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.


 


	
  $35,000,000

  	
  May 25, 2004

  	
   

  



 


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


 


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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 interest under the Note,
then the Noteholder shall deliver the Note to the Company in exchange for a
certificate or certificates for the number of whole Conversion Shares to which
the Noteholder is entitled under the terms hereof.  In the event that the Noteholder has elected
to convert less than all of the outstanding principal and accrued but unpaid
principal under the Note, the Noteholder will also receive an amended and
restated note setting forth the new amount of principal and accrued but unpaid
interest.  To the extent permitted by
law, such conversion shall be deemed to have been made immediately prior to the
close of business on the date of such exchange of the Notes for the Conversion
Shares and, if applicable, the amended and restated note, and the Noteholder
shall be treated for all purposes as the record holder of such shares of Common
Stock on such date.


 


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Notwithstanding any other provision of this Note or
the Agreement, upon the occurrence of a Change of Control (other than a Change
of Control caused by or resulting to any material extent from any sales of the
Common Stock Shares, Conversion Shares or Warrant Shares by the Holder or any
of its Affiliates), the entire principal balance of the Note and all accrued
but unpaid interest may, at the election of the Noteholder, be converted into
Conversion Shares at the Conversion Price.


 


No fractional shares or script of Common Stock shall
be issued upon conversion of all or a portion of the outstanding principal and
accrued but unpaid interest under the Note.  In lieu of a fractional share of Common Stock
to which the Holder would otherwise be entitled, the Company shall pay cash
equal to the product of such fraction multiplied by the Per Share Stock Price
of one share of Common Stock on the date of conversion.


 


If one or more of the following events
(collectively, “Events of Default” and individually, an “Event of
Default”) shall have occurred and be continuing:


 


(a)                                  the Company shall fail to pay when due any
principal or interest on the Note;


 


(b)                                 any representation, warranty, certification
or statement made or deemed to have been made by the Company in the Agreement
or any of the other Transaction Documents or by the Company or any other Person
on behalf of the Company in any certificate, financial statement or other
document delivered pursuant to the Agreement or any of the other Transaction
Documents, shall prove to have been incorrect in any material respect when
made, at the time of Closing and at the time that the Noteholder proposes to
declare an Event of Default as a result thereof;


 


(c)                                  a default or event which, with the giving of
notice, lapse of time or both could (unless cured or waived) become a default,
shall occur under the terms of any Debt of the Company or any of its
Subsidiaries having a principal balance of $250,000 or more (including, without
limitation, the BOK Debt or any debt intended to replace such debt, the “Permitted
Senior Debt”);


 


(d)                                 the Company or any of its Subsidiaries shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its Debts under any
bankruptcy, insolvency or other similar Law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or shall
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its Debts as they become due, or shall take any corporate
action to authorize any of the foregoing;


 


(e)                                  an involuntary case or other proceeding shall
be commenced against the Company or any of its Subsidiaries seeking
liquidation, reorganization or


 


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other
relief with respect to it or its Debts under any bankruptcy, insolvency or
other similar Law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of sixty (60) days; or an
order for relief shall be entered against the Company under the federal
bankruptcy Laws as now or hereafter in effect;


 


(f)                                    one (1) or more judgments or orders for the
payment of money aggregating in excess of $250,000 shall be rendered against
the Company or any of its Subsidiaries and such judgment or order (i) shall
continue unsatisfied and unstayed for a period of thirty (30) days, or (ii) is
not fully paid and satisfied at least ten (10) days prior to the date on which
any of its assets may be lawfully sold to satisfy such judgment or order; or


 


(g)                                 any Change of Control other than a Change of
Control caused by any sales of the Common Stock Shares, Conversion Shares or
Warrant Shares by the Noteholder or any of its Affiliates;


 


(h)                                 the Company without the written consent of
the Noteholder shall issue any debt or note (except the Permitted Senior Debt
or trade payables) which is not by its terms subordinate to this Note.


 


then,
so long as any such event is continuing, any Noteholder shall without notice or
demand of any kind (including, without limitation, notice of intention to
accelerate and acceleration) (unless any such notice is expressly provided for
in this Note or the Agreement or in the other Transaction Documents), all of
which are hereby waived, take any and all actions as may be permitted by the
Transaction Documents including, declaring the obligations in respect of the
Note owned by such Noteholder (including all accrued but unpaid interest
thereon) to be, and such obligations shall thereupon become, immediately due
and payable.


