Exhibit 10.1
SECURITIES EXCHANGE AND ADDITIONAL NOTE PURCHASE AGREEMENT
This SECURITIES EXCHANGE AND ADDITIONAL NOTE PURCHASE AGREEMENT (the
"Agreement"), dated as of August 3, 2007, by and between RIVER CAPITAL GROUP,
INC., a Delaware corporation (f/k/a Ballistic Ventures, Inc., a xxXXxxx.xxx,
Inc., Greystone Credit Inc. and Permastoprust International, Inc.), with
principal offices located at 0 Xxxx Xxxxxx, Xxxxx 000, Xxxxxxxx Xxxxxxx, XX00
prior to the Exchange Closing (as defined below) and to be located at 000 Xxxx
Xxxxxxxx Xxxxxxxxx, Xxx Xxxxxxx, Xxxxx, 00000 as of and after the Exchange
Closing ("RCGI"), and THE LONGVIEW FUND, L.P., a California limited partnership
with its principal offices located at 000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx, Xxx
Xxxxxxxxx, XX 00000 and other offices in Connecticut and New York ("Buyer").
Capitalized terms not otherwise defined herein shall have the meanings given to
them in the Sonterra SPA (as defined below).
WHEREAS:
A. RCGI and Buyer are executing and delivering this Agreement and
the securities described herein in reliance upon the exemption from securities
registration afforded by Section 4(2) of the Securities Act of 1933, as amended
(the "1933 Act"), and Rule 506 of Regulation D ("Regulation D") as promulgated
by the United States Securities and Exchange Commission (the "SEC").
B. Sonterra Resources Inc., a Delaware corporation ("Sonterra"),
Buyer and certain officers of Sonterra are parties to an Amended and Restated
Securities Purchase Agreement, effective as of July 9, 2007 (the "Sonterra
SPA"), pursuant to which Buyer purchased (i) 333 shares (the "New Sonterra
Common Shares") of common stock, no par value, of Sonterra ("Sonterra Common
Stock"), for an aggregate amount of $9,990, which shares constitute 100% of the
issued and outstanding Capital Stock of Sonterra, and (ii) a senior secured note
in the initial principal amount of $322,500 (the "Deposit Note").
C. Sonterra is a party to a Purchase and Sale Agreement dated as
of July 9, 2007 (the "Cinco Purchase Agreement"), by and between Sonterra and
Cinco Natural Resources Corporation (successor by merger with Cinco Resources,
Inc.), a Delaware corporation ("Cinco"), pursuant to which, Cinco is selling and
assigning to Sonterra, and Sonterra is acquiring and assuming, for an aggregate
cash purchase price of approximately $5,150,000, certain assets and liabilities
of Cinco described therein (the "Cinco Purchase");
D. Prior to or contemporaneously with the execution and delivery
hereof, Sonterra and Flash Gas & Oil Southwest, Inc., a Louisiana corporation
("Flash"), have entered into a Purchase and Sale Agreement, dated as of August
3, 2007 (the "Flash Purchase Agreement"), pursuant to (and subject to the terms
and conditions of) which, on the Flash Acquisition Closing Date (as defined
below) Flash shall sell and assign to Sonterra, and Sonterra shall acquire and
assume from Flash, for an aggregate cash purchase price of up to $1,300,000,
certain assets and liabilities of Flash described therein (the "Flash
Purchase").
E. Contemporaneously with the execution and delivery hereof, the
transactions contemplated by the Sonterra SPA to occur at the Equity Closing (as
defined therein) and the transactions contemplated by the Cinco Purchase
Agreement are being consummated; without limiting the foregoing, pursuant to the
Sonterra SPA, Buyer is purchasing from Sonterra a senior secured note of
Sonterra in the initial principal amount of $5,990,010 (of which $322,500
represents refinancing of the Deposit Note, which contemporaneously is being
surrendered to Sonterra) (the "Sonterra Equity Note") and a warrant to purchase
50 shares of Sonterra Common Stock (the "Sonterra Warrant").
F. At the "Flash Acquisition Closing" (as defined in the Sonterra
SPA), the transactions contemplated by the Sonterra SPA to occur at the Flash
Acquisition Closing and the transactions contemplated by the Flash Purchase
Agreement will be consummated subject to the terms and conditions of the
Sonterra SPA; without limiting the foregoing, pursuant to the Sonterra SPA, at
the Flash Acquisition Closing Buyer will purchase an additional senior secured
note of Sonterra in the initial principal amount of $2,000,000 (the "Sonterra
Non-Equity Note").
G. At the Exchange Closing (as defined herein), subject to the
terms and conditions hereof, Buyer (i) will exchange all of its Sonterra Common
Stock and the Sonterra Equity Note for 218,465,578 shares (subject to adjustment
to reflect the Reverse Stock Split or any other stock split, stock dividend,
stock combination or similar transaction after the date hereof) of common stock
of RCGI, par value $0.001 per share (the common stock of RCGI being referred to
herein as "RCGI Common Stock"; and any shares thereof being referred to herein
as "RCGI Common Shares") (the RCGI Common Shares received by Buyer in such
exchange being referred to as the "New RCGI Common Shares"), (ii) will exchange
the Sonterra Warrant for a warrant (such warrant, together with any warrants or
other securities issued in exchange or substitution therefor or replacement
thereof, and as any of the same may be amended or modified and in effect from
time to time, the "RCGI Warrant") to purchase 49,586,777 RCGI Common Shares
(subject to adjustment to reflect the Reverse Stock Split and any other stock
split, stock dividend, stock combination or similar transaction after the date
hereof) (the "Warrant Shares"), which RCGI Warrant shall have a term of five
years and be exercisable into the Warrant Shares at a price per Warrant Share
(the "Warrant Exercise Price") equal to 110% of the quotient of $6,000,000
divided by the number of New RCGI Common Shares issued to Buyer at the Exchange
Closing (such quotient, the "Per Share Purchase Price"); and (iii) will exchange
the Sonterra Non-Equity Note (if it has been issued) for a senior secured note
of RCGI in an initial principal amount equal to the outstanding principal amount
of the Sonterra Non-Equity Note on the Exchange Closing Date (such note,
together with any promissory notes or other securities issued in exchange or
substitution therefor or replacement thereof, and as any of the same may be
amended or modified from time to time, the "Initial RCGI Note") and in the form
attached as Exhibit A.
H. The Board of Directors of RCGI has approved, and prior to the
Exchange Closing, RCGI will file, an amendment to RCGI's Certificate of
Incorporation (the "Certificate Amendment") that effects a reverse split of RCGI
Common Shares (the "Reverse Stock Split") at a ratio between the range of 1:5 to
1:20, as determined by the Board of Directors of RCGI and approved by Buyer, and
changes the name of RCGI to "Sonterra Resources, Inc." RCGI will prepare, file
with the Securities and Exchange Commission (the "SEC") and distribute to the
stockholders of RCGI, an information statement on Schedule 14C (the "Information
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Statement") with respect to (i) the Certificate Amendment; and (ii) the
appointment of new directors of the Company.
I. Subject to the terms and conditions set forth in the Exchange
Agreement, during the Additional Note Issuance Period (as defined in Section
1(b)), RCGI will have the option to sell, and if RCGI exercises such option
Buyer shall be obligated to purchase, additional senior secured notes (including
any promissory notes or other securities issued in exchange or substitution for
such senior secured notes or replacement thereof, and as any of the same may be
amended, restated, modified or supplemented and in effect from time to time, the
"Additional RCGI Notes"; and, collectively with the Initial RCGI Note, the "RCGI
Notes"), each with a maturity date of August 31, 2010 and otherwise in the form
attached as Exhibit A, in an original aggregate principal amount of up to the
result of $10,000,000 minus the original principal amount of the Initial RCGI
Note (such result, the "Aggregate Additional Note Issuance Amount"), provided
that the principal amount of the Additional RCGI Notes issued in any fiscal
quarter shall not exceed $2,000,000.
J. Contemporaneously with the execution and delivery hereof,
Sonterra and Buyer are amending the Security Agreement (as defined in the
Sonterra SPA) (the Security Agreement, as so amended and as the same may be
further amended, supplemented, restated, supplemented or modified and in effect
from time to time, being hereafter referred to as the "Security Agreement").
Contemporaneously with the Exchange Closing, Buyer, RCGI, the Included
Subsidiaries (as defined in Section 3(cc)) will execute and deliver a Joinder to
the Security Agreement, in the form attached as Exhibit B (as the same may be
amended, supplemented, restated, supplemented or modified and in effect from
time to time, the "Security Agreement Joinder") pursuant to which RCGI and the
any additional Included Subsidiaries (other than Sonterra, which shall remain a
party to the Security Agreement) will become Debtors under the Security
Agreement and will grant to Viking Asset Management, LLC, as agent for Buyer
(the "Collateral Agent"), a security interest in all of their respective assets.
K. Contemporaneously with the Exchange Closing, RCGI will enter
into employment agreements (the "Employment Agreements") with each of Xxxxxxx X.
Xxxxxxx, Xxxxx X. Xxxxxxx and Xxxxxx X. Xxxxxxxx (the "Principals") in the forms
attached as Exhibits C, D, and E, respectively.
L. Contemporaneously with the Exchange Closing, RCGI will adopt a
stock option plan, in the form attached hereto as Exhibit F (as the same may be
amended, supplemented, restated or modified and in effect from time to time, the
"2007 Option Plan"), which shall reserve for issuance the number of RCGI Common
Shares equal to, and authorize the issuance of options (the "Initial Officer
Options") to purchase 51,403,665 RCGI Common Shares (subject to adjustment to
reflect the Reverse Stock Split) (the "Option Shares"), and (ii) immediately
after the Exchange Closing, RCGI will issue the Initial Officer Options to the
Principals with respect to the Option Shares as set forth on Schedule I and
pursuant to option agreements in the form attached hereto as Exhibit G (the
"Option Agreements"), and which Initial Officer Options shall be issued in three
tranches: (I) each tranche shall consist of Initial Officer Options with respect
to one-third (1/3) of the Option Shares; (II) the Initial Officer Options in the
first tranche shall have an exercise price per Option Share equal to the "fair
value" of the RCGI Common Stock as of the Exchange Closing (the "Initial Option
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Exercise Price"), as determined by the Board of Directors of RCGI (and which
shall not be less than the Warrant Exercise Price, the Initial Officer Options
in the second tranche shall have an exercise price per Option Share equal to
130% of the Initial Option Exercise Price, and the Initial Officer Options in
the third tranche shall have an exercise price per Option Share equal to 150% of
the Initial Option Exercise Price; and (III) the Initial Officer Options in each
tranche shall vest and become exercisable as to one-third (1/3) of the Option
Shares underlying such Initial Officer Options on each of the first three (3)
anniversaries of the Equity Closing Date.
M. Contemporaneously with the Exchange Closing, RCGI and Buyer
will execute and deliver a Registration Rights Agreement, in the form attached
as Exhibit H (as the same may be amended, supplemented, restated or modified and
in effect from time to time, the "Registration Rights Agreement"), pursuant to
which RCGI will agree to provide certain registration rights under the 1933 Act
and all other securities laws, with respect to the New RCGI Common Shares, the
Warrant Shares and other RCGI Common Shares owned by Buyer.
N. Contemporaneously with the Exchange Closing, the Collateral
Agent, RCGI and each of the Included Subsidiaries (as defined in Section 3(cc))
will execute and deliver one or more Deposit Account Control Agreements, in the
form attached as Exhibit I (as the same may be amended, supplemented, restated
or modified and in effect from time to time, the "Account Control Agreements"),
pursuant to which RCGI and each of the Included Subsidiaries that maintain bank,
brokerage or other similar accounts will agree to enable Buyer to perfect its
security interest in all of RCGI's and the Included Subsidiaries' right, title
and interest in certain accounts and in all collateral from time to time
credited to such accounts.
O. Contemporaneously with the Exchange Closing, Sonterra and any
additional Included Subsidiaries will execute and deliver a Guaranty, in the
form attached as Exhibit J (as the same may be amended, supplemented, restated
or modified and in effect from time to time, together, the "Guaranty"), pursuant
to which the Included Subsidiaries will agree to guaranty certain obligations of
RCGI (the guarantees under the Guaranty, including any such guarantee added
after the Exchange Closing Date, being referred to herein as the "Guarantees").
