Attached files
EXHIBIT 10.5
THE SECURITIES BEING SUBSCRIBED FOR HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER APPLICABLE
STATE SECURITIES LAWS OR LAWS OF ANY OTHER JURISDICTION DUE TO THE LIMITED
NUMBER OF PERSONS BEING OFFERED TO AND THE PRIVATE NATURE OF THE OFFERING.
FURTHER, THE SECURITIES BEING SUBSCRIBED FOR MAY NOT BE TRANSFERRED EXCEPT
PURSUANT TO TRANSACTIONS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, APPLICABLE STATE SECURITIES LAWS, AND SECURITIES LAWS OF ANY
OTHER JURISDICTION, OR COMPLIANCE THEREWITH.
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT (this "Note Purchase Agreement"), dated as of
February 2, 2012, is entered into by and between BARON ENERGY, INC., a Nevada
corporation ("Company") and the subscriber identified on the signature page
hereto ("Subscriber").
RECITALS:
WHEREAS, Company desires to offer for sale (the "Offering"), and Subscriber
desires to purchase from Company, that amount of Company's convertible
promissory notes (a "Note") as set forth on Subscriber's signature page hereto,
convertible into shares of common stock, par value $0.001 per share, of Company
(the "Shares"), and having the rights and privileges set forth in substantially
the form of the Note included in that certain Confidential Private Offering
Booklet dated as of December 8, 2011 (the "Offering Booklet"); and
WHEREAS, the Note and the Shares issuable upon conversion of the Note are
collectively referred to herein as the "Securities."
NOW, THEREFORE, for the reasons set forth hereinabove, and in consideration
of the mutual covenants and promises contained herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Subscription. In reliance upon the representations and warranties of
Company and Subscriber contained herein, and subject to the terms and conditions
set forth herein, Subscriber agrees to purchase from Company, and Company hereby
agrees to sell and issue to Subscriber, a Note in the principal amount of thirty
three thousand three hundred thirty three ($33,333). Subscriber agrees to
purchase the Securities on the terms and conditions described in this Note
Purchase Agreement and the Note, both of which are included in the Offering
Booklet (collectively, the "Subscription Documents").
2. Note. The Note being sold to and purchased by Subscriber is one of the
Notes being offered and sold in the Offering and is identical in form and
content to all other Notes. Payment to Company of the principal amount of the
Note is due and payable concurrent with delivery of Subscriber's fully completed
and executed Subscription Documents. The Note will be effective on the date that
Company accepts Subscriber's subscription, payable in accordance with the terms
thereof and all amendments and modifications thereto. If Company does not
receive payment in full of the principal amount of the Note by Subscriber,
Company may not accept Subscriber's subscription. All funds will be paid to
Company via check or wire transfer in accordance with the terms set forth on
PAGE 9 of this Note Purchase Agreement. The Note and all accrued interest due
thereunder will be due and payable twelve months from the date of said Note
("Maturity Date").
3. Interest Rate. The outstanding principal balance on the Note will bear
interest at a rate of 8% per annum.
4. Conversion Rights. At any time prior after 180 days from the Effective
Date, Subscriber shall have the option to convert any or all principal and
accrued but unpaid interest due under the Note into Shares, in lieu of payment
on the Note, at the Conversion Price (as defined in the Note) per Share, in
accordance with and subject to the terms and conditions of the Note.
Furthermore, in the event Company consummates, prior to the Maturity Date, an
equity financing for the purpose of raising capital, pursuant to which it sells
Shares with an aggregate gross sales price of not less than $1,000,000 (a
"Qualified Financing"), then the holder of the Note shall have the option to
either: (a) redeem all but not less than all of the outstanding principal and
accrued but unpaid interest due under the Note; (b) hold the Note until the
Maturity Date; or (c) convert any or all principal and accrued but unpaid
interest due under the Note into Shares as described above. If Subscriber elects
to convert or redeem the Note, the Note will be deemed cancelled and of no
further force or effect.
5. Deliveries by Company. Upon acceptance of Subscriber's subscription,
Company will issue a Note in Subscriber's name as Payee and deliver to
Subscriber an executed Note Purchase Agreement.
