereunder as applicable.

5.             Security.  The Loan shall be secured by first and prior Liens on the Collateral in favor of the Lender pursuant to the Loan Documents, subject only to Permitted Liens and such other exceptions or other liens or encumbrances as may be consented to by the Lender in writing.  From time to time during the term of this Agreement, the Lender may reasonably require the Borrower to execute and deliver other and further Loan Documents to confirm and further secure the interest of the Lender in the Collateral, which Borrower agrees it will so execute and deliver upon request.

	
             
 	
            5.1
 	
            Guaranty.  The Loan shall be unconditionally guaranteed by the Guarantors.
 

6.            Affirmative Covenants.  Until payment in full of the Loan, the Borrower agrees, unless the Lender shall otherwise consent in writing, to perform or cause to be performed the following agreements:

6.1          Financial Statements and Information.  Borrower shall provide, or cause to be provided, to Lender within the time limits designated, the following financial statements and other information:

	
             
 	
            (a)
 	
            Annual Audited Financial Statements of Borrower within 90 days of the end of Borrower’s fiscal year beginning with the year ending December 31, 2006.
 

	
             
 	
            (b)
 	
            Quarterly Unadited Financial Statements of Borrower within 45 days of Borrower quarter end, beginning with the quarter ending March 31, 2006.  
 

	
             
 	
            (c)
 	
            Semi-Annual engineering information for the Oil and Gas Properties in form and substance satisfactory to Lender, within 30 days of the end of each semi-annual period ending on June 30 and December 31 of each year.
 

	
             
 	
            (d)
 	
            Semi-annual production information for the Oil and Gas Properties, including detailed revenue and expense summaries, within 30 days of the end of the semi-annual period ending on June 30 and December 31 of each year.  
 

6.2          Expenses.  The Borrower shall pay all costs and expenses required to satisfy the conditions of this Agreement.  Without limitation of the generality of the foregoing Borrower will pay:  (i) all of the reasonable fees and expenses of counsel employed by the Lender in connection with preparing and perfecting the loan documentation; (ii) all of the fees, expenses and costs of perfecting the Liens on the Collateral; (iii) all reasonable costs and expenses of Lender (including, without limitation, the reasonable attorneys’ fees of Lender’s legal counsel) incurred by Lender in connection with the preservation and enforcement of this Agreement, the Note, and/or the other Loan Documents; and (iv) all
reasonable costs and expenses, including any reasonable fees and expenses of counsel employed by the Lender, in regard to any litigation arising out of or relating to this transaction and all other reasonable costs, fees and expenses involved in the enforcement or defense of this Agreement, the Loan Documents or any instrument executed pursuant hereto.

	
             
 	
            (a)
 	
            Borrower shall also pay all fees associated with any third party analysis of the engineering reports and related information with respect to Borrower’s Oil and Gas Properties. 
 

7.            Negative Covenants.  Until payment in full of the Loan, the Borrower shall not, unless the Lender shall otherwise consent in writing, violate or cause to be violated the following:

7.1          Limitation on Liens.  Borrower shall not create, incur, permit or suffer to exist any Lien upon any of the Collateral, except Permitted Liens.

7.2           Sale or Disposition of Collateral.  Borrower shall not sell, assign, lease, dispose or otherwise transfer any of the Collateral to any other person or entity.

8.            Events of Default.  The following shall constitute Events of Default hereunder and under each of the Loan Documents: (i) default in payment when due of any principal or interest due and owing on any Note after five (5) days written notice thereof; (ii) default in payment when due of any other amount payable to the Lender under the terms of this Agreement or the Loan Documents; (iii) Default by the Borrower in the performance or observance of any covenant or agreement contained in this Agreement, the Loan Documents, or any agreement made in connection therewith, or under the terms of any other instrument delivered to the Lender in connection with this Agreement, and the continuance of such default without
cure for a period of thirty (30) calendar days after the occurrence of such default; (iv) any representation or warranty herein or under any Loan Document, or any representation, statement, certificate, schedule or report made or furnished to the Lender on behalf of the Borrower or any Guarantor proves to be false or erroneous in any material respect at the time of making thereof or any warranty ceases to be complied with in any material respect; (v) Borrower or any Guarantor shall:  (a) apply for or consent to the appointment of a receiver, trustee or liquidator of their respective properties; (b) admit in writing their inability to pay debts as they mature; (c) make a general assignment for the benefit of creditors; or (d) any material part of their assets or properties shall be placed in the hands of a receiver, trustee or other officers or representatives of a court or of creditors; (vi) Borrower or any Guarantor shall be adjudged bankrupt or any voluntary
proceeding shall be instituted by Borrower or any Guarantor in insolvency or bankruptcy or for readjustment, extension or composition of debts or for any other relief of debtors; (vii) any involuntary proceeding shall be instituted against Borrower or any Guarantor in insolvency or for readjustment, extension, or composition of debts, which proceeding is not dismissed within thirty (30) days after the filing of the commencement of 

 

-2-

 

the same; (viii) entry by any court of a final judgment against Borrower or any Guarantor, or the institution of any levy, attachment, garnishment or charging order against the Borrower or any Guarantor which has a material adverse effect as determined by Lender on the financial condition of the Borrower or any Guarantor; or (ix) death of both of the individual Borrowers (provided the death of both Borrowers shall not be an Event of Default if (i) the obligations evidenced by the Note remain current at all times and are assumed by or otherwise become a valid obligation of the estate or surviving trust of said Borrowers that receives ownership of the Collateral, and (ii) the Collateral continues to secure the Note). 