P. Contemporaneously with the Exchange Closing, RCGI and Buyer
will execute and deliver a Pledge Agreement, in the form attached as Exhibit K
(as the same may be amended, supplemented, restated or modified and in effect
from time to time, together, the "Pledge Agreement"), pursuant to which RCGI
will agree to pledge all of the Capital Stock (as defined in Section 4(u)(ii))
and other equity in the Included Subsidiaries to the Collateral Agent as
collateral for the RCGI Notes.
NOW THEREFORE, RCGI and Buyer hereby agree as follows:
1. EXCHANGE OF COMMON SHARES, RCGI NOTES AND WARRANTS.
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a. Securities Exchange.
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(i) Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6(a) and 7(a) below, on the Exchange Closing
Date, (A) RCGI shall issue to Buyer, and Buyer agrees to acquire from RCGI, the
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New RCGI Common Shares in exchange for Buyer's assignment to RCGI of the
Sonterra Equity Note and the New Sonterra Common Shares (i.e., so that after
such transactions, RCGI holds all of the New Sonterra Common Shares and the
Sonterra Equity Note and Buyer holds the New RCGI Common Shares), (B) RCGI shall
issue to Buyer, and Buyer agrees to acquire from RCGI, the RCGI Warrant in
exchange for Buyer's assignment to RCGI of the Sonterra Warrant (i.e., so that
after such transactions, RCGI holds the Sonterra Warrant and Buyer holds the
RCGI Warrant), (C) if the Sonterra Non-Equity Note has been issued by Sonterra
to Buyer, RCGI shall issue to Buyer, and Buyer agrees to acquire from RCGI, the
Initial RCGI Note in exchange for Buyer's assignment to RCGI of the Sonterra
Non-Equity Note (i.e., so that after such exchange RCGI holds the Sonterra
Non-Equity Note and Buyer holds the Initial RCGI Note), and (D) RCGI shall pay
to Buyer an amount (the "Exchange Settlement Amount") equal to the sum of (I)
all fees and other amounts to be paid to Buyer as set forth in Section 4(i),
plus (II) all interest under the Sonterra Equity Note and under the Sonterra
Non-Equity Note that was accrued and unpaid immediately prior to the Exchange
Closing. The completion of the exchanges provided for in this Section 1(a) shall
effect the cancellation of the Sonterra Equity Note, the Sonterra Warrants and
the Sonterra Non-Equity Note, if any, and RCGI shall stamp "CANCELLED" on each
of the foregoing and return each to Sonterra.
(ii) Unless expressly stated otherwise in this Agreement,
all, rights, interests, benefits, liabilities and obligations of, or associated
with, any securities exchanged in connection with the Exchange Closing shall be
transferred therewith and assumed and accepted by the recipient thereof.
b. Purchase and Sale of Additional RCGI Notes. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 1(d), 6(b) and
7(b) below, during the period commencing on the Exchange Closing Date and ending
on December 31, 2008 (the "Additional Note Issuance Period"), RCGI may elect to
sell Additional RCGI Notes to Buyer. At any time within the ten (10) consecutive
Business Days immediately following RCGI's timely (without giving effect to any
extensions of time permitted by Rule 12b-25 under the Securities and Exchange
Act of 1934 (the "1934 Act")) filing of a quarterly report on Form 10-QSB or
10-Q or annual report on Form 10-KSB or 10-K, as the case may be (a "Periodic
Report"), during the Additional Note Issuance Period, RCGI may, in its sole
discretion, deliver (by facsimile) a written notice to Buyer electing to sell
Additional RCGI Notes to Buyer (an "Additional Sale Election Notice"). RCGI may
not deliver more than one Additional Sale Election Notice during each such
ten-day period. The Additional Sale Election Notice shall set forth the
aggregate principal amount of Additional RCGI Notes to be sold to Buyer (the
"Additional Note Issuance Amount") on an Additional Closing Date (as defined in
Section 1(d)); provided, however, that (A) the Additional Note Issuance Amount
shall not be more than $2,000,000 and shall not be less than $250,000, (B) the
Additional Note Issuance Amount shall not exceed the maximum amount, if any,
that, if such Additional Note Issuance Amount had been added to the outstanding
principal amount of all of the RCGI Notes outstanding as of the last day of the
period covered by the most recently filed Periodic Report would not have
resulted in the PRV Ratio (as defined in the RCGI Notes) being less than the
Required PRV Ratio (as defined in the RCGI Notes) as of such last day of such
period, and (C) the sum of the Additional Note Issuance Amount and the aggregate
principal amount of all other Additional RCGI Notes issued and sold by RCGI to
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Buyer shall not exceed the Aggregate Additional Note Issuance Amount (the
limitations on the Additional Note Issuance Amount set forth in the immediately
preceding clauses (A) and (B) being together referred to as the "Additional Note
Issuance Amount Limitations"), and if the Additional Note Issuance Amount cannot
be at least $250,000 as a result of the Additional Note Issuance Amount
Limitations, RCGI may not deliver an Additional Sale Election Notice and may not
issue or sell any Additional RCGI Notes on such Additional Closing Date. The
Additional Sale Election Notice shall also set forth (i) Buyer's principal
amount of Additional RCGI Notes to be purchased (subject to the limitations
provided in the next sentence), and (ii) the Additional Closing Date for the
purchase and sale of Additional RCGI Notes pursuant to such Additional Sale
Election Notice (determined as provided in Section 1(d) below). In the event
that RCGI delivers an Additional Sale Election Notice in accordance with the
foregoing, subject to the conditions set forth in this Section 1(b) and Sections
1(d), 6(b) and 7(b) below, then with respect to each Additional Sale Election
Notice RCGI shall issue and sell to Buyer, and Buyer agrees to purchase from
RCGI, on the applicable Additional Closing Date (an "Additional Closing", and,
together with the Exchange Closing, each a "Closing"), Additional RCGI Notes in
a principal amount equal to the Additional Note Issuance Amount. The aggregate
purchase price (the "Additional Purchase Price") of the Additional RCGI Notes at
the applicable Additional Closing shall be equal to $1.00 for each $1.00 of
principal amount of the Additional RCGI Notes purchased. As used in this
Agreement, "Business Day" means any day other than Saturday, Sunday or other day
on which commercial banks in the New York City are authorized or required by law
to remain closed.
c. The Exchange Closing Date. The date and time of the Exchange
Closing (the "Exchange Closing Date") shall be 10:00 a.m., New York City time,
on the second (2nd) Business Day following the satisfaction (or waiver) of all
of the conditions to the Exchange Closing set forth in Sections 6(a) and 7(a)
(or such later or earlier date and time as is mutually agreed to by RCGI and
Buyer). The Exchange Closing shall occur on the Exchange Closing Date at 4:00
p.m. local time at the offices of Xxxxxx Xxxxxx Rosenman LLP, 000 Xxxx Xxxxxx
Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000, or at such place as RCGI and Buyer
may jointly designate in writing.
d. Additional Closing Dates. The date and time of any Additional
Closing (an "Additional Closing Date" and, together with the Exchange Closing
Date, each a "Closing Date") shall be 10:00 a.m., New York City time, on the
tenth (10th) Business Day following receipt by Buyer of an Additional Sale
Election Notice, subject to the satisfaction (or waiver) of the conditions to
the Additional Closing set forth in Sections 1(b), 6(b) and 7(b) and the
conditions set forth in this Section 1(d) or the waiver thereof in writing by
Buyer (or such earlier or later date and time as is mutually agreed to by RCGI
and Buyer). Notwithstanding the foregoing, RCGI shall not be entitled to deliver
an Additional Sale Election Notice unless each of the following conditions is
satisfied (or waived in writing by Buyer) as of and through the date on which
RCGI delivers to Buyer the applicable Additional Sale Election Notice (the
"Additional Sale Election Notice Date"), and Buyer shall not be required to
purchase the Additional RCGI Notes unless each of the following conditions and
the conditions set forth in Sections 1(d) and 7(b) are satisfied (or waived in
writing by Buyer) as of and through the applicable Additional Closing Date (the
"Additional Sale Election Notice Conditions"): (i) during the period beginning
on the date of this Agreement and ending on and including the applicable
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Additional Closing Date, there shall not have occurred either (x) the public
announcement of a pending, proposed or intended Change of Control (as defined in
the RCGI Notes) which has not been abandoned or terminated and publicly
announced as such or (y) an Event of Default (each as defined in the RCGI
Notes); (ii) during the ninety (90) day period ending on and including such
Additional Closing Date, there shall not have occurred an event that with the
passage of time or the giving of notice (or both) and without being cured would
constitute an Event of Default; (iii) at all times during the period beginning
on the date of this Agreement and ending on such Additional Closing Date, the
RCGI Common Shares are listed or quoted on the Principal Market (as defined in
Section 3(t)), and the RCGI Common Shares shall not have been suspended from
trading nor shall delisting or suspension by the Principal Market have been
threatened either (A) in writing by such exchange or market or (B) by falling
below the minimum listing maintenance requirements, if any, of the Principal
Market; (iv) at all times during the period beginning on the Exchange Closing
Date and ending on and including such Additional Closing Date, RCGI shall have
delivered Warrant Shares upon exercise of the RCGI Warrant on a timely basis as
set forth in Section 2 of the RCGI Warrant; (v) as of the Additional Sale
Election Notice Date and as of such Additional Closing Date, RCGI Notes remain
outstanding; and (vi) no Financial Covenant Test Failure (as defined in any RCGI
Notes) shall have occurred as of the last day of the period covered by the most
recently filed Periodic Report. Any Additional Closing shall occur on the
applicable Additional Closing Date at the offices of Xxxxxx Xxxxxx Xxxxxxxx LLP,
000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000-0000, or at such
other place as RCGI and Buyer may jointly designate in writing. The delivery of
an Additional Sale Election Notice and the issuance of any Additional RCGI Notes
shall constitute a certification by RCGI that all the representations and
warranties of RCGI are true and correct as of the date of such notice or
issuance (except for representations and warranties that speak as of a specific
date, which shall be true and correct as of such date) and that RCGI and the
Subsidiaries have performed, satisfied and complied with the covenants,
agreements and conditions required by this Agreement and the other Transaction
Documents to be performed, satisfied or complied with by RCGI or the
Subsidiaries at or prior to such date.
e. Exchange Closing Date Form of Payment. On the Exchange Closing
Date (i) RCGI shall pay to Buyer the Exchange Settlement Amount by wire transfer
of immediately available funds in accordance with Buyer's written wire
instructions, (ii) RCGI shall deliver to Buyer (A) certificates representing the
New RCGI Common Shares that Buyer is acquiring on the Exchange Closing Date, (B)
the Initial RCGI Note that Buyer is acquiring hereunder on the Exchange Closing
Date, (C) and the RCGI Warrant that Buyer is acquiring hereunder on the Exchange
Closing Date, in each case duly executed on behalf of RCGI and registered in the
name of Buyer or its designee, and (iii) Buyer shall deliver to RCGI (W) the
certificates representing the New Sonterra Common Shares, duly endorsed for
transfer to RCGI, (X) the Sonterra Equity Note duly endorsed for transfer to
RCGI and cancellation thereof, (Y) the Sonterra Warrant duly endorsed for
transfer to RCGI and cancellation thereof, and (Z) the Sonterra Non-Equity Note
duly endorsed for transfer to RCGI and cancellation thereof. All references
herein and in each of the other Transaction Documents to "dollars" or "$" shall
mean the lawful money of the United States of America.
f. Additional Closing Date Form of Payment. On each Additional
Closing Date, if any, (i) Buyer shall pay the applicable Additional Purchase
Price for the Additional RCGI Notes to be issued and sold to Buyer on such
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Additional Closing Date, by wire transfer of immediately available funds in
accordance with RCGI's written wire instructions (less any amount deducted and
paid in accordance with Section 4(i) and any amount to be paid to Buyer as
provided in Section 7(c)(xiii)), and (ii) RCGI shall deliver to Buyer the
Additional RCGI Notes, if any, that Buyer is purchasing hereunder on the
Additional Closing Date, in each case duly executed on behalf of RCGI and
registered in the name of Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
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Buyer represents and warrants, as of the date of this Agreement, the
Exchange Closing Date and each Additional Closing Date, that:
a. Investment Purpose. Buyer (i) is acquiring the New RCGI Common
Shares, the RCGI Notes (along with the related Guarantees) and the RCGI Warrant,
and (ii) upon any exercise of the RCGI Warrant will acquire the Warrant Shares
issuable upon such exercise thereof (the New RCGI Common Shares, the RCGI Notes,
the Guarantees, the RCGI Warrant and the Warrant Shares being collectively
referred to herein as the "Securities"), for Buyer's own account and not with a
view towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered under, or exempted from the
registration requirements of, the 1933 Act; provided, however, that by making
the representations herein, Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to an effective
registration statement or an exemption from registration under the 1933 Act.