6. Maximum Offering Amount; Closing. The maximum principal amount of Notes
offered by Company in the Offering is $300,000, which maximum amount is subject
to increase in Company's sole discretion. The Offering will terminate on January
31, 2013 unless extended by Company in its sole discretion. Company reserves the
right to terminate the Offering at any time in its sole discretion.
7. Use of Proceeds. Net proceeds from this Offering will be used to pay
Company's outstanding accounts payable as well as fees and future costs for
field operations, accounting, auditing, and reserve engineering services as
determined in Company's sole discretion.
8. Understandings of Subscriber. Subscriber acknowledges, understands and
agrees that:
(a) Unless otherwise determined by the board of directors of Company,
in its sole discretion, only persons who (i) either alone or with their
purchaser representative, have such knowledge and experience in business and
financial matters that they are capable of evaluating the merits and risks of
the Securities; and (ii) are "accredited investors," will be allowed to
participate in this Offering.
(b) This Note Purchase Agreement is subject to Company's acceptance
and may be rejected in whole or in part by Company at any time, in its sole
discretion, for any reason or no reason at all;
(c) This Note Purchase Agreement is and will be irrevocable, except
that Subscriber and Company will have no obligations hereunder in the event that
this Note Purchase Agreement is for any reason rejected by Company or the
Offering was not declared effective, except that the principal amount of the
Note will be returned to Subscriber, without interest or deduction of any kind
and the Subscription Documents will be returned to Subscriber, unsigned by
Company;
(d) All questions as to the validity, form, eligibility (including
time of receipt) and acceptance of a completed Note Purchase Agreement will be
determined by Company, in its sole discretion, which determination will be final
and binding;
(e) Company will be under no duty to give any notification of
irregularities in connection with any attempted subscription for the Securities
or incur any liability for failure to give such notification and until such
2
irregularities have been cured or waived, no subscription for the Securities
will be accepted; Company reserves the right to waive any irregularities in, or
conditions of, the submission of a completed Note Purchase Agreement;
(f) The Securities will not be deemed issued to Subscriber until
Company has executed this Note Purchase Agreement and received payment in full
for the principal amount of the Note;
(g) Company's interpretation of the terms and conditions for the
purchase of the Securities (including these instructions) will be final and
binding;
(h) The price of the Securities bears no relationship to the assets or
book value of Company;
(i) The Securities have not been registered under the Securities Act
or any applicable state law, or the laws of any other jurisdiction; further the
Securities may not be sold, offered for sale, transferred, pledged, hypothecated
or otherwise disposed of except in compliance with the Securities Act; further,
the legal consequences of the foregoing mean that Subscriber must bear the
economic risk of the investment in the Securities for an indefinite period of
time; further, if Subscriber desires to sell or transfer all or any part of the
Securities, Company may require Subscriber's counsel to provide a legal opinion
that the transfer may be made without registration under the Securities Act and
applicable state securities laws or laws of another jurisdiction; further, other
restrictions discussed elsewhere herein may be applicable; further, Subscriber
is subject to the restrictions on transfer described herein; further if
Subscriber is not a resident solely of the United States, Subscriber agrees that
the Securities may only be resold in accordance with the provisions of
Regulation S (Rules 901 through 905 and Preliminary Notes), pursuant to
registration under the Securities Act, or pursuant to an available exemption
from registration, and agrees not to engage in hedging transactions with regard
to such Securities unless in compliance with the Securities Act;
(j) A restrictive legend may be placed upon any materials representing
the Securities purchased hereunder and such legend will bear the following or
similar words:
THE SECURITIES REPRESENTED BY THIS DOCUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE
HOLDER EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED
UNDER THE SECURITIES ACT, AND IN COMPLIANCE WITH APPLICABLE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION WITH RESPECT THERETO, OR IN
ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER
SAID SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS OR SECURITIES
LAWS OF OTHER JURISDICTIONS.
ADDITIONALLY, ANY TRANSFER OF THE SECURITIES IS PROHIBITED EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S (RULES 901 THROUGH 905
AND PRELIMINARY NOTES), PURSUANT TO REGISTRATION UNDER THE SECURITIES
ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION; AND
HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED
UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.