9.            Remedies.  Upon the occurrence of any Event of Default, which has not been timely cured, the Lender may, at its option: (i) declare all Notes and all sums outstanding under the Loan Documents to be immediately due and payable, and the Lender will be entitled to proceed to selectively and successively enforce the Lender’s rights under the Notes and all Loan Documents; (ii) terminate any of the Lender’s obligations hereunder, (iii) exercise any right of offset, (iv) without notice of default or demand, pursue and enforce any of the Lender’s rights and remedies under the Loan Documents, or otherwise provided under or pursuant to any applicable law or agreement, or (v) exercise any other remedy at
law or in equity.  Lender may waive any Event of Default in writing, and, in such event, the Lender and the Borrower will be restored to their respective former positions, rights and obligations hereunder.  Any Event of Default so waived will for all purposes of this Agreement be deemed to have been cured and not to be continuing; but no such waiver will extend to any subsequent or other Event of Default or impair any consequence of such subsequent or other Event of Default.

	
             
 	
            10.
 	
            General Conditions.  The following conditions shall be applicable throughout the term of this Agreement:
 

10.1         Waiver; Modification.  No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder or under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right.  The rights of Lender hereunder and under the Loan Documents shall be in addition to all other rights provided by law.  No modification or waiver of any provision of this Agreement, any Note or any Loan Document, nor consent to departure therefrom, shall be effective unless in writing signed by Lender and no such consent or waiver shall extend beyond the particular case and purpose involved.  No notice or
demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand.

10.2        Notices.  Any notices or other communications required or permitted to be given by this Agreement or any other Loan Documents must be (i) given in writing, and (ii) personally delivered or mailed by prepaid mail or overnight courier, to the address of such party as provided at the beginning of this Agreement.   Any such notice or other communication shall be deemed to have been given (whether actually received or not) on the day three days after it is mailed by prepaid certified or registered mail, one day after sent by over night courier, or on the day it is personally delivered as aforesaid, and otherwise when actually received.  Any party may, for purposes of the Loan Documents, change its address or the
person to whom a notice or other communication is marked to the attention of, by giving notice of such change to the other parties pursuant hereto.

10.3        Governing Law; Choice of Forum.  This Agreement has been executed and delivered in the State of Oklahoma, and the substantive laws of Oklahoma and the applicable federal laws of the United States shall govern the validity, construction, enforcement and interpretation of this Agreement and all of the Loan Documents.  Any suit, action or proceeding against Borrower with respect to this Agreement or any Loan Document may be brought in the courts of Oklahoma County, Oklahoma, or in the United States courts located in Oklahoma County, Oklahoma as Lender in its sole discretion may elect and Borrower hereby submits to the non-exclusive jurisdiction of such courts for the purpose of any such suit, action or proceeding.  Borrower
hereby irrevocably waives any objections which Borrower may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any Loan Document brought in the courts located in Oklahoma County, Oklahoma, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

10.4        No Oral Agreements; Invalid Provisions; Multiple Counterparts.  THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.  If any provision of any Loan Document is held to be illegal, invalid or unenforceable under present or future laws during the term of this Agreement, such provision shall be fully severable; such Loan Document shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of such Loan Document; and the remaining provisions of such Loan Document shall
remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provisions or by its severance from such Loan Document. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart.

10.5         Binding Effect; No Third-Party Beneficiary.  The Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors, assigns and legal representatives; provided, however, that Borrower may not, without the prior written consent of Lender, assign any rights, powers, duties or obligations thereunder.   Nothing contained in the Loan Documents, nor any conduct or course of conduct by any or all of the parties hereto, before or after signing this Agreement or any other Loan Document, shall be construed as creating any right, claim or cause of action against Lender, or any of its officers, directors, agents or employees, in favor of any materialman, supplier,
contractor, subcontractor, purchaser or lessee of any property owned by Borrower, nor to any other person or entity.

11.          Definitions.  As used in this Agreement, the following terms with their initial letters capitalized shall have the following meanings except where the context otherwise requires:

“Agreement” shall mean this Business Loan Agreement, as amended, supplemented or modified from time to time.

“Borrowing Base Amount” shall mean the loan value of the Oil and Gas Properties of the Borrower as determined by the Lender using the engineering reports and other pertinent information as the Lender may request and determine, with the Lender making such determination of value on a semi-annual basis or at such other or additional times as the Lender may, in its sole discretion, elect.  