b. Accredited Investor Status. Buyer is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of the securities laws and that RCGI is relying in
part upon the truth and accuracy of, and Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
Buyer set forth herein in order to determine the availability of such exemptions
and the eligibility of Buyer to acquire the Securities. For purposes hereof,
"securities laws" means the securities laws, legislation and regulations of, and
the instruments, policies, rules, orders, codes, notices and interpretation
notes of, the securities regulatory authorities (including the SEC) of the
United States and any applicable states and other jurisdictions.
d. Information. Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of RCGI and the Subsidiaries and materials relating to the offer and sale of the
Securities that have been requested by Buyer. Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of RCGI. Neither such
inquiries nor any other due diligence investigations conducted by Buyer or its
advisors, if any, or its representatives shall modify, amend or affect Buyer's
right to rely on RCGI's representations and warranties contained in Sections 3
below or contained in any of the other Transaction Documents. Buyer understands
that its investment in the Securities involves a high degree of risk. Buyer has
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sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.
e. No Governmental Review. Buyer understands that no Governmental
Entity has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of an investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities. As used in this Agreement, "Governmental Entity" means the
government of the United States or any other nation, or any political
subdivision thereof, whether state, provincial or local, or any agency
(including any self-regulatory agency or organization), authority,
instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administration powers or
functions of or pertaining to government over RCGI or any of the Subsidiaries,
or any of their respective properties, assets or undertakings.
f. Transfer or Resale. Buyer understands that, except as provided
in the Registration Rights Agreement, (i) the Securities have not been and are
not being registered under the 1933 Act or any other securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) Buyer shall have delivered to RCGI an opinion of
counsel, in a generally acceptable form, to the effect that such Securities to
be sold, assigned or transferred may be sold, assigned or transferred pursuant
to an exemption from such registration, or (C) Buyer provides RCGI with
reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 promulgated under the 1933 Act, as amended (or a successor
rule thereto) ("Rule 144"); (ii) any sale of the Securities made in reliance on
Rule 144 may be made only in accordance with the terms of Rule 144, and further,
if Rule 144 is not applicable, any resale of the Securities under circumstances
in which the seller (or the Person through whom the sale is made) may be deemed
to be an underwriter (as that term is defined in the 0000 Xxx) may require
compliance with some other exemption under the 1933 Act or any other securities
laws; (iii) that by virtue of Buyer's ownership of RCGI Common Shares, Buyer is
currently and, after the Exchange Closing will continue to be, an "affiliate" of
RCGI as defined in Rule 144 and that, so long as Buyer has such status, the
unlimited resale provisions of Rule 144(k) (as in effect on the date of this
Agreement) will not be available to Buyer; and (iv) except as set forth in the
Registration Rights Agreement, neither RCGI nor any other Person is under any
obligation to register the Securities under the 1933 Act or any other securities
laws. Notwithstanding the foregoing, the Securities may be pledged in connection
with a bona fide margin account or other loan or financing arrangement secured
by the Securities. As used in this Agreement, "Person" means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization or a government or any department or
agency thereof or any other legal entity.
g. Legends. Buyer understands that the certificates or other
instruments representing the RCGI Notes, the RCGI Warrant and, until such time
as the sale of the New RCGI Common Shares and the Warrant Shares has been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the certificates representing the New RCGI Common Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
the following form (the "1933 Act Legend") (and a stop-transfer order may be
placed against transfer of such certificates):
9
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF
COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Upon the written request to RCGI of a holder of a certificate or other
instrument representing New RCGI Common Shares, RCGI Notes, RCGI Warrant or
Warrant Shares, the 1933 Act Legend shall be removed and RCGI shall issue a
certificate without the 1933 Act Legend to the holder of the Securities upon
which it is stamped, if (i) such Securities are registered for resale under the
1933 Act, (ii) in connection with a sale transaction, such holder provides RCGI
with an opinion of counsel, in a generally acceptable form, to the effect that a
public sale, assignment or transfer of the Securities may be made without
registration under the 1933 Act, (iii) such holder provides RCGI with reasonable
assurances that the Securities can be sold pursuant to Rule 144(k) promulgated
under the 1933 Act (or a successor rule thereto), or (iv) such holder provides
RCGI reasonable assurances that the Securities have been or are being sold
pursuant to Rule 144.
h. Authorization; Enforcement; Validity. Buyer is a validly
existing partnership and has the requisite partnership power and authority to
purchase the Securities pursuant to this Agreement. This Agreement has been duly
and validly authorized, executed and delivered on behalf of Buyer and is a valid
and binding agreement of Buyer enforceable against Buyer in accordance with its
terms. The Security Agreement, the Registration Rights Agreement and each of the
other agreements and other documents entered into and executed by Buyer in
connection with the transactions contemplated hereby and thereby as of each
Closing will have been duly and validly authorized, executed and delivered on
behalf of Buyer as of such Closing Date, as applicable, and will constitute
valid and binding agreements of Buyer, enforceable against Buyer in accordance
with their respective terms.
i. Residency and Offices. Buyer is a limited partnership
organized under the laws of the State of California, having its principal office
located in California and other offices in New York.
3. REPRESENTATIONS AND WARRANTIES OF RCGI.
--------------------------------------
RCGI represents and warrants to Buyer, that:
a. Organization and Qualification.
------------------------------
10
(i) RCGI was incorporated on July 1, 1999. Set forth on
Schedule 3(a) is a true and correct list of the Subsidiaries and the
jurisdiction in which each is organized or incorporated, together with the
percentage of the outstanding Capital Stock or other equity interests of each
such entity that is held by RCGI or any of the Subsidiaries. Other than with
respect to the entities listed on Schedule 3(a), RCGI does not directly or
indirectly own any security or beneficial ownership interest, in any other
Person (including through joint venture or partnership agreements) or have any
interest in any other Person, except that, assuming that on the Exchange Closing
Date the New Sonterra Common Shares constitute all of the outstanding Capital
Stock of Sonterra, RCGI will own all of the outstanding Capital Stock of
Sonterra upon the Exchange Closing. Each of RCGI and the Subsidiaries is a
corporation, limited liability company, partnership or other entity and is duly
organized or formed and validly existing in good standing under the laws of the
jurisdiction in which it is incorporated or organized and has the requisite
corporate, partnership, limited liability company or other organizational power
and authority to own its properties and to carry on its business as now being
conducted and as proposed to be conducted by RCGI and the Subsidiaries following
the Exchange Closing. Each of RCGI and the Subsidiaries is duly qualified to do
business and is in good standing in every jurisdiction in which its ownership of
property or the nature of the business conducted makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing could not have and could not be, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Except as set forth in
Schedule 3(a), RCGI holds all right, title and interest in and to 100% of the
Capital Stock, equity or similar interests of each of the Subsidiaries, in each
case, free and clear of any Liens (as defined below), including any restriction
on the use, voting, transfer, receipt of income or other exercise of any
attributes of free and clear ownership by a current holder, and no such
Subsidiary owns Capital Stock or holds an equity or similar interest in any
other Person.
(ii) As used in this Agreement, "Material Adverse Effect"
means any material adverse effect on (i) the business, properties, assets,
operations, results of operations, condition (financial or otherwise), credit
worthiness or prospects of RCGI or any of the Subsidiaries, taken individually
or as a whole, (ii) the transactions contemplated hereby or the agreements and
instruments to be entered into in connection herewith, or (iii) the authority or
ability of RCGI or any other Person (other than Buyer) party to any of the
Transaction Documents to enter into the Transaction Documents and perform its
obligations thereunder. As used in this Agreement, "Lien" means, with respect to
any asset, any mortgage, lien, pledge, hypothecation, charge, security interest,
encumbrance or adverse claim of any kind and any restrictive covenant,
condition, restriction or exception of any kind that has the practical effect of
creating a mortgage, lien, pledge, hypothecation, charge, security interest,
encumbrance or adverse claim of any kind (including any of the foregoing created
by, arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor with respect to a Capital Lease Obligation,
or any financing lease having substantially the same economic effect as any of
the foregoing); "Subsidiary" means any entity in which RCGI, directly or
indirectly, owns Capital Stock or holds an equity or similar interest at the
time of this Agreement or at any time hereafter (provided that Sonterra shall be
deemed a Subsidiary and an Included Subsidiary effective upon and following the
Exchange Closing); "Capital Lease Obligation" means, as to any Person, any
obligation that is required to be classified and accounted for as a capital
lease on a balance sheet of such Person prepared in accordance with GAAP (as
defined in Section 3(g)), and the amount of such obligation shall be the
11
capitalized amount thereof, determined in accordance with GAAP; and "to the
Knowledge of RCGI", and similar language means (I) prior to and as of the
Exchange Closing Date, the actual knowledge any officers of RCGI and the
knowledge such Persons would be expected to have after reasonable due diligence
and inquiry, and (II) after the Exchange Closing Date, the actual knowledge of
any executive officers of RCGI and the knowledge such Persons would be expected
to have after reasonable due diligence and inquiry.
b. Authorization; Enforcement; Validity. RCGI and each of the
Included Subsidiaries has (or, with respect to the Additional RCGI Notes to be
executed and issued after the date hereof, as of each Additional Closing Date
will have) the requisite corporate power and authority to enter into and perform
its obligations under each of this Agreement, the Certificate Amendment, the
Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as
set forth in Section 9(q)), the RCGI Notes, the RCGI Warrant, the Security
Agreement, the Account Control Agreements, the Mortgages, the Guaranty, the
Pledge Agreement, the Employment Agreements, and each of the other agreements or
instruments to which it is (or will be) a party or by which it is (or will be)
bound and which is (or will be) entered into by certain of the parties hereto in
connection with the transactions contemplated hereby and thereby (collectively,
the "Transaction Documents"), and solely with respect to RCGI, to issue the
Securities, in accordance with the terms hereof and thereof. The execution and
delivery of the Transaction Documents by RCGI and the consummation by each of
RCGI and the Included Subsidiaries of the transactions contemplated hereby and
thereby, including the issuance of the New RCGI Common Shares, up to $10,000,000
in principal amount of the RCGI Notes, the RCGI Warrant, the reservation for
issuance and issuance of the Warrant Shares issuable upon exercise of the RCGI
Warrant, the adoption of the 2007 Option Plan and the reservation of shares for
issuance thereunder and, the issuance of the Initial Officer Options and of RCGI
Common Shares upon exercise of the Initial Officer Options, have been duly
authorized by the respective boards of directors, members, managers,
stockholders or other equityholders, as applicable, of RCGI (subject to the
approval by the majority stockholder of RCGI of the Certificate Amendment) and
the Included Subsidiaries and no further consent or authorization is required by
any of RCGI, the Included Subsidiaries or any of RCGI's or any Included
Subsidiary's respective directors, members, managers, stockholders (other than
the majority stockholder of RCGI) or other equityholders, as applicable. This
Agreement and the other Transaction Documents dated of even date herewith to
which RCGI or any Included Subsidiary is a party have been duly executed and
delivered by RCGI and each such Included Subsidiary, and constitute the valid
and binding obligations of RCGI and each such Included Subsidiary, enforceable
against RCGI and each such Included Subsidiary in accordance with their
respective terms, except as may be limited by bankruptcy, insolvency, fraudulent
conveyance or similar laws affecting creditors' rights generally and general
principles of equity. As of the Exchange Closing and as of each Additional
Closing (each a "Closing"; and together, the "Closings"), the Transaction
Documents dated after the date of this Agreement and on or prior to the date of
such Closing shall have been duly executed and delivered by RCGI and each
Included Subsidiary and shall constitute the valid and binding obligations of
RCGI and each Included Subsidiary party thereto, enforceable against RCGI and
each such Included Subsidiary in accordance with their respective terms, except
as may be limited by bankruptcy, insolvency, fraudulent conveyance or similar
laws affecting creditors' rights generally and general principles of equity.
12
c. Capitalization.