3
9. Representations and Warranties of Subscriber. In connection with the
purchase of the Securities, Subscriber acknowledges, understands and agrees that
Company will be relying on the information and on the representations set forth
herein, and Subscriber hereby represents and warrants to Company that:
(a) Subscriber has sufficient knowledge and experience of financial
and business matters so that Subscriber is able to evaluate the merits and risks
of purchasing the Securities and has had substantial experience in previous
private and public purchases of securities;
(b) Subscriber is an "accredited investor" as that term is defined in
Rule 501(a) of Regulation D promulgated under the Securities Act and Subscriber
has no reason to anticipate any material change in Subscriber's financial
condition for the foreseeable future;
(c) Subscriber's overall commitment to investments which are not
readily marketable is not disproportionate to Subscriber's net worth and
Subscriber's investment herein will not cause such overall commitment to become
excessive. Subscriber does not require the funds being used to purchase the
Securities for Subscriber's liquidity needs; has adequate means to provide for
personal needs; possesses the ability to bear the economic risk of holding the
Securities purchased hereunder indefinitely; and can afford a complete loss on
the purchase of the Securities;
(d) During the transaction and prior to purchase, Subscriber has read
the Subscription Documents and has had full opportunity to ask questions of and
receive answers from Company, its directors and officers and its authorized
representatives relating to Company, the offering of the Securities and anything
else set forth in the Subscription Documents, and has had access to whatever
additional information or documents concerning Company, Company's financial
condition, business, prospects, management and other similar matters (to the
extent that Company possessed such information or could acquire it without
unreasonable effort or expense) that Subscriber desired or deemed necessary to
verify the accuracy of any information furnished to Subscriber or to which
Subscriber had access; Subscriber believes that it/he/she has received all
information Subscriber considers necessary or appropriate for deciding whether
to purchase the Securities;
(e) Subscriber has not been given any oral representation or warranty
concerning the Offering, Company or any offering literature other than the
Subscription Documents, including appendices thereto, the documents which are
exhibits thereto and such other materials as Company has provided. Subscriber
has relied only on: (i) the information contained in the Subscription Documents
and such exhibits and the information furnished or made available by Company as
described in subparagraph (d) above; and (ii) the results of independent
investigations made by Subscriber or on Subscriber's behalf;
(f) Subscriber is acquiring the Securities for investment purposes
only, for Subscriber's own account and not with a view to distribution or
resale, nor with any present intent to sell, transfer or otherwise dispose of
all or any part of the Securities;
(g) Subscriber has not received any general solicitation or general
advertising regarding the purchase of the Securities;
(h) Subscriber has full power and authority to enter into the
Subscription Documents and, upon execution thereof by Subscriber (or on its
behalf, if Subscriber is an entity), such documents will constitute valid and
legally binding obligations of Subscriber;
(i) If Subscriber is an entity, it has not been organized for the
specific purpose of acquiring the Securities or, if it has been organized for
the specific purpose of acquiring the Securities, each of its beneficial owners
4
is separately an accredited investor as defined in Rule 501(a) of Regulation D
promulgated under the Securities Act, further, the person executing the
Subscription Documents on its behalf, if Subscriber is a partnership, limited
liability company, trust, corporation or other entity, has the full power and
authority to execute and comply with the terms of the Subscription Documents on
its behalf and to make the representations and warranties made herein on its
behalf; and the investment in the Securities has been affirmatively authorized,
if required, by Subscriber's governing board and is not prohibited by
Subscriber's governing documents;
(j) Subscriber is not subject to "back-up withholding" pursuant to
Section 3406 of the Internal Revenue Code of 1986, as amended, and Subscriber
has provided Subscriber's correct tax identification number below and as
required elsewhere for Subscriber's subscription;
(k) Subscriber agrees that Company does not assume any responsibility
for the tax consequences to Subscriber resulting from Subscriber's investment in
the Securities, and Subscriber further acknowledges that Subscriber has been
advised to consult with Subscriber's own attorney regarding legal matters
related to investing in the Securities and to consult with a tax advisor
regarding the tax consequences of investing in the Securities;
(l) If Subscriber is an individual, Subscriber is a bona-fide resident
of the state or country set forth in Subscriber's address on the signature page
below, or if Subscriber is an entity, its principal place of business and
principal offices are located in the state set forth in its address on the
signature page below;
(m) Any information which Subscriber has heretofore or concurrently
herewith furnished to Company with respect to Subscriber's financial position,
business experience, and residence is correct and complete as of the date of
this Note Purchase Agreement and if there should be any material change in such
information prior to the acceptance by Company of this Note Purchase Agreement,
Subscriber will immediately furnish such revised or corrected information to
Company; and
(n) Subscriber has been advised by Company that the business
activities of Company and an investment in the Securities are subject to
substantial risks, including, but not limited to, the risks of investment set
forth in Company's most recent Form 10-K filed with the Securities and Exchange
Commission (the "SEC").
