Exhibit 10.16
CONVERTIBLE PROMISSORY
NOTE
THE OFFER AND SALE OF THIS NOTE AND THE ISSUANCE
OF THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED, OFFERED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS
AVAILABLE AND THE TRANSFER, SALE, ASSIGNMENT OR PLEDGE IS MADE IN
STRICT COMPLIANCE WITH SUCH EXEMPTION.
FOR VALUE RECEIVED, the undersigned,
BETA OIL & GAS, INC., a Nevada corporation (“Maker”
or the “Company”) hereby promises to pay to PETROHAWK
ENERGY, LLC, a Delaware limited liability company
(“Payee”), not later than 2:00 P.M. (Houston, Texas
time), on the date when due, in immediately available funds in
Houston, Texas, at Payee’s offices at 1100 Louisiana, Suite
4400, Houston, Texas 77002 or such other address, given to
Maker by Payee, the principal sum of THIRTY FIVE MILLION AND NO/100
DOLLARS ($35,000,000), together with interest, as hereinafter
described. Whenever any payment of principal of, or interest
on, this Note shall be due on a day which is not a Business Day,
the date for payment thereof shall be extended to the next
succeeding Business Day. If the date for payment of principal
is extended by operation of law or otherwise, interest thereon
shall be payable for such extended time.
This Note has been executed and
delivered pursuant to, and is subject to and governed by, the terms
of that certain Securities Purchase Agreement dated as of
December 12, 2003, by and between Maker and Payee (the
“Agreement”). This Note is the “Note”
referred to in the Agreement. Unless otherwise defined herein
or unless the context hereof otherwise requires, each term used
herein with its initial letter capitalized has the meaning given to
such term in the Agreement.
Maker reserves the right to prepay
without premium or penalty, after thirty (30) days prior written
notice to the Noteholder, the principal amount of the Note, in
whole or in part, at any time after May 25, 2006.
Maker promises to pay interest on
the outstanding principal balance hereof, prior to the occurrence
of an Event of Default, at a rate per annum equal to eight percent
(8%) per annum (the “Fixed Rate”) Interest shall
accrue on any amounts past due and owing on the Note from the date
due until paid at the rate of fifteen percent (15%) per annum (the
“Default Rate”); provided further , that
in no event shall the rate of interest charged hereunder exceed the
Maximum Lawful Rate. Interest shall be payable in cash on
the
Note as it accrues on June 30, 2004 and
continuing on each June 30, September 30,
December 31 and March 31 thereafter until
maturity.
Interest shall be computed on the
Note on the basis of the number of actual days elapsed, assuming
that each calendar year consisted of 360 days. The entire
outstanding principal balance of this Note and all accrued but
unpaid interest thereon shall be due and payable in full in a
single installment on May 25, 2009.
At any time after May 25, 2006, a
Noteholder may elect to convert all or any portion of the amount of
principal and accrued but unpaid interest on the Note as
hereinafter provided.
Each $2.00 (the “Conversion
Price”) of principal and accrued but unpaid interest on the
Note shall be convertible into one share of Common Stock. The
Conversion Price is subject to adjustment from time to time upon
the occurrence of any of the events enumerated below:
1.
In the event that the Company shall
(a) declare a dividend on the Common Stock in shares of its capital
stock (whether shares of such Common Stock or of capital stock of
any other class of the Company), (b) split or subdivide the
outstanding Common Stock, or (c) combine the outstanding Common
Stock into a smaller number of shares, then (as a result of an
event described in (a), (b) or (c)) the Conversion Price shall be
adjusted to equal the product of the Conversion Price in effect
immediately prior to such event multiplied by a fraction the
numerator of which is equal to the number of shares of Common Stock
outstanding on a Fully Diluted Basis immediately prior to such
event and the denominator of which is equal to the number of shares
of Common Stock outstanding on a Fully Diluted Basis immediately
after the event.
2.
In the event of any capital
reorganization of the Company, or of any reclassification of any
Common Stock for which the Note is convertible (other than a
subdivision or combination of outstanding shares of such Common
Stock), or in case of the consolidation of the Company with or the
merger of the Company with or into any other corporation or of the
sale of the properties and assets of the Company as, or
substantially as, an entirety to any other entity, each amount of
principal and unpaid interest outstanding of the Note equal to the
Conversion Price then in effect shall, after such capital
reorganization, reclassification of such Common Stock,
consolidation, merger or sale be convertible, upon the terms and
conditions specified in this Note and in the Agreement, into the
number of shares of stock or other securities or assets to which a
holder of the
2
number of shares of Common Stock
into which amount of principal and interest payable under the Note
is convertible (at the time of such capital reorganization,
reclassification of such Common Stock, consolidation, merger or
sale) would have been entitled upon such capital reorganization,
reclassification of such Common Stock, consolidation, merger or
sale; and in any such case, if necessary, the provisions set forth
in this section with respect to the rights thereafter of such
Note shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other
securities or assets thereafter deliverable upon the conversion of
the Note. The Company shall not effect any such
consolidation, merger or sale, unless prior to or simultaneously
with the consummation thereof, the successor corporation (if other
than the Company) resulting from such consolidation or merger or
the corporation purchasing such assets or the appropriate
corporation or entity shall assume, by written instrument, the
obligation to deliver to the Noteholder the shares of stock,
securities or assets to which, in accordance with the foregoing
provisions, such Noteholder may be entitled pursuant to this
section.
3.
If any question shall at any time
arise with respect to the Conversion Price or the number of shares
issuable upon conversion of the Note, such question shall be
determined by an independent firm of certified public accountants
of recognized national standing selected by the Noteholder and
acceptable to the Company.
4.
Notwithstanding anything in this
section to the contrary, the Company shall not be permitted to
take any action described in subparagraphs 1 through 3 above, if
such action is prohibited under any other provision of this Note or
the Agreement.
If a Noteholder elects to convert
all or a portion of the outstanding principal and accrued but
unpaid inter