--------------
(i) As of the date of this Agreement and at all times
prior to the Exchange Closing, (A) the authorized Capital Stock of RCGI
consists, and shall consist, of 50,000,000 RCGI Common Shares, of which
38,552,749 RCGI Common Shares (subject to adjustment for the Reverse Stock
Split) are, and shall be, issued and outstanding, (B) no RCGI Common Shares are,
or shall be, reserved for issuance pursuant to RCGI's stock option, restricted
stock, stock purchase or other plans, or pursuant to outstanding awards under
any such plans, (C) there are, and shall be, no other securities of RCGI issued,
outstanding or reserved for issuance. All of such outstanding or issuable RCGI
Common Shares have been, or upon issuance will be, validly issued and are, or
upon issuance will be, fully paid and nonassessable and are described on
Schedule 3(c)(i).
(ii) Immediately after the Exchange Closing, (A) the
authorized Capital Stock of RCGI shall consist of 50,000,000 RCGI Common Shares,
of which 263,572,294 shares (subject to adjustment for the Reverse Stock Split)
shall be issued and outstanding, (B) no RCGI Common Shares will be issuable and
reserved for issuance pursuant to securities issued or to be issued (other than
the RCGI Warrant and the Initial Officer Options), exercisable or exchangeable
for, or convertible into, RCGI Common Shares, (B) no RCGI Common Shares will be
reserved for issuance under any plan or agreement, other than the Warrant Shares
and the Option Shares, and (C) there will be no other securities of RCGI issued
or outstanding (other than the RCGI Notes). All of such outstanding or issuable
RCGI Common Shares have been, or upon issuance will be, validly issued and are,
or upon issuance will be, fully paid and nonassessable and are described on
Schedule 3(c)(ii).
(iii) Except as set forth on Schedule 3(c)(iii), (A) no
shares of the Capital Stock of RCGI or any of the Subsidiaries are subject to
preemptive rights or any other similar rights or any Liens suffered or permitted
by RCGI or any of the Subsidiaries; (B) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exercisable
for, any shares of Capital Stock of RCGI or any of the Subsidiaries, or
contracts, commitments, plans, understandings or arrangements by which RCGI or
any of the Subsidiaries is or may become bound to issue additional shares of
Capital Stock of RCGI or any of the Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable for, any
shares of Capital Stock of RCGI or any of the Subsidiaries (any such options,
warrants, scrip, rights collectively, calls, commitments, securities, contracts,
plans, understandings or arrangements, collectively, the "Existing Options");
(C) there are no agreements or arrangements under which RCGI or any of the
Subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except the Registration Rights Agreement); (D) there are no
outstanding securities or instruments of RCGI or any of the Subsidiaries that
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which RCGI or any of the
Subsidiaries is or may become bound to redeem a security of RCGI or any of the
Subsidiaries and there are no other stockholder agreements or similar agreements
to which RCGI, any of the Subsidiaries, or, to RCGI's Knowledge, any holder of
RCGI's Capital Stock is a party; (E) there are no securities or instruments
containing anti-dilution or similar provisions that will or may be triggered by
13
the issuance of the Securities; (F) RCGI does not have any stock appreciation
rights or "phantom stock" plans or agreements or any similar plan or agreement;
and (G) to the Knowledge of RCGI, no officer or director or beneficial owner of
any of RCGI's outstanding RCGI Common Shares, has pledged RCGI Common Shares in
connection with a margin account or other loan secured by such RCGI Common
Shares, provided that no representation or warranty is given or made with
respect to any pledge by Buyer or Longview Fund International Inc., a British
Virgin Islands international business company ("Longview International"). RCGI
has furnished to Buyer true and correct copies of RCGI's Certificate of
Incorporation, as amended and as in effect on the date this representation is
made (the "Certificate of Incorporation"), and RCGI's Bylaws, as amended and as
in effect on each date this representation is made (the "Bylaws"), the
organizational documents of each of the Subsidiaries, as amended and in effect
on the date this representation is made, and all documents and instruments
containing the terms of all securities, if any, that are convertible into, or
exercisable or exchangeable for, RCGI Common Shares, and the material rights of
the holders thereof in respect thereto. All of the equity interests of each of
the Included Subsidiaries are certificated or otherwise represented in tangible
form. "Person" means an individual, a limited liability company, a partnership,
a joint venture, a corporation, a trust, an unincorporated organization or a
government or any department or agency thereof or any other legal entity.
d. Issuance of Securities. The New RCGI Common Shares and the
Warrant Shares will be duly authorized as of the Exchange Closing and, upon
issuance in accordance with the terms hereof or upon exercise of the RCGI
Warrant, as applicable, will be validly issued, fully paid and nonassessable and
free from taxes and Liens with respect to the issuance thereof, with the holders
of the New RCGI Common Shares and the Warrant Shares being entitled to all
rights accorded to a holder of RCGI Common Shares. The RCGI Notes and the RCGI
Warrant are duly authorized and, upon issuance in accordance with the terms
hereof, shall be (i) free from all taxes and Liens with respect to the issuance
thereof and (ii) entitled to the rights set forth in the RCGI Notes and the RCGI
Warrant, as applicable. At least 61,983,471 RCGI Common Shares (subject to
adjustment to reflect the Reverse Stock Split or any other stock split, stock
dividend, stock combination or similar transaction) have been duly authorized
and reserved for issuance upon exercise of the RCGI Warrant. Assuming the
accuracy of Buyer's representations and warranties in Section 2, the issuance by
RCGI of the Securities is exempt from registration under the 1933 Act and any
other applicable securities laws.
e. No Conflicts. Except as set forth on Schedule 3(e), the
execution and delivery of this Agreement and the other Transaction Documents by
RCGI and the Included Subsidiaries, the performance by RCGI and the Included
Subsidiaries of their respective obligations hereunder and thereunder and the
consummation by RCGI and Included Subsidiaries of the transactions contemplated
hereby and thereby (including the reservation for issuance and issuance of the
Warrant Shares) will not (i) result in a violation of the certificate or
articles of incorporation, certificate or articles of organization, bylaws,
operating agreement, partnership agreement or any other governing documents, as
applicable, of RCGI or any Subsidiary; (ii) conflict with, or constitute a
breach or default (or an event which, with the giving of notice or passage of
time or both, constitutes or would constitute a breach or default) under, or
give to others any right of termination, amendment, acceleration or cancellation
of, or other remedy with respect to, any agreement, indenture or instrument to
which any such Person is a party; (iii) result in a violation of any law, rule,
14
regulation, order, judgment or decree (including securities laws and the rules
and regulations, if any, of the Principal Market) applicable to any such Person
or by which any property or asset of any such Person is bound or affected.
Neither RCGI nor any Subsidiary is in violation of any term of its certificate
or articles of incorporation, certificate or articles of organization, bylaws,
operating agreement, partnership agreement or any other governing document, as
applicable. Neither RCGI nor any Subsidiary is or has been in violation of any
term of or in default under (or with the giving of notice or passage of time or
both would be in violation of or default under) any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
Law applicable to RCGI or the Subsidiaries, except where such violation or
default could not reasonably be expected to have a Material Adverse Effect or to
result in the acceleration of any Indebtedness (as defined below) or other
obligation. The business of RCGI and the Subsidiaries has not been and is not
being conducted, in violation of any Law of any Governmental Entity except as
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Except for the filings and listings expressly
contemplated by the Registration Rights Agreement or described in Section 4(b)
and Section 4(h), the filing of instruments to perfect security interests, and
except as set forth in Schedule 3(e), neither RCGI nor any Subsidiary is or has
been required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or Governmental Entity in order for it to
execute, deliver or perform any of its obligations under, or contemplated by,
the Transaction Documents in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations that RCGI or any
Subsidiary is or has been required to obtain as described in the preceding
sentence have been obtained or effected on or prior to the date of this
Agreement or shall be obtained prior to the Exchange Closing Date, in both
cases, prior to the date of the effectiveness of such requirement. Except as set
forth on Schedule 3(e), RCGI and the Subsidiaries are in all material respects
in compliance with the applicable provisions of the Xxxxxxxx-Xxxxx Act of 2002,
as amended, and the rules and regulations thereunder (collectively,
"Xxxxxxxx-Xxxxx"). As used in this Agreement, "Laws" means all present or future
federal, state local or foreign laws, statutes, common law duties, rules,
regulations, ordinances and codes, together with all administrative or judicial
orders, consent agreements, directed duties, requests, licenses, authorizations
and permits of, and agreements with, any Governmental Entity; "Indebtedness" of
any Person means, without duplication (A) all indebtedness for borrowed money,
(B) all obligations issued, undertaken or assumed as the deferred purchase price
of property or services, (C) all reimbursement or payment obligations with
respect to letters of credit, surety bonds and other similar instruments, (D)
all obligations evidenced by notes, bonds, debentures, redeemable Capital Stock
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller, bank or other financing source
under such agreement in the event of default are limited to repossession or sale
of such property), (F) all Capital Lease Obligations, (G) all indebtedness
referred to in clauses (A) through (F) above secured by (or for which the holder
of such indebtedness has an existing right, contingent or otherwise, to be
secured by) any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
15
liable for the payment of such indebtedness, and (H) all Contingent Obligations
in respect of indebtedness or obligations of others of the kinds referred to in
clauses (A) through (G) above; and "Contingent Obligation" means, as to any
Person, any direct or indirect liability, contingent or otherwise, of that
Person with respect to any indebtedness, lease, dividend or other obligation of
another Person if the primary purpose or intent of the Person incurring such
liability, or the primary effect thereof, is to provide assurance to the obligee
of such liability that such liability will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect
thereto.
f. SEC Documents; Financial Statements. Since December 31, 2005,
RCGI has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the 1934 Act (all of the foregoing filed since December 31, 2005 and prior to
the date this representation is made (including all exhibits included therein
and financial statements and schedules thereto and documents incorporated by
reference therein) being referred to herein as the "SEC Documents" and RCGI's
consolidated balance sheet as of March 31, 2007, as included in RCGI's quarterly
report on Form 10-QSB for the period then ended, as filed with the SEC on May
15, 2007, being referred to herein as the "March 2007 Balance Sheet"). A
complete and accurate list of the SEC Documents is set forth on Schedule 3(f).
RCGI has made available to Buyer or its respective representatives true and
complete copies of the SEC Documents. Each of the SEC Documents was filed with
the SEC within the time frames prescribed by the SEC for filing of such SEC
Documents (including any extensions of such time frames permitted by Rule 12b-25
under the 1934 Act pursuant to timely filed Forms 12b-25) such that each filing
was timely filed (or deemed timely filed pursuant to Rule 12b-25 under the 0000
Xxx) with the SEC. As of their respective dates, the SEC Documents complied in
all material respects with the securities laws. None of the SEC Documents, at
the time they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except as set forth on
Schedule 3(f), since the filing of each of the SEC Documents, no event has
occurred that would require an amendment or supplement to any such SEC Document
and as to which such an amendment has not been filed and made publicly available
on the SEC's XXXXX system no less than five (5) Business Days prior to the date
the representation is made. Except as set forth on Schedule 3(f), RCGI has not
received any written comments from the SEC staff that have not been resolved to
the satisfaction of the SEC staff. As of their respective dates, the
consolidated financial statements of RCGI and the Subsidiaries included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the securities laws with respect thereto. Except as
set forth on Schedule 3(f), such consolidated financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of RCGI and the Subsidiaries as of the
dates thereof and the results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments that are not material individually or in the aggregate).
Schedule 3(f) lists all press releases, analyst reports, advertisements and
16
other written communications with stockholders or other investors, or potential
stockholders or other potential investors, on behalf of RCGI of RCGI or any of
the Subsidiaries or otherwise relating to RCGI or any of the Subsidiaries,
issued, made, distributed, paid for or approved since December 31, 2005 by RCGI,
any of the Subsidiaries or any of their respective officers, directors or
Affiliates, by any Person engaged by (or otherwise acting on behalf of) RCGI,
any of the Subsidiaries or any of their respective officers, directors or
Affiliates, or, to RCGI's Knowledge, by any stockholder of RCGI, other than any
such written communication issued, or distributed by Viking Asset Management
LLC, a California limited liability company ("Viking"), Buyer or Longview
International. None of RCGI, the Subsidiaries and their respective officers,
directors and Affiliates or, to RCGI's Knowledge, any stockholder of RCGI has
made any filing with the SEC, issued any press release or made, distributed,
paid for or approved (or engaged any other Person to make or distribute) any
other public statement, report, advertisement or communication on behalf of RCGI
or any of the Subsidiaries or otherwise relating to RCGI or any of the
Subsidiaries that contains any untrue statement of a material fact or omits any
statement of material fact necessary in order to make the statements therein, in
the light of the circumstances under which they are or were made, not misleading
or has provided any other information to Buyer, including information referred
to in Section 2(d), that, considered in the aggregate, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they are or were made, not misleading, except that no representation or
warranty is given or made with respect to any SEC filing or other communication
made by Viking, Buyer or Longview International. Except as set forth in Schedule
3(f), none of RCGI, the Subsidiaries and their respective officers, directors,
employees or agents has provided Buyer with any material, nonpublic information.