10. Representations and Warranties of Company. Company hereby represents
and warrants to Subscriber that:
(a) Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada and has the requisite power
and authority to own its properties and operate its business as presently
conducted;
(b) The Note, upon issuance, is or will be, free and clear of any
security interests, liens, claims or other encumbrances, subject to restrictions
upon transfer under the Securities Act and any applicable state securities laws,
or laws of other jurisdictions;
(c) Company is not in violation of, default under, or conflict with,
any applicable order, consent, approval, authorization, registration,
declaration, filing, judgment, injunction, award, decree or writ of any
governmental body or court of competent jurisdiction or any applicable law,
except for any such violations that would not, individually or in the aggregate,
have a material adverse effect on Company taken as a whole; and
5
(d) There are no suits or proceedings pending or threatened against or
affecting Company which, if adversely determined, would have a material adverse
effect on the financial condition, results of operations, or business of
Company.
11. Indemnification. Company and its directors, officers, agents, employees
and affiliates are relying upon the representations, warranties and agreements
made by Subscriber to and with Company herein and, thus, Subscriber hereby
agrees to indemnify Company and its directors, officers, agents, employees, and
affiliates and their respective agents, employees and affiliates, and agrees to
hold each of them harmless from and against any and all loss, damage, liability,
or expense, including reasonable attorneys' fees, that it or any of them may
suffer, sustain, or incur by reason of, or in connection with, any
misrepresentation or breach of warranty or agreement made by Subscriber under
this Note Purchase Agreement, including, but not limited to, in connection with
the sale or distribution of the Securities in violation of the Securities Act or
any other applicable law.
12. Miscellaneous.
(a) Notices. All notices and other communications required or
permitted hereunder will be in writing and: (i) delivered personally by hand or
a nationally-recognized overnight courier; (ii) mailed by registered or
certified mail (postage prepaid), return receipt requested; (iii) sent via
facsimile; or (iv) sent via email delivery of a ".pdf" format data file to the
appropriate party. If the notice or communication is to Subscriber, it will be
delivered to such address as indicated on Subscriber's signature pages hereto or
to such other address as Subscriber will have furnished to Company in writing.
If the notice or communication is to Company, it will be delivered to: Baron
Energy, Inc., a Nevada corporation located at 392 W. Mill St., New Braunfels,
Texas 78130, Fax: (830) 608-0300, Attn: Lisa P. Hamilton, Email:
lhamilton@baronenergy.com, or to such other address as Company will have
furnished to Subscriber in writing. All such notices and other written
communication will be effective: (x) if delivered personally or mailed, upon
delivery; and (y) if sent via facsimile or via email delivery of ".pdf" format
data file, upon confirmation of receipt.
(b) Assignability; Successors and Assigns. Subscriber may not
transfer, assign, cancel, terminate or revoke this Note Purchase Agreement or
any agreement of Subscriber made hereunder, except as specifically provided
herein or therein. This Note Purchase Agreement will be binding upon, and will
inure to the benefit of, the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns. If
Subscriber is more than one person, the obligations of Subscriber will be joint
and several and the representations, warranties and agreements herein contained
will be deemed to be made by, and will be binding upon, each such person and
Subscriber's respective heirs, executors, administrators and successors.
(c) Entire Agreement. This Note Purchase Agreement and the other
documents referred to herein constitute the entire agreement between the parties
with respect to the subject matter hereof. Any amendments to this Note Purchase
Agreement must be made in writing and duly executed by each of the parties
hereto.