 


Upon the occurrence and during the continuance of an
Event of Default, and upon the conditions stated in this Note, the holder
hereof may, at its option, declare the entire unpaid principal of and accrued
but unpaid interest on this Note immediately due and payable (provided that,
upon the occurrence of certain Events of Default, and upon the conditions
stated in this Note, such acceleration shall be automatic), without notice,
demand, or presentment, all of which are hereby waived, and the holder hereof
shall have the right to offset against this Note any sum or sums owed by the
holder hereof to Maker.  After the
occurrence of an Event of Default, interest shall accrue on the outstanding
principal balance of this Note and, to the extent permitted by applicable Law,
on accrued but unpaid interest, at the Default Rate.


 


After the occurrence of an Event of Default, all
amounts collected or received by any Noteholder in respect of the Obligations
shall be applied first, to the payment of all proper costs incurred by the
Noteholder in connection with the collection thereof (including reasonable
fees, expenses and disbursements of counsel for the Noteholder),


 


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second,
to the payment of all accrued but unpaid interest on the Note, third, to unpaid
principal on the Note, and fourth, to the Company or any other Person entitled
to such proceeds under applicable Law.


 


The Company shall maintain at the offices of the
Company, the Note Register for registration of the Note and transfers
thereof.  On the Closing Date, the
Company shall register this Note issued to Payee.  The Company may deem and treat the registered
Noteholder as the absolute owner of the Note registered to such Holder and
(notwithstanding any notation of ownership or other writing on the Note made by
any Person) for the purpose of any exercise thereof or any distribution to the
Noteholder, and for all other purposes.


 


Upon satisfaction of each condition set forth in Article V
of the Agreement, the Company shall register the transfer of any outstanding
Note in the Note Register upon surrender of such Note to the Company at the
offices of the Company, accompanied (if so required by it) by a written
instrument or instruments of transfer in form satisfactory to it, duly executed
by the registered Noteholder or by the duly appointed legal representative
thereof.  Upon any such registration of
transfer, a new Note evidencing such transferred Note shall be issued to the
transferee and the surrendered Note shall be canceled.  If less than the entire principal amount of a
Note surrendered for transfer is to be transferred, a new Note shall be issued
to the Noteholder surrendering such Note evidencing such remaining principal
balance.


 


The Note(s) may be exchanged at the option of the
Noteholders thereof, when surrendered to the Company at the offices of the
Company, for another Note or other Notes of like tenor and representing in the
aggregate a like number of Notes.  Notes
surrendered for exchange shall be canceled.


 


If any Note shall be mutilated, lost, stolen or
destroyed, the Company shall issue, in exchange and substitution for and upon
cancellation of the mutilated Note, or in lieu of and substitution for the Note
lost, stolen or destroyed, a new Note of like tenor and representing the same
outstanding principal, but only upon receipt of evidence satisfactory to the
Company of such loss, theft or destruction of such Note and, if requested,
indemnity satisfactory to it.  No service
charge shall be made for any such substitution, but all expenses and reasonable
charges associated with procuring such indemnity and all stamp, Tax and other
governmental duties that may be imposed in relation thereto shall be borne by
the holder of such Note.


 


If this Note is placed in the hands of an attorney
for collection, or if it is collected through any legal proceedings, Maker
agrees to pay the court costs, reasonable attorneys’ fees, and other costs of
collection of the holder hereof.


 


Maker, and each surety, endorser, guarantor, and
other party ever liable for payment of any sums of money payable on this Note,
jointly and severally waive presentment and demand for payment, protest, notice
of protest and nonpayment, and notice of acceleration and the intention to
accelerate, and agree that their liability on this


 


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Note
shall not be affected by any renewal or extension in the time of payment
hereof, by any indulgences, or by any release or change in any security for the
payment of this Note, and hereby consent to any and all renewals, extensions,
indulgences, releases, or changes, regardless of the number of such renewals,
extensions, indulgences, releases or changes.


 


THIS NOTE AND THE OTHER TRANSACTION DOCUMENTS
COLLECTIVELY REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES.  THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.


 


	
   

  	
   

  	
  BETA OIL & GAS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ David A.Wilkins

  	
   

  
	
   

  	
   

  	
  Name: David A.Wilkins

  
	
   

  	
   

  	
  Title: President and Chief Executive Officer

  



 


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