RCGI is not required to file and will not be required to file any agreement,
note, lease, mortgage, deed or other instrument entered into prior to the date
this representation is made and in effect on the date this representation is
made and to which RCGI or any Subsidiary is a party or by which RCGI or any
Subsidiary is bound that has not been previously filed as an exhibit (including
by way of incorporation by reference) to RCGI's reports filed or made with the
SEC under the 1934 Act. The accounting firm that has expressed its opinion with
respect to the consolidated financial statements included in RCGI's most
recently filed annual report on Form 10-K or 10-KSB (the "Audit Opinion") is
independent of RCGI pursuant to the standards set forth in Rule 2-01 of
Regulation S-X promulgated by the SEC and such firm was otherwise qualified to
render the Audit Opinion under applicable securities laws. Each other accounting
firm that since such filing has conducted or will conduct a review or audit of
any of RCGI's consolidated financial statements is independent of RCGI pursuant
to the standards set forth in Rule 2-01 of Regulation S-X promulgated by the SEC
and is otherwise qualified to conduct such review or audit and render an audit
opinion under applicable securities laws. There is no transaction, arrangement
or other relationship between RCGI and an unconsolidated or other
off-balance-sheet entity that is required to be disclosed by RCGI in its reports
pursuant to the 1934 Act that has not been so disclosed in the SEC Documents.
Since December 31, 2003, except as set forth on Schedule 3(f), neither RCGI nor
any of the Subsidiaries nor any director, officer or employee, of RCGI or any of
the Subsidiaries has received or otherwise had or obtained Knowledge of any
material complaint, allegation, assertion or claim, whether written or oral,
regarding the accounting or auditing practices, procedures, methodologies or
17
methods of RCGI or any of the Subsidiaries or its internal accounting controls,
including any complaint, allegation, assertion or claim that RCGI or any of the
Subsidiaries has engaged in questionable accounting or auditing practices. No
attorney representing RCGI or any of the Subsidiaries, whether or not employed
by RCGI or any of the Subsidiaries, has reported evidence of a material
violation of securities laws, breach of fiduciary duty or similar violation by
RCGI or any of the Subsidiaries or any of their respective officers, directors,
employees or agents to their respective boards of directors or any committee
thereof or pursuant to Section 307 of the Xxxxxxxx-Xxxxx Act of 2002, and the
SEC's rules and regulations promulgated thereunder. Since December 31, 2000,
there have been no internal or SEC investigations regarding accounting or
revenue recognition discussed with, reviewed by or initiated at the direction of
any executive officer, board of directors or any committee thereof of RCGI or
any of the Subsidiaries. As of the date of this Agreement, RCGI is a "shell
company" (as defined in Rule 12b-2 under the Exchange Act), and on and after the
Exchange Closing Date and giving effect to the Exchange Closing, RCGI will no
longer be a "shell company." As used in this Agreement, "GAAP" means U.S.
generally accepted accounting principles.
g. Absence of Certain Changes. Neither RCGI nor any Subsidiary
has taken any steps, nor does RCGI or any Subsidiary currently expect to take
any steps to seek protection pursuant to, any bankruptcy law; and neither RCGI
nor any Subsidiary has received any written notice or has any other knowledge or
reason to believe that the creditors of such Person intend to initiate
involuntary bankruptcy proceedings against RCGI or any of the Subsidiaries or
any knowledge of any fact that would reasonably lead a creditor to do so.
Neither RCGI nor any Subsidiary is as of the date this representation is made,
nor after giving effect to the transactions contemplated hereby or by any of the
other Transaction Documents, will be Insolvent (as defined below). As used in
this Agreement, "Insolvent" means, with respect to any Person, (i) the present
fair saleable value of such Person's assets is less than the amount required to
pay such Person's total indebtedness, contingent or otherwise, (ii) such Person
is unable to pay its debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured, (iii) such
Person intends to incur, prior to the second anniversary of the date this
representation is made, or believes that it will incur, prior to the second
anniversary of the date this representation is made, debts that would be beyond
its ability to pay as such debts mature or (iv) such Person has unreasonably
small capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted. Except as disclosed
in Schedule 3(g), since December 31, 2005, neither RCGI nor any of the
Subsidiaries has declared or paid any dividends or sold any assets outside of
the ordinary course of business. Except as disclosed in Schedule 3(g), since
December 31, 2005, neither RCGI nor any of the Subsidiaries has had any capital
expenditures outside the ordinary course of its business.
h. Absence of Litigation. Except as set forth on Schedule 3(h),
(i) during the past five years there has not been any action, suit, proceeding,
inquiry or investigation ("Litigation") before or by any court, public board,
Governmental Entity, self-regulatory organization or body pending or, to the
Knowledge of RCGI, threatened against or affecting RCGI or any of the
Subsidiaries or any of their respective assets, and (ii) no officer of RCGI nor,
to RCGI's Knowledge, any of the Principals or any director or holder of more
than 5% of the outstanding securities of RCGI or any of the Subsidiaries has
been involved in securities-related Litigation during the past ten (10) years,
18
except that no representation or warranty is given or made with respect to
Buyer's or Longview International's involvement in any such Litigation. No
Litigation disclosed on Schedule 3(h) has, has had or could reasonably be
expected to have a Material Adverse Effect.
i. Full Disclosure; No Undisclosed Events, Liabilities,
Developments or Circumstances. Except as set forth on Schedule 3(i), since
December 31, 2003, there has been no Material Adverse Effect and no
circumstances exist that could reasonably be expected to be, cause or have a
Material Adverse Effect. Other than the liabilities and obligations under this
Agreement or as set forth on Schedule 3(i), the only liabilities of RCGI or any
Subsidiary (whether fixed or unfixed, known or unknown, absolute or contingent,
asserted or unasserted, xxxxxx or inchoate, liquidated or unliquidated, or
secured or unsecured and regardless of when any action, claim, suit or
proceeding with respect thereto is instituted) are the liabilities reflected on
Schedule 3(i), as of the date of this Agreement, all of which will be reflected
on the Pro Forma Balance Sheet and the Pro Forma Cap Table. As of the Exchange
Closing Date, the only liabilities of RCGI (whether fixed or unfixed, known or
unknown, absolute or contingent, asserted or unasserted, xxxxxx or inchoate,
liquidated or unliquidated, or secured or unsecured and regardless of when any
action, claim, suit or proceeding with respect thereto is instituted) will be
those reflected on the March 2007 Balance Sheet or Schedule 3(i), those assumed
or created pursuant to, or as a result of, this Agreement and the other
Transaction Documents and the consummation of the Exchange Closing, and
liabilities and obligations of not more than $50,000 for operating expenses
incurred in the ordinary course of business consistent with past practices as a
shell company subsequent to March 31, 2007, all of which will be reflected on
the Pro Forma Balance Sheet. No representation or warranty or other statement
made by RCGI or the Subsidiaries in this Agreement or any of the other
Transaction Documents, the Schedules hereto or any certificate or instrument
delivered pursuant to this Agreement contains any untrue statement or omits to
state a material fact necessary to make any such statement, in light of the
circumstances in which it was made, not misleading.
j. Acknowledgment Regarding Buyer's Purchase of RCGI Notes and
Warrants. RCGI acknowledges and agrees that Buyer is acting solely in the
capacity of an arm's length purchaser with respect to RCGI in connection with
this Agreement and the other Transaction Documents and the transactions
contemplated hereby and thereby. RCGI further acknowledges that Buyer is not
acting as a financial advisor or fiduciary of any party to this Agreement or any
of the other Transaction Documents (or in any similar capacity) with respect to
this Agreement and the other Transaction Documents and the transactions
contemplated hereby and thereby, and any advice given by Buyer or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to Buyer's
acquisition of the Securities. RCGI further represents to Buyer that the
decision of each of RCGI and each of the Included Subsidiaries to enter into the
Transaction Documents has been based solely on the independent evaluation by
such Person and its representatives.
k. No General Solicitation. Except as set forth in Schedule 3(k),
neither RCGI, nor any of its Affiliates, nor any Person acting on the behalf of
any of the foregoing, has engaged or will engage in any form of general
solicitation or general advertising (within the meaning of Regulation D under
19
the 1933 Act), including advertisements, articles, notices, or other
communications published in any newspaper, magazine or similar media or
broadcast over radio, television or internet or any seminar meeting whose
attendees have been invited by general solicitation or general advertising, in
connection with the offer or sale of the Securities, except that no
representation or warranty is given or made with respect to any of the
activities of Buyer or Longview International in connection with such offer and
sale. As used in this Agreement, "Affiliate" means, with respect to any Person,
a second Person (A) in which the first Person owns a 5% equity interest, or (B)
that, directly or indirectly, (i) has a 5% equity interest in such first Person,
(ii) has a common ownership with such first Person, (iii) controls such first
Person, (iv) is controlled by such first Person or (v) shares or is under common
control with such first Person; and "Control" or "controls" means that a Person
has the power, direct or indirect, to conduct or govern the policies of another
Person.
l. No Integrated Offering. Neither RCGI nor any Subsidiary, any
Affiliates of the foregoing or any Person acting on the behalf of any of the
foregoing, has, directly or indirectly, made any offers or sales of any security
or solicited any offers to purchase any security, under circumstances that would
require registration of any of the Securities under the 1933 Act or cause this
offering of the Securities to be integrated with prior offerings by RCGI for
purposes of the 1933 Act or any applicable stockholder approval requirements of
any authority, nor will Sonterra, any of the Principals or any of Sonterra's
other Affiliates, or any Person acting on behalf of any of the foregoing, take
any action or steps that would require registration of the issuance of any of
the Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings for purposes of the 1933 Act or any applicable
stockholder approval requirements of any authority.
m. Dilutive Effect. RCGI understands and acknowledges that the
number of RCGI Common Shares that RCGI is obligated to issue pursuant to this
Agreement, including the Warrant Shares issuable upon exercise of the RCGI
Warrant and the RCGI Common Shares issuable upon exercise of the Initial Officer
Options, will increase in certain circumstances. RCGI further acknowledges that
its obligation to issue RCGI Common Shares in accordance with this Agreement,
including the Warrant Shares upon exercise of the RCGI Warrant in accordance
with the RCGI Warrant and the RCGI Common Shares upon exercise of the Initial
Officer Options, is, in each case, absolute and unconditional, subject, in the
case of the Initial Officer Options, to the vesting of such options and the
terms and conditions of the 2007 Option Plan, regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders of
RCGI. Taking the foregoing into account, RCGI's board of directors has
determined in its good faith business judgment that the issuance of the New RCGI
Common Shares, the RCGI Warrant and the Initial Officer Options and the
consummation of the other transactions contemplated hereby are in the best
interests of RCGI and its stockholders.
n. Employee Relations. Except as set forth on Schedule 3(n),
neither RCGI nor any of the Subsidiaries is involved in any labor union dispute
nor, to the Knowledge of RCGI, is any such dispute threatened. None of the
employees of RCGI or of any of the Subsidiaries is or has been a member of a
union that relates, such employee's relationship with RCGI or any of the
Subsidiaries. Neither RCGI nor any of the Subsidiaries is a party to a
collective bargaining agreement. Except as set forth on Schedule 3(n), no
executive officer (as defined in Rule 3b-7 under the 0000 Xxx) nor any other
20
individual whose termination would be required to be disclosed on a Current
Report on Form 8-K but that has not been so reported, has notified RCGI or any
of the Subsidiaries that such individual intends to leave RCGI or any of the
Subsidiaries or otherwise terminate such individual's employment with RCGI or
any of the Subsidiaries. No executive officer, to the Knowledge of RCGI, is, or
is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters. Except as set forth in Schedule 3(n), RCGI and
each of the Subsidiaries is and has been in compliance with all Laws relating to
employment and employment practices, terms and conditions of employment and
wages and hours.