(d) Further Assurances. At any time and from time to time after the
date of this Note Purchase Agreement, each party will execute such additional
instruments and take such other and further actions as may be reasonably
requested by any other party to carry out the intent and purpose of this Note
Purchase Agreement. In addition, in the event Company or its directors or
officers request additional representations by Subscriber, or documentation of
6
the representations herein set forth, in order to better evaluate Subscriber's
suitability for investment in Company, Subscriber will promptly furnish such
additional representations or documentation or, in the alternative, if
Subscriber considers such additional request to be unreasonable, Subscriber will
request that Subscriber's subscription to acquire the Securities be withdrawn.
(e) Waiver. Any failure on the part of any party hereunder to comply
with any of its obligations, agreements or conditions hereunder may be waived in
writing by the party to whom such compliance is owed; however, waiver on one
occasion does not operate to effectuate a waiver on any other occasion.
(f) Attorneys' Fees. Should any dispute arise between the parties over
this Note Purchase Agreement, the prevailing party in any action brought to
resolve said dispute shall be entitled to recover its reasonable costs and
attorneys' fees.
(g) Survivability. The representations, warranties and agreements
contained herein will survive the sale of the Securities pursuant to this Note
Purchase Agreement.
(h) Severability. The invalidity of any provision of this Note
Purchase Agreement or any portion of a provision will not affect the validity of
any other provision of this Note Purchase Agreement or the remaining portion of
the applicable provision.
(i) Governing Law. This Note Purchase Agreement will be governed as to
validity, construction and in all other respects by the laws of the State of
Nevada without giving effect to provisions thereof regarding conflicts of laws.
(j) Counterparts. This Note Purchase Agreement may be executed in any
number of counterparts, each of which will be deemed an original, and all of
which together will constitute one and the same instrument. Signatures delivered
by facsimile transmission or by e-mail delivery of a ".pdf" format data file
will be given the same legal force and effect as original signatures.
(k) Date of Note Purchase Agreement. The date of this Note Purchase
Agreement will be the date as of which it is accepted by Company, on the day,
month and year set forth in Company's signature to this Note Purchase Agreement.
(l) Fees and Expenses. Each party shall pay the fees and expenses of
its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Note Purchase Agreement and all
documents contemplated herein.
(m) Short Sales and Confidentiality. Other than the transaction
contemplated hereunder, such Subscriber has not directly or indirectly, nor has
any person acting on behalf of or pursuant to any understanding with such
Subscriber, executed any disposition, including Short Sales (as defined below),
in the securities of the Company during the period commencing from the time that
such Subscriber first received a term sheet from the Company or any other person
setting forth the material terms of the transactions contemplated hereunder
until the date hereof ("Discussion Time"). Each Subscriber severally and not
jointly with the other Subscribers covenants that neither it nor any affiliates
acting on its behalf or pursuant to any understanding with it will execute any
Short Sales during the period after the Discussion Time and ending at the time
that such Subscriber no longer owns any Note issued hereunder. Each Subscriber,
severally and not jointly with the other Subscribers, covenants that until such
time as the transactions contemplated by this Note Purchase Agreement are
publicly disclosed by the Company pursuant to applicable law, such Subscriber
will maintain the confidentiality of all disclosures made to it in connection
with this transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, in the case of a Subscriber that is a
7
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Subscriber's assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Subscriber's assets, the covenant set forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities
covered by this Note Purchase Agreement. "Short Sales" shall include all "short
sales" as defined in Rule 200 of Regulation SHO under the Securities Exchange
Act of 1934, as amended (but shall not be deemed to include the location and/or
reservation of borrowable Shares).
IN WITNESS WHEREOF, this Note Purchase Agreement has been made and
delivered as of the date first written below.
BARON ENERGY, INC., a Nevada corporation
By: /s/ Ronnie L. Steinocher
-----------------------------------------
Ronnie L. Steinocher, CEO
Date: February 21, 2012
8
THE SECURITIES REPRESENTED BY THIS DOCUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT, AND IN
COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION
WITH RESPECT THERETO, OR IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER
SAID SECURITIES ACT, APPLICABLE STATE SECURITIES LAWS OR SECURITIES LAWS OF
OTHER JURISDICTIONS.