 

-3-

 

All such determinations of value shall be made by the Lender in its sole discretion and in accordance with its customary practices and standards for loans of a similar nature applicable at the time of determination. 

 “Collateral” means all of Borrower’s right, title and interest in and to all of the Oil and Gas Properties and, and such other property as may be described in any other Loan Document made and delivered as security for the Loan.

“GAAP” means the generally accepted accounting principles, practices and procedures, set forth by the Accounting Principles Board and the American Institute of Certified Public Accountants and the Financial Accounting Standards Board, which are applicable as of the date of the end of the fiscal quarter immediately preceding such date of determination.

“Guarantor” shall mean any guarantor of the Loan who may hereafter execute a Guaranty.

“Guaranty” shall mean any unconditional and absolute guaranty of the Loan by a Guarantor pursuant to a guaranty agreement in form satisfactory to the Lender.

 “Lien” means any lien, mortgage, deed of trust, security interest, tax lien, pledge, encumbrance, conditional sale or title retention arrangement, or any other interest in property designed to secure the repayment of debt, whether arising by agreement or under any statute or law, or otherwise.

 “Loan” means any loan or credit extensions contemplated by this Agreement or that may be evidenced by a Note or any other Loan Document.

“Loan Documents” collectively means this Agreement, any Note, any Guaranty, all mortgages, deeds of trust, security agreements, assignments, and financing statements securing the Loan, and all other promissory notes, guaranties, agreements and all other documents, agreements, certificates and instruments executed and delivered in connection with the Loan described herein and any renewals, amendments, supplements or modifications thereof or thereto.

“Maximum Commitment Amount” shall have the meaning of such term as contained in the Note.

 “Note” means any Promissory Note from the Borrower payable to the order of the Lender, whether now or hereafter made and delivered to Lender, together with all renewals, extensions, modifications and substitutions thereto and therefor.

“Oil and Gas Properties” means the oil, gas and mineral interests and properties described on Exhibit “A” attached hereto and made a part hereof.

“Permitted Liens” means any Lien designated as a Permitted Lien under any Loan Document and any other Lien approved in writing by Lender.

“Reducing Revolving Amount” shall mean (i) the initial principal amount of $350,000.00, and (ii) on April 30, 2006, and on the last day of each month thereafter, the principal amount resulting from the reduction of $10,000.00 per month throughout the term of the Note.

 “Uniform Commercial Code” means the Uniform Commercial Code of the State of Oklahoma (12A O.S. §1-101 et. seq.), inclusive of Uniform Commercial Code – Secured Transactions of the State of Oklahoma (12A O.S. §1-9-101 et. seq.), as amended from time to time.

12.          Conflicts.  In the event of a conflict between the terms and conditions of this Agreement and any other Loan Document, this Agreement shall prevail.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of day and year first above written.

 

	
             
 	
            “BORROWER”
 	
            THE BEARD COMPANY,
 

an Oklahoma corporation

 

	
             
 	
            By:  
 	
            /s/ Herb Mee, Jr.
 

	
             
 	
            Herb Mee, Jr., President
 

 

	
             
 	
            “LENDER”
 	
            FIRST FIDELITY BANK, N.A.
 

	
             
 	
            a national banking association
 

 

	
             
 	
            By:  
 	
            /s/ Danny Lawson
 

Danny Lawson, 

Executive Vice President 

 

-4-

 

EXHIBIT A

Yuma County, Colorado

 

All of Borrower’s right, title and interest in and to all oil, gas and mineral leases, and all rights derived therefrom, including without limitation, all working interests, royalty interests, overriding royalty interests and other interests of any kind, as described in any Loan Document made in connection herewith, and covering, in whole or in part, the lands described as:

 

Section 36, Township 3 North, Range 48 West, Yuma County, Colorado, 

 

Including Lease No. 00/7284-S between State of Colorado and Beard Oil Company covering said lands,

 

And including all interests in the following wells located within such lands:

 

Yuma 5 State 12-36 Well (SW/4 NW/4, Section 36, T3N, R48W);

 

Yuma 5 State 21-36 Well (NE/4 NW/4, Section 36, T3N, R48W);

 

Yuma 5 State 23-36 Well (NE/4 SW/4, Section 36, T3N, R48W);

 

Yuma 5 State 32-36 Well (SW/4 NE/4, Section 36, T3N, R48W);

 

Yuma 5 State 33-36 Well (NW/4 SE/4, Section 36, T3N, R48W);

 

Yuma 5 State 42-36 Well (SE/4 NE/4, Section 36, T3N, R48W);

 

Yuma 5 State 43-36 Well (NE/4 SE/4, Section 36, T3N, R48W);

 

Yuma 5 State 44-36 Well (SE/4 SE/4, Section 36, T3N, R48W);

 

 

-5-

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