o. Intellectual Property Rights. Except as set forth on Schedule
3(o), RCGI and the Included Subsidiaries own or possess adequate rights or
licenses to use all trademarks, trademark applications and registrations, trade
names, service marks, service xxxx registrations, service names, patents, patent
rights, patent applications, copyrights (whether or not registered), inventions,
licenses, approvals, governmental authorizations, trade secrets and other
intellectual property rights (collectively, "Intellectual Property") necessary
to conduct their respective businesses as conducted as of the date this
representation is made. Schedule 3(o) contains a complete and accurate list of
all patented and registered Intellectual Property owned by RCGI and the
Subsidiaries and all pending patent applications and applications for the
registration of other Intellectual Property owned or filed by RCGI or any of the
Subsidiaries. Schedule 3(o) also contains a complete and accurate list of all
material licenses and other rights granted by RCGI or any Subsidiaries to any
third party with respect to Intellectual Property and material licenses and
other rights with respect to Intellectual Property granted by any third party to
RCGI or any of the Subsidiaries. Except as set forth in Schedule 3(o), (i) none
of the rights of RCGI or the Subsidiaries in their Intellectual Property have
expired or terminated, or are expected to expire or terminate within five years
from the date of this Agreement, except to the extent such termination would not
and would not reasonably be expected to have a Material Adverse Effect, (ii)
there are no third parties who have rights to any of the Intellectual Property
owned or licensed by RCGI or any of the Subsidiaries, except for the rights
retained by the owners of the Intellectual Property that is licensed to RCGI or
any of the Subsidiaries, and there are no third parties who have rights to any
of the Intellectual Property owned or licensed by RCGI or any of the
Subsidiaries, except for the rights retained by the owners of the Intellectual
Property that is licensed to RCGI or any of the Subsidiaries, (iii) there has
been no infringement by RCGI or any of the Subsidiaries or any of RCGI's or the
Subsidiaries' licensors or licensees of any Intellectual Property rights of
others and RCGI has no Knowledge of any infringement by RCGI or any of the
Subsidiaries or any of their licensors or licensees of any Intellectual Property
rights of others, (iv) there has been no infringement by any third parties of
any Intellectual Property owned or licensed by RCGI or any of the Subsidiaries,
or of any development of similar or identical trade secrets or technical
information by others, (v) there is no claim, action or proceeding against or
being threatened against, RCGI, any of the Subsidiaries or any of their
respective licensors regarding its Intellectual Property or infringement of
other Intellectual Property rights and there is no claim, action or proceeding
against or being threatened against RCGI, any of the Subsidiaries or any of
their respective licensors regarding its Intellectual Property or infringement
21
of other Intellectual Property rights, (vi) there are no facts or circumstances
that could reasonably be expected to give rise to any of the foregoing, (vii)
there is no patent or patent application which contains claims that interfere
with the issued or pending claims of any of the Intellectual Property owned or
licensed by RCGI or any of the Subsidiaries, and there is no patent or patent
application which contains claims that interfere with the issued or pending
claims of any of the Intellectual Property owned or licensed by RCGI or any of
the Subsidiaries, and (viii) none of the technology employed by RCGI or any of
the Subsidiaries has been obtained or is being used by RCGI or any of the
Subsidiaries in violation of any material contractual obligation binding on RCGI
or any of the Subsidiaries or is being used by any of the officers, directors or
employees of RCGI or of the Subsidiaries on behalf of RCGI or any of the
Subsidiaries in violation of the rights of any Person or Persons. RCGI and the
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their material Intellectual Property.
p. Environmental Laws. Except as set forth on Schedule 3(p),
RCGI, the Subsidiaries and each Person that has operated the Real Property (as
defined in Section 3(bb)) (i) is, and has at all times been, in compliance with
any and all, Environmental Laws (as defined below) and has not violated any
Environmental Laws, (ii) has no, and has never had any, liability for failure to
comply with any Environmental Law, (iii) has received all permits, licenses or
other approvals required of it under applicable Environmental Laws to conduct
its business as presently conducted, and (iv) is in compliance with all terms
and conditions of any such permit, license or approval except as could not
reasonably be expected to have a Material Adverse Effect. Except as set forth on
Schedule 3(p), with respect to the Real Property, (I) there has not occurred an
event in the use and operation of the Real Property and there does not exist on
any Real Property a condition which constitutes a violation of any Environmental
Laws, (II) there have been timely filed all required reports, there have been
obtained all required approvals and permits, and there have been generated and
maintained all required data, documentation and records under all applicable
Environmental Laws, (III) there are no environmental investigations, studies or
audits with respect to any of the Real Property owned or commissioned by, or in
the possession of, RCGI or any Subsidiary that have not been disclosed to Buyer,
and (IV) no Hazardous Material or solid wastes (as such terms are defined under
any Environmental Law) generated from the Real Property have been sent to a site
which, pursuant to CERCLA or any similar state law, or other Environment Law has
been placed, or is proposed to be placed, on the "National Priority List" of
hazardous waste sites or which is subject to a claim, an administrative order or
other request to take any cleanup, removal or remedial action or to pay for any
costs relating to such site. All Hazardous Material or solid wastes generated
from the Real Property and requiring disposal have, to the extent required by
any Environmental Law, been transported only by carriers maintaining valid
authorizations and been treated, stored and disposed of only at facilities
maintaining valid authorizations. As used in this Agreement, "Environmental
Laws" means all Laws relating to any matter arising out of or relating to public
health and safety, or pollution or protection of the environment (including
ambient air, surface water, groundwater, land surface or subsurface strata) or
workplace, including any of the foregoing relating to the presence, use,
production, generation, handling, transport, treatment, storage, disposal,
distribution, discharge, emission, release, threatened release, control or
cleanup of any Hazardous Materials, including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. ss.9601 et seq., as
amended ("CERCLA"), the Resource Conservation and Recovery Act of 1976, as
22
amended, 42 U.S.C. ss.6901, et seq., the Clean Air Act, 42 U.S.C. ss.7401, et
seq., as amended, the Federal Water Pollution Control Act, 33 U.S.C. ss.1251, et
seq., as amended, the Oil Pollution Act of 1990, 33 U.S.C. ss.2701, et seq., and
the Toxic Substances Control Act, 15 U.S.C. ss.2601, et seq.; and "Hazardous
Materials" means any hazardous, toxic or dangerous substance, materials and
wastes, including hydrocarbons (including naturally occurring or man-made
petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde
insulation, radioactive materials, biological substances, polychlorinated
biphenyls, pesticides, herbicides and any other kind and/or type of pollutants
or contaminants (including materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are or become regulated under any Environmental Law (including any that are
or become classified as hazardous or toxic under any Environmental Law).
q. Title. Except as set forth in Schedule 3(q), neither RCGI nor
any of the Subsidiaries has any interest in real property or any oil, gas or
other mineral drilling, exploration or development rights. RCGI and each
Subsidiary has good and valid title to all personal property currently possessed
by them that is material to the business of such Person, in each case free and
clear of all Liens except such as are described in Schedule 3(q). RCGI and each
of the Subsidiaries has good, marketable and indefeasible title in fee simple to
all real property owned (rather than leased) by such Person (the "Owned Real
Property") as set forth on Schedule 3(q), in each case free and clear of all
Liens, other than Permitted Liens, except such as are described in Schedule
3(q). As used in this Agreement, "Permitted Lien" means (I) Liens created by the
Security Documents; (II) Liens for Taxes or other governmental charges not at
the time due and payable, or (if foreclosure, distraint sale or other similar
proceeding shall not have been initiated) which are being contested in good
faith by appropriate proceedings diligently prosecuted, so long as foreclosure,
distraint, sale or other similar proceedings have not been initiated, and in
each case for which RCGI and the Subsidiaries maintain adequate reserves in
accordance with GAAP in respect of such taxes and charges; (III) Liens arising
in the ordinary course of business in favor of carriers, warehousemen, mechanics
and materialmen, or other similar Liens imposed by law, which remain payable
without penalty or which are being contested in good faith by appropriate
proceedings diligently prosecuted, which proceedings have the effect of
preventing the forfeiture or sale of the property subject thereto, and in each
case for which adequate reserves in accordance with GAAP are being maintained;
(IV) Liens arising in the ordinary course of business in connection with
worker's compensation, unemployment compensation and other types of social
security (excluding Liens arising under ERISA); (V) attachments, appeal bonds
(and cash collateral securing such bonds), judgments and other similar Liens,
for sums not exceeding $100,000 in the aggregate for RCGI and the Subsidiaries,
arising in connection with court proceedings, provided that the execution or
other enforcement of such Liens is effectively stayed; (VI) easements, rights of
way, restrictions, minor defects or irregularities in title and other similar
Liens arising in the ordinary course of business and not materially detracting
from the value of the property subject thereto and not interfering in any
material respect with the ordinary conduct of the business of RCGI or any of the
Subsidiaries; (VII) surety bonds, bids, performance bonds, and similar
obligations (exclusive of obligations for the payment of borrowed money)
obtained by RCGI and the Subsidiaries in the ordinary course of business for the
purpose of satisfying federal, state, provincial and territorial and/or local
legal requirements for owning and operating their oil and gas properties, in an
23
aggregate amount not to exceed $100,000 outstanding at any time; and (VIII)
Liens arising solely by virtue of any statutory or common law provision relating
to banker's liens, rights of set-off or similar rights and remedies and
burdening only deposit accounts or other funds maintained with a creditor
depository institution, provided that no such deposit account is a dedicated
cash collateral account or is subject to restrictions against access by the
depositor in excess of those set forth by regulations promulgated by the Board
of Governors of the U.S. Federal Reserve System and that no such deposit account
is intended by RCGI or any of the Included Subsidiaries to provide collateral to
the depository institution. As used in this Agreement, "Security Documents"
means the Security Agreement, the Guaranty, the Account Control Agreement, the
Pledge Agreement, the Mortgages and any other agreements, documents and
instruments executed concurrently herewith or at any time hereafter pursuant to
which RCGI, the Included Subsidiaries or any other Person either (i) guarantees
payment or performance of all or any portion of the obligations hereunder or
under any other instruments delivered in connection with the transactions
contemplated hereby and by the other Transaction Documents, and/or (ii)
provides, as security for all or any portion of such obligations, a Lien on any
of its assets in favor of Buyer, as any or all of the same may be amended,
supplemented, restated or otherwise modified from time to time.
r. Insurance. RCGI and each of the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of RCGI believes to be prudent and customary
in the businesses in which RCGI and the Subsidiaries are engaged. Neither RCGI
nor any Subsidiary has been refused any insurance coverage sought or applied
for, and neither RCGI nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not reasonably be expected to have
a Material Adverse Effect.
s. Regulatory Permits. Except as set forth on Schedule 3(s) or as
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect or a material adverse effect on the production,
extraction, transportation or sale of oil, gas, minerals or other hydrocarbons
from any portion of the Real Property (as defined in Section 3(bb)) that is
producing oil, gas, minerals and/or other hydrocarbons at the time this
representation is made, RCGI and the Subsidiaries possess all certificates,
authorizations, approvals, licenses and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses as conducted at the time this representation is made
("Permits"), and neither RCGI nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such Permit.