ADDITIONALLY, ANY TRANSFER OF THE SECURITIES IS PROHIBITED EXCEPT IN ACCORDANCE
WITH THE PROVISIONS OF REGULATION S (RULES 901 THROUGH 905 AND PRELIMINARY
NOTES), PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM REGISTRATION; AND HEDGING TRANSACTIONS INVOLVING THESE
SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.
CONVERTIBLE PROMISSORY NOTE
$33,333 Effective Date: February 2, 2012
FOR VALUE RECEIVED, the undersigned BARON ENERGY, INC., a Nevada
corporation ("Maker"), does hereby promise, in accordance with the Note Purchase
Agreement, dated as of February 2, 2012 (the "Note Purchase Agreement"), to pay
to the order of Randall Oser ("Payee") at the address of Payee set forth in the
Note Purchase Agreement, in immediately available funds of official currency of
the United States, the principal sum of $33,333, or so much as may be
outstanding hereunder from time to time, together with interest thereon from the
date of this Convertible Promissory Note (the "Note"), as provided herein.
This Note is one of a series of convertible promissory notes of like tenor
and ranking (collectively, the "Notes") made by Maker in favor of certain
investors (collectively, the "Investors"), all upon terms set forth in the Note
Purchase Agreement and this Note.
By acceptance of this Note, Payee agrees that it will promptly deliver and
surrender this Note to Maker upon full payment thereof, or upon election of
conversion or redemption.
1. PRINCIPAL BALANCE. This Note evidences a loan up to the maximum
principal sum specified above, less the aggregate amount of all principal
repayments made under this Note by Maker to Payee.
2. INTEREST RATE. Interest shall be payable on the unpaid principal balance
of this Note, as the same may exist from time to time, from the Effective Date
set forth above until paid or converted in full, in accordance with the terms
herein. If any or all of the unpaid principal balance of this Note is paid in
coin and currency, interest shall be payable at the rate of 8% per annum.
Interest on the principal balance outstanding will be calculated on the basis of
the actual number of days elapsed over an assumed year consisting of 360 days,
to the date of receipt by Payee at the place of payment designated herein of any
interest and/or principal.
9
3. PAYMENT TERMS. Any outstanding principal balance and accrued unpaid
interest shall be paid to Payee, on a pari passu basis with all other Investors,
by Maker in full no later than twelve months from the Effective Date set forth
above (the "Maturity Date").
4. CONVERSION RIGHTS.
(a) At any time after one hundred eighty days from the Effective Date,
in Payee's sole discretion, Payee shall have the right to convert the
outstanding principal amount of this Note and unpaid interest thereon (the
"Convertible Amount") in whole or in part into shares of Maker's common stock,
par value of $0.001 per share ("Shares") in lieu of having Maker repay this Note
pursuant to Section 3 above ("Conversion"). The Convertible Amount as of the
date Maker receives Payee's Notice of Conversion, Redemption or Repayment
("Payee's Notice") is convertible into that number of Shares equal to the
Convertible Amount divided by the Conversion Price (as defined in Section 13
below). No fractional Shares will be issued in connection with any conversion of
the Conversion Amount, but instead will be rounded up to the nearest whole
Share.
(b) In the event Maker consummates a Qualified Financing (as defined
below) prior to the Maturity Date, Payee shall have the right to: (i) elect to
require Maker to redeem all but not less than all of the then outstanding
principal amount of this Note, plus accrued and unpaid interest ("Redemption
Amount"); or (ii) continue to hold this Note until the Maturity Date or
Conversion. For purposes herein, a "Qualified Financing" shall mean an equity
financing for the purpose of raising capital, pursuant to which Maker sells
Shares for an aggregate gross sales price of not less than ONE MILLION DOLLARS
($1,000,000).
(c) Maker shall notify Payee if and when Maker consummates a Qualified
Financing ("Maker's Notice"). Within five days of receipt of Maker's Notice,
Payee must provide written notice to Maker of Payee's election to have Maker
redeem this Note in accordance with this Section 4 or to have Maker repay this
Note pursuant to Section 3 above. In the event Payee fails to respond with
Payee's election within such time frame, Payee shall forfeit its redemption
rights under this Section 4, and Maker shall repay Payee pursuant to Section 3,
unless Payee elects to convert the Note in accordance with this Section 4 prior
to the Maturity Date. Maker shall deliver to Payee the Redemption Amount within
fifteen days of receipt of Payee's election pursuant to this Section 4.