Without limiting the foregoing, except as set forth on Schedule 3(s), RCGI and
the Subsidiaries possess all Permits necessary to produce, extract, transport
and sell the oil, gas and other minerals in that portion of Real Property that
is producing oil, gas, minerals and/or other hydrocarbons at the time this
representation is made. Except as set forth in Schedule 3(s) or as could not
reasonably be expected to have a Material Adverse Effect, RCGI and the
Subsidiaries do not have any reason to believe that they will not be able to
obtain necessary Permits as and when necessary to enable RCGI and/or the
Subsidiaries to produce, extract, transport and sell the oil, gas, minerals and
other hydrocarbons in the Real Property. Except as set forth in Schedule 3(s),
24
RCGI is not in violation of any of the rules, regulations or requirements of the
OTC Bulletin Board (the "Principal Market"; provided however, that, if after the
date of this Agreement the RCGI Common Shares are listed on a national
securities exchange, the "Principal Market" shall mean such national securities
exchange) and has no knowledge of any facts or circumstances which would
reasonably lead to delisting or suspension, or termination of the trading of,
the RCGI Common Shares by the Principal Market in the foreseeable future. Except
as set forth in Schedule 3(s), since December 31, 2005, (i) RCGI's RCGI Common
Shares have been quoted on the Principal Market, (ii) trading in the RCGI Common
Shares has not been suspended by the SEC or the Principal Market and (iii) RCGI
has received no communication, written or oral, from the SEC or the Principal
Market regarding the suspension or delisting, or termination of the trading, of
the RCGI Common Shares from the Principal Market.
t. Internal Accounting Controls; Disclosure Controls and
Procedures; Books and Records. RCGI has, and has caused each of the Subsidiaries
to, at all times keep books, records and accounts with respect to all of such
Person's business activities, in accordance with sound accounting practices and
GAAP consistently applied. RCGI and each of the Subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset and liability accountability, (iii)
access to assets or incurrence of liability is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any differences. Except as set forth in Schedule 3(t), RCGI has
timely filed (or has been deemed to have timely filed pursuant to Rule 12b-25
under the 0000 Xxx) and made publicly available on the SEC's XXXXX system no
less than five (5) days prior to the date hereof, all certifications and
statements required by (A) Rule 13a-14 or Rule 15d-14 under the 1934 Act and (B)
Section 906 of Sarbanes Oxley with respect to any RCGI SEC Documents. RCGI
maintains disclosure controls and procedures required by Rule 13a-15 or Rule
15d-15 under the 1934 Act; except as set forth in Schedule 3(t), such disclosure
controls and procedures are, and at all times have been, effective to ensure
that the information required to be disclosed by RCGI in the reports that it
files with or submits to the SEC (X) is recorded, processed, summarized and
reported accurately within the time periods specified in the SEC's rules and
forms and (Y) is accumulated and communicated to RCGI's management, including
its principal executive officer and principal financial officer, as appropriate
to allow timely decisions regarding required disclosure. Except as set forth in
Schedule 3(t), RCGI maintains internal control over financial reporting required
by Rule 13a-14 or Rule 15d-14 under the 1934 Act; such internal control over
financial reporting is, and has at all times been, effective and does not
contain, and has not contained, any material weaknesses.
u. Bank Accounts. Except as set forth on Schedule 3(u), neither
RCGI not any of the Included Subsidiaries maintains, or has any interest in, any
bank account, brokerage account or other similar account. Schedule 3(u) sets
forth the funds (and any securities) contained in any such account as of the
date hereof. As of the Exchange Closing Date, all funds (and securities) of the
Company and the Included Subsidiaries will be held in bank (or brokerage)
accounts in the United States subject to Account Control Agreements, and all
25
other bank accounts, brokerage accounts or other similar accounts of RCGI and
the Included Subsidiaries will have been closed.
v. Tax Status. Except as set forth in Schedule 3(v), RCGI and
each of the Subsidiaries (i) has made or filed all foreign, federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, and/or shown
or determined to be due on such returns, reports and declarations, except those
being contested in good faith and for which RCGI has made appropriate reserves
on its books, and (iii) has set aside on its books provisions reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations (referred to in clause (i) above)
apply. Except as set forth in Schedule 3(v), there are no unpaid taxes in any
material amount claimed in writing to be due from RCGI or any of the
Subsidiaries by the taxing authority of any jurisdiction, and there is no basis
for any such claim. Neither RCGI nor any of the Subsidiaries is, or after giving
effect to the Purchases and the other transactions contemplated by this
Agreement and the other Transaction Documents will be, a "United States real
property holding corporation" ("USRPHC") as that term is defined in Section
897(c)(2) of the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations promulgated thereunder.
w. Transactions With Affiliates. Except for transactions
consummated pursuant to this Agreement and the other Transaction Documents, and
except as set forth on Schedule 3(w), no Related Party (as defined below) of
RCGI or any of the Subsidiaries, nor any Affiliate thereof, is presently, has
been within the past three years, or will be as a result of the transactions
contemplated by this Agreement and the other Transaction Documents, a party to
any transaction, contract, agreement, instrument, commitment, understanding or
other arrangement or relationship with RCGI or any of the Subsidiaries, whether
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments or consideration
to or from any such Related Party. Except as set forth on Schedule 3(w), no
Related Party of RCGI or any of the Subsidiaries (other than Buyer, Longview
International and Viking), or any of their respective affiliates, has any direct
or indirect ownership interest in any Person (other than ownership of less than
2% of the outstanding common stock of a publicly traded corporation) in which
RCGI or any of the Subsidiaries has any direct or indirect ownership interest or
with which RCGI or any of the Subsidiaries competes or has a business
relationship. "Related Party" means a Person's or any of the Subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two years, stockholders (other than any holder of less than 5% of
the outstanding shares of such Person), or Affiliates of such Person or any of
the Subsidiaries, or any individual related by blood, marriage or adoption to
any such individual or any entity in which any such entity or individual owns a
beneficial interest.
x. Application of Takeover Protections; Rights Agreement. RCGI
and its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, or
other similar anti-takeover provision under the Certificate of Incorporation or
any certificates of designations or the laws of the jurisdiction of its
formation or incorporation to the transactions contemplated by this Agreement,
RCGI's issuance of the Securities in accordance with the terms thereof and
Buyer's ownership of the Securities. Except as set forth in Schedule 3(x), RCGI
26
has not adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of RCGI Common Shares or a change in
control of RCGI.
y. Foreign Corrupt Practices. Neither RCGI, nor any of the
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of RCGI or any of the Subsidiaries has, in the course of its actions
for, or on behalf of, RCGI, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any unlawful bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
z. Outstanding Indebtedness; Liens. Payments of principal and
other payments due under the RCGI Notes will, upon issuance in connection with
each of the Closings, rank senior to all other Indebtedness of RCGI and, by
virtue of their secured position and to the extent of the Collateral, to all
trade account payables of RCGI, and the obligations of the Included Subsidiaries
under the Guarantee will, upon issuance of the RCGI Notes in connection with
each of the Closings, rank senior to all other Indebtedness of the Included
Subsidiaries and, by virtue of the secured position of the Guarantee and to the
extent of the Collateral, to all trade account payables of any of the Included
Subsidiaries. Except as set forth on Schedule 3(z), (i) neither RCGI nor any of
the Subsidiaries has any, and upon consummation of the transactions contemplated
hereby and by the other Transaction Documents will not have any, outstanding
Indebtedness or trade account payables other than pursuant to the Transaction
Documents, (ii) there are no, and upon consummation of the transactions
contemplated hereby and by the other Transaction Documents there will not be
any, Liens on any of the assets of RCGI or the Included Subsidiaries, and (iii)
there are no, and upon consummation of the transactions contemplated hereby and
by the other Transaction Documents there will not be any, financing statements
securing obligations of any amounts filed against RCGI or any of the Included
Subsidiaries or any of their respective assets, other than under the Security
Agreement or other security agreement in favor only of Buyer.
aa. Ranking of RCGI Notes. No Indebtedness (as defined in the RCGI
Notes) of RCGI is, or will be upon consummation of the transactions contemplated
hereby and by the other Transaction Documents, senior to or ranks or will rank
pari passu with the RCGI Notes in right of payment, whether with respect of
payment of redemptions, interest or damages or upon liquidation or dissolution
or otherwise; provided that, the fees owing under this Agreement pursuant to
Section 4(i) shall rank first in priority and ahead of the RCGI Notes.
bb. Real Property. Schedule 3(bb) contains a complete and correct
list of all the real property; leasehold interests; fee interests; oil, gas and
other mineral drilling, exploration and development rights; royalty, overriding
royalty, and other payments out of or pursuant to production; other rights in
and to oil, gas and other minerals, including contractual rights to production,
concessions, net profits interests, working interests and participation
interests (including all Hydrocarbon Property (as defined in the Mortgages));
any other contractual rights for the acquisition or earning of any of such
27
interests in the real property; facilities; fixtures; equipment that (i) are
leased or otherwise owned or possessed by RCGI or any of the Subsidiaries, (ii)
in connection with which RCGI or any of the Subsidiaries has entered into an
option agreement, participation agreement or acquisition and drilling agreement
or (iii) RCGI or any of the Subsidiaries has agreed to lease or otherwise
acquire or may be obligated to lease or otherwise acquire in connection with the
conduct of its business (collectively, including any of the foregoing acquired
after the date of this Agreement, the "Real Property"), which list identifies
all of the Real Property and specifies which of RCGI or the Subsidiaries leases,
owns or possesses each of the Real Properties or will do so upon consummation of
the Purchases. Schedule 3(bb) also contains a complete and correct list of all
leases and other agreements with respect to which RCGI or any of the
Subsidiaries is a party or otherwise bound or affected with respect to the Real
Property, except easements, rights of way, access agreements, surface damage
agreements, surface use agreements or similar agreements that pertain to Real
Property that is contained wholly within the boundaries of any owned or leased
Real Property otherwise described on Schedule 3(bb) (the "Real Property
Leases"). Except as set forth in Schedule 3(bb), RCGI or one of the Included
Subsidiaries is the legal and equitable owner of a leasehold interest in all of
the Real Property, and possesses good, marketable and defensible title thereto,
free and clear of all Liens (other than Permitted Liens) and other matters
affecting title to such leasehold that could impair the ability of RCGI or the
Included Subsidiaries to realize the benefits of the rights provided to any of
them under the Real Property Leases. Except as set forth in Schedule 3(bb), all
of the Real Property Leases are valid and in full force and effect and are
enforceable against all parties thereto. Except as set forth in Schedule 3(bb),
neither RCGI nor any of the Subsidiaries nor, to RCGI's Knowledge, any other
party thereto is in default in any material respect under any of such Real
Property Leases and no event has occurred which with the giving of notice or the
passage of time or both could constitute a default under, or otherwise give any
party the right to terminate, any of such Real Property Leases, or could
adversely affect RCGI's or any of the Subsidiaries' interest in and title to the
Real Property subject to any of such Real Property Leases. No Real Property
Lease is subject to termination, modification or acceleration as a result of the
transactions contemplated hereby or by the other Transaction Agreements. Except
as set forth in Schedule 3(bb), all of the Real Property Leases will remain in
full force and effect upon, and permit, the consummation of the transactions
contemplated hereby (including the granting of leasehold mortgages). The Real
Property is permitted for its present uses under applicable zoning laws, are
permitted conforming structures and complies with all applicable building codes,
ordinances and other similar Laws. Except as set forth on Schedule 3(bb), there
are no pending or threatened condemnation, eminent domain or similar
proceedings, or litigation or other proceedings affecting the Real Property, or
any portion or portions thereof. Except as set forth on Schedule 3(bb), there
are no pending or threatened requests, applications or proceedings to alter or
restrict any zoning or other use restrictions applicable to the Real Property
that would interfere with the conduct of RCGI's or any of the Subsidiaries'
business as conducted or proposed to be conducted proposed to be conducted
(including as described to Buyer) at the time this representation is made.
Except as set forth on Schedule 3(bb), there are no restrictions applicable to
the Real Property that would interfere with RCGI's or any Subsidiary's making an
assignment or granting of a leasehold or other mortgage to Buyer as contemplated
by the Security Documents, including any requirement under any Real Property
Leases requiring the consent of, or notice to, any lessor of any such Real
28
Property. Except as set forth in Schedule 3(bb), all of the Real Property is
located in the State of Texas.
(i) Except as set forth in Schedule 3(bb), all of the
xxxxx on the Real Property have been drilled and completed at legal locations
within the boundaries of the appropriate Real Property Lease; and no such well
is subject to penalties on allowables after the date hereof because of any
overproduction or violation of applicable laws, rules, regulations, permits or
judgments, orders or decrees of any court or governmental body or agency which
would prevent such well from being entitled to its full legal and regular
allowance from and after the date hereof as prescribed by any court or
Governmental Entity. Except as set forth in Schedule 3(bb), there are no joint
operating agreements applicable to the Real Property. Neither RCGI nor any of
the Subsidiaries will be obligated, as of the Exchange Closing Date or
thereafter, including by virtue of a prepayment arrangement, make-up right under
a production sales contract containing a "take or pay" or similar provision,
production payment, buydowns, buyouts, or any other arrangement, (i) to deliver
hydrocarbons, or proceeds from the sale thereof, attributable to any of the Real
Property at some future time without then or thereafter receiving the full
contract price therefore, or (ii) to deliver oil or gas (or cash in lieu
thereof) from the Real Property to other owners of interests as a result of past
production by Sonterra, Flash or Cinco or any of their predecessors in excess of
the share to which it was entitled with respect to any of the Real Property.