(d) Upon conversion or redemption of this Note in accordance with this
Section 4, the outstanding principal balance on this Note and all accrued
interest due thereon as of the date of conversion or redemption will be deemed
paid in full, and the Note will be deemed cancelled and of no force or effect.
5. PREPAYMENT. Notwithstanding anything contained herein to the contrary,
this Note is subject to prepayment in whole at any time at the sole and absolute
option of Maker, upon five days prior written notice to Payee. In the event of
prepayment, Maker shall pay to Payee 110% of the outstanding principal balance
of the Note, plus any accrued interest due on such outstanding principal balance
as of the date of such prepayment. Any prepayment by Maker must be made in
connection with the prepayment of all Notes issued by Maker.
6. LIQUIDITY EVENT. If a Liquidity Event (as defined herein) occurs prior
to the Maturity Date, the Maker will pay to Payee 110% of the outstanding
principal balance of the Note, plus any accrued interest due on such outstanding
principal balance as of the date of the closing of such Liquidity Event. For
purposes herein, a "Liquidity Event" shall mean any of the following: (a) a
merger of the Maker with or into any other Person (as defined herein), if, and
only if, after such merger holders of a majority of the Maker's voting
securities immediately prior to the merger do not hold a majority of the voting
10
securities of the successor entity; or (b) a sale or conveyance of all or
substantially all of Maker's assets or common stock to any other Person. For
purposes herein, "Person" is defined as an individual, partnership, corporation,
business trust, limited liability company, limited liability partnership, joint
stock company, trust, unincorporated association, joint venture, or governmental
body.
7. EVENTS OF DEFAULT. Any of the following shall constitute an "Event of
Default" under this Note, and shall give rise to the remedies provided in
Section 8 herein.
(a) Maker defaults in the compliance with any term contained in this
Note and such default is not remedied or waived within 30 days after receipt by
Maker of notice from Payee of such default.
(b) The occurrence of any of the following: (i) a court enters a
decree or order for relief with respect to Maker in an involuntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, which decree or order is not stayed or other similar relief is not
granted under any applicable federal or state law; (ii) the continuance of any
of the following events for 60 days unless dismissed, bonded or discharged: (A)
an involuntary case is commenced against Maker under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect; (B) a decree or
order of a court for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over Maker or over all
or a substantial part of its property, is entered; or (C) an interim receiver,
trustee or other custodian is appointed without the consent of Maker for all or
a substantial part of the property of Maker; (iii) Maker consents to the entry
of an order for relief in an involuntary case or to the conversion of an
involuntary case to a voluntary case under any such law or consents to the
appointment of or taking possession by a receiver, trustee or other custodian
for all or a substantial part of its property; (iv) Maker makes any assignment
for the benefit of creditors; or (v) the board of directors of Maker adopts any
resolution or otherwise authorizes action to approve any of the actions referred
to in this Section 7(b).
8. REMEDIES ON EVENT OF DEFAULT. If any Event of Default will occur, Payee
shall, in addition to any and all other available rights and remedies, have the
right, at Payee's option, to declare the entire unpaid outstanding principal
balance of this Note, together with all interest accrued thereon at the rate of
18% per annum to the date of said Event of Default, and all other sums due by
Maker hereunder, to be immediately due and payable, and either: (a) convert the
Convertible Amount into that number of Shares equal to the Convertible Amount
divided by the Default Conversion Price (as defined in Section 13 below); or (b)
pursue any and all available remedies for the collection of such principal and
interest to enforce its rights as described herein; and in such case Payee may
also recover all costs of suit and other expenses in connection therewith,
including reasonable attorneys' fees for collection and the right to equitable
relief to enforce Payee's rights as set forth herein. The remedies provided in
this Note may be exercised by Payee without notice to Maker (to the extent
permitted by law and except as notice is herein expressly required) and will be
in addition to and not in substitution for the rights and remedies which would
otherwise be vested in Payee for the recovery of damages or otherwise in the
event of a breach of any of the undertakings of Maker hereunder. No failure by
Payee to exercise and no delay in exercising any right, power or privilege under
this Note will operate as a waiver thereof, nor will any single or partial
exercise of any right, power or privilege hereunder preclude any other, further
or additional exercise thereof.
9. GOVERNING LAW. This Note will be construed in accordance with and
governed by the local laws of the State of Nevada, without regard to its rules
regarding choice of law.
11
10. AMENDMENT. Neither any provision of this Note nor any performance
hereunder may be amended or waived orally, but only by an agreement in writing
and signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
11. BINDING EFFECT. The rights and obligations of Maker under this Note
will be binding upon its successors, assigns, heirs, administrators and
transferees.
12. NOTICES. All notices, request or other communication required or
permitted hereunder will be in writing and will be (a) delivered personally by
hand or a nationally-recognized overnight courier; (b) mailed by registered or
certified mail (postage prepaid), return receipt requested; (c) sent via
facsimile; or (d) sent via email delivery of a ".pdf" format data file to the
appropriate party. All such notices and other written communication will be
addressed to the appropriate party at their respective addresses set forth in
the Note Purchase Agreement. Any party may, by notice so given, change its
address for future notice hereunder. All such notices and other written
communication will be effective: (i) if delivered personally or mailed, upon
delivery; and (ii) if sent via facsimile or via email delivery of ".pdf" format
data file, upon confirmation of receipt.
13. DEFINITIONS.
(a) "Conversion Price" shall mean eighty percent (80%) of the Market
Price.
(b) "Default Conversion Price" shall mean seventy-five percent (75%)
of the Market Price.
(c) "Market Price" shall mean the average of the three (3) lowest
daily closing prices of the Shares as reported by the Principal Market during
the period beginning on the Notice Date and ending on and including the date
that is five (5) Trading Days after such Notice Date.
(d) "Principal Market" shall mean the NYSE Amex, the NASDAQ Stock
Market, the NYSE, the over-the-counter electronic bulletin board, or the Pink
Sheets, whichever is the principal market on which the Shares are listed or
quoted for trading.
(e) "Notice Date" shall mean the Trading Day on which the Maker
receives a Payee Notice; provided, however, a Payee Notice shall be deemed
received by Maker on: (a) the Trading Day it is received by facsimile, email or
otherwise by Maker if such notice is received prior to 9:00 a.m. Eastern Time;
or (b) the immediately succeeding Trading Day if it is received by facsimile,
email or otherwise after 9:00 a.m. Eastern Time on a Trading Day. No Payee
Notice may be deemed delivered on a day that is not a Trading Day.
(f) "Trading Day" shall mean any day on which the Principal Market for
the Shares is open for the transaction of business, from the hours of 9:30 a.m.
until 4:00 p.m. Eastern Time.
EXECUTED as of the date first set forth above.
MAKER:
BARON ENERGY, INC., a Nevada corporation
By: /s/ Ronnie L. Steinocher
--------------------------------------
Ronnie L. Steinocher, CEO
12
NOTICE OF CONVERSION, REDEMPTION OR REPAYMENT
(To be executed and delivered by Payee upon receipt of
Maker's Notice or any time Payee elects to convert into shares of Maker)
The undersigned hereby elects (mark as applicable):
[ ] to convert $_________________, of the outstanding principal balance on
the Note and unpaid interest thereon issued by Baron Energy, Inc. ("Maker") on
____________, 201 into shares of common stock in Maker according to the
conditions set forth in such Note and in the Note Purchase Agreement (as defined
in the Note).
[ ] to redeem $_________________, the outstanding principal balance on the
Note and unpaid interest thereon issued by Maker on ____________, 201 according
to the conditions set forth in such Note and in the Note Purchase Agreement, as
of the date of Maker's Notice.
[ ] to waive its right to redeem and shall be repaid on the Maturity Date
(as defined in the Note) the outstanding principal balance on the Note and
unpaid interest thereon issued by Maker on ____________, 201 as set forth in
such Note and in the Note Purchase Agreement, unless earlier converted into
shares of common stock of Maker.
Signature:
-------------------------------------
Print Name:
------------------------------------
Address:
---------------------------------------
---------------------------------------
1