Except as set forth in Schedule 3(bb), no Person has any call upon, option to
purchase or similar right to obtain production from the portion of the Real
Property. To RCGI's knowledge, the Real Property Leases will by their terms
remain in effect for at least as long as oil, gas or other minerals are produced
in paying quantities or they are otherwise maintained by operations.
cc. Excluded Subsidiaries. All of the assets and liabilities of
each of River Reinsurance Limited, a Barbados exempt insurance company ("River
Sub") and River Capital Holdings Limited, a Barbados exempt corporation
("Holdings Sub"; and together with River Sub, the "Excluded Subsidiaries"; and
all Subsidiaries of RCGI other than the Excluded Subsidiaries, the "Included
Subsidiaries") are set forth on Schedule 3(cc). Except as set forth on Schedule
3(cc), no Excluded Subsidiary has employed any employees, or engaged in any
business operations or other activities. No Excluded Subsidiary has or is
authorized to maintain, except as set forth on Schedule 3(u), any bank account,
brokerage account or other similar account, possesses any cash or has any other
means to acquire cash or to use or spend cash or credit. As of the date hereof
and at all times prior to the Exchange Closing, except as set forth on Schedule
3(cc), RCGI (other than through its ownership of Capital Stock of the Excluded
Subsidiaries) and the Included Subsidiaries have, and will have, no assets
(other than Capital Stock of the Subsidiaries), obligations or liabilities of
any type whatsoever (contingent or otherwise), employed any employees or engaged
in any business operations or other activities.
dd. No Materially Adverse Contracts, Etc. Neither RCGI nor any
Subsidiary is subject to any charter, contract, agreement, instrument, corporate
or other legal restriction, or any judgment, decree, order, rule, regulation or
other Law that in the judgment of RCGI's officers, respectively, has, or is
expected in the future to have, a Material Adverse Effect.
29
ee. Investment Company. Neither RCGI nor any Subsidiary is, or
upon any Closing will be, an "investment company," a company controlled by an
"investment company," or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act").
ff. Stock Options. Except as set forth on Schedule 3(ff), every
Option issued by RCGI (I) has (or, if no longer outstanding, had), with respect
to each RCGI Common Share into which it was or is convertible or for which it
was or is exercisable or exchangeable, an exercise price equal to or greater
than the fair market value per RCGI Common Share on the date of grant of such
Option, (II) was issued in compliance with the terms of the plan under which it
was issued and in compliance with applicable Laws, rules and regulations,
including the rules and regulations of each of the Principal Markets (as defined
above), and (III) has been accounted for in accordance with GAAP and otherwise
been disclosed accurately and completely and in accordance with the requirements
of the securities laws, including Rule 402 of Regulation S-B promulgated under
the 1933 Act, and RCGI has paid, or properly reserved for, all taxes payable
with respect to each such Option (including with respect to the issuance and
exercise thereof), and has not deducted any amounts from its taxable income that
it is not entitled to deduct with respect to any such stock option (including
the issuance and exercise thereof). As used in this Agreement, "Options" means
any rights, warrants or options to subscribe for or purchase RCGI Common Shares
or Convertible Securities; and "Convertible Securities" means any stock or
securities (other than Options) directly or indirectly convertible into or
exchangeable or exercisable for RCGI Common Shares.
gg. Schedules. Each Schedule with respect to the statements made
in Section 3 accurately indicates, as applicable, the Person (e.g., RCGI or the
specific Subsidiary) to which the disclosures thereon apply.
4. AFFIRMATIVE COVENANTS.
---------------------
a. Reasonable Best Efforts. Each party shall use its reasonable
best efforts to timely satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.
b. Form D and Blue Sky. RCGI agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to Buyer promptly after such filing. RCGI shall, on or before each of
the Closing Dates, take such action as RCGI shall reasonably determine is
necessary in order to obtain an exemption for, or to qualify the Securities for,
sale to Buyer at the Closing to occur on such Closing Date pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide to Buyer evidence of any such action so taken
on or prior to the Closing Date. RCGI shall make all filings and reports
relating to the offer and sale of the Securities required under applicable
securities or "Blue Sky" laws of the states of the United States following each
of the Closing Dates.
30
c. Reporting Status. Until the latest of (i) the date that is one
year after the date as of which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Warrant Shares without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto), (ii) the first date on which no RCGI Notes or Warrants remain
outstanding, (iii) the date on which the Security Agreement has terminated, (iv)
the first date that is the last day of the Additional Note Issuance Period, and
(v) the date on which Buyer no longer owns any Securities (the period ending on
such latest date, the "Reporting Period"), RCGI shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and RCGI shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the securities laws would otherwise permit such termination.
d. Use of Proceeds. RCGI will use the proceeds from the sale of
any Additional RCGI Notes: (i) first, to pay expenses and commissions related to
the sale of such Additional RCGI Note, and (ii) second, for general working
capital needs.
e. Financial Information of RCGI. RCGI agrees to send the
following to Buyer (as defined in the Registration Rights Agreement) during the
Reporting Period (i) unless the following are filed with the SEC through XXXXX
and are immediately available to the public through the XXXXX system, within one
(1) Business Day after the filing thereof with the SEC, a copy of each of its
Periodic Reports, Current Reports on Form 8-K, registration statements (other
than on Form S-8) and amendments and supplements to each of the foregoing, (ii)
unless immediately available through Bloomberg Financial Markets (or any
successor thereto), facsimile copies of all press releases issued by RCGI or any
of the Subsidiaries, contemporaneously with the issuance thereof, and (iii)
copies of any notices and other information made available or given to the
stockholders of RCGI generally, contemporaneously with the making available or
giving thereof to the stockholders.
f. Internal Accounting Controls. During the Reporting Period,
RCGI shall, and shall cause each of the Subsidiaries to (i) at all times keep
books, records and accounts with respect to all of such Person's business
activities, in accordance with sound accounting practices and GAAP consistently
applied, (ii) maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (A) transactions are executed in accordance
with management's general or specific authorizations, (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset and liability accountability, (C)
access to assets or incurrence of liability is permitted only in accordance with
management's general or specific authorization and (D) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any differences, (iii) timely file and make publicly available on the
SEC's XXXXX system, all certifications and statements required by (M) Rule
13a-14 or Rule 15d-14 under the 1934 Act and (N) Section 906 of Sarbanes Oxley
with respect to any RCGI SEC Documents, (iv) maintain disclosure controls and
procedures required by Rule 13a-15 or Rule 15d-15 under the 1934 Act, (v) cause
such disclosure controls and procedures to be effective at all times to ensure
that the information required to be disclosed by RCGI in the reports that it
files with or submits to the SEC (X) is recorded, processed, summarized and
reported accurately within the time periods specified in the SEC's rules and
forms and (Y) is accumulated and communicated to RCGI's management, including
31
its principal executive officer and principal financial officer, as appropriate
to allow timely decisions regarding required disclosure, (vi) maintain internal
control over financial reporting required by Rule 13a-14 or Rule 15d-14 under
the 1934 Act, and (vii) cause such internal control over financial reporting to
be effective at all times and not contain any material weaknesses.
g. Reservation of Shares. RCGI shall take all action necessary to
at all times have authorized, and reserved for the purpose of issuance, no less
than 125% of the aggregate number of RCGI Common Shares issuable upon exercise
of all outstanding Warrants (without regard to any limitations on exercise
thereof).
h. Listing. RCGI shall take all actions necessary to cause the
RCGI Common Shares to remain eligible for quotation on the OTC Bulletin Board
and to cause all of the Registrable Securities (as defined in the Registration
Rights Agreement) covered by a registration statement to be quoted thereon,
unless listed on a national securities exchange. RCGI shall use its reasonable
best efforts to (i) secure the listing of the RCGI Common Stock on a national
securities exchange as promptly as reasonably practicable following the Exchange
Closing Date; and (ii) maintain such listing at all times thereafter. Following
such listing, RCGI shall not, and shall cause each of the Subsidiaries not to,
take any action that would be reasonably expected to result in the delisting or
suspension or termination of trading of the RCGI Common Stock on the Principal
Market. RCGI shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(h).
i. Expenses. Subject to Section 9(k)(i) below, at each Closing,
RCGI shall pay Buyer, a reimbursement amount equal to all of Buyer's legal, due
diligence and other expenses incurred in connection with the Exchange Closing,
including without limitation fees and expenses of attorneys, investigative and
other consultants and travel costs and all other expenses relating to
negotiating and preparing the Transaction Documents and consummating the
transactions contemplated thereby. The aggregate amount payable to Buyer
pursuant to the preceding two sentences at each Closing shall be withheld as an
off-set by Buyer from its Purchase Price to be paid by it at such Closing.
Additionally, at each Closing, RCGI shall pay all of it own legal, due diligence
and other expenses, including fees and expenses of attorneys, investigative and
other consultants and travel costs and all other expenses, relating to
negotiating and preparing the Transaction Documents and consummating the
transactions contemplated thereby. In addition to the fee and reimbursement
obligations of RCGI set forth in above in this Section 4(i), and not in
limitation thereof, following the Exchange Closing, RCGI shall promptly
reimburse Buyer, each holder of RCGI Notes, each holder of Warrants and the
Collateral Agent for all of the respective out-of-pocket fees, costs and
expenses incurred thereby in connection with any amendment, modification or
waiver of any of the Transaction Documents, the enforcement of such Person's
rights and remedies under any of the Transaction Documents and/or any release,
termination, amendment or modification of any mortgage, lien or other security
interest of Buyer or holder or the Collateral Agent in any of the Collateral (as
defined in the Security Agreement).
j. Disclosure of Transactions and Other Material Information.
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32
(i) Not later than 5:30 p.m. (New York City time) on the
fourth (4th) Business Day following the execution and delivery of this
Agreement, RCGI shall file the Announcing 8-K with the SEC. The "Announcing Form
8-K" (A) shall describe the terms of the transactions contemplated by the
Exchange Agreement and the other Transaction Documents, including the issuance
of the New RCGI Common Shares, the Initial RCGI Note and the RCGI Warrant, (B)
shall include as exhibits to such Form 8-K this Agreement (including the
schedules hereto), the form of RCGI Note, the form of Registration Rights
Agreement, the form of Warrant, the Security Agreement, the Security Agreement
Joinder, the form of Guaranty, the form of Pledge Agreement, the form of
Mortgage, the form of Account Control Agreement, the forms of the Employment
Agreements, the form of 2007 Option Plan and the form of Option Agreement, and
(C) shall include any other information required to be disclosed therein
pursuant to any securities laws or other Laws.
(ii) Not later than 5:30 p.m. (New York City time) on the
fourth (4th) Business Day following the Exchange Closing Date, RCGI shall file
the Exchange Closing 8-K with the SEC. The "Exchange Closing Form 8-K" (A) shall
disclose the consummation of the Exchange Closing, (B) shall include audited
financial information and pro forma financial information as required by the
1933 Act and the 1934 Act, including, as applicable, Regulations S-X, S-B and
S-K promulgated thereunder and any other securities laws, (C) shall include all
information that would be required to be included in a Form 10-SB, and (D) shall
include any other information required to be disclosed therein pursuant to any
securities laws or other Laws.
(iii) No later than 8:00 a.m. (New York City time) on the
first (1st) Business Day following each Additional Sale Election Notice Date and
each Additional Closing Date, RCGI shall file a Form 8-K with the SEC describing
the terms of the transactions proposed or consummated in connection with such
Additional Sale Election Notice Date or Additional Closing Date, and the
representations and schedules required by Section 7(b)(vii) (each such Form 8-K,
an "Additional Closing Form 8-K").
(iv) Subject to the agreements and covenants set forth in
this Section 4(j), RCGI shall not issue any press releases or any other public
statements with respect to the transactions contemplated hereby or disclosing
the name of Buyer; provided, however, that RCGI shall be entitled, without the
prior approval of Buyer, to make any press release or other public disclosure
with respect to such transactions (A) in substantial conformity with the
Announcing Form 8-K, the Exchange Closing Form 8-K or an Additional Closing Form
8-K and contemporaneously therewith and (B) as is required by applicable Law,
including as is required by Form 8-K or any successor form thereto (provided
that Buyer shall be consulted by RCGI in connection with any such press release
or other public disclosure prior to its release and shall be provided with a
copy thereof upon request).
(v) RCGI represents, warrants and covenants to Buyer
that, from and after the filing of the Exchange Closing Form 8-K with the SEC
(subject to Section 4(n)), Buyer shall not be in possession of any material
nonpublic information received from RCGI, any of the Subsidiaries or any of
their respective officers, directors, employees or agents. Notwithstanding any
provision herein to the contrary, RCGI shall not, and shall cause each of the
Subsidiaries and its and each of their respective officers, directors, employees
and agents not to, provide Buyer with any material nonpublic information
33
regarding RCGI or any of the Subsidiaries from and after the filing of the
Exchange Closing Form 8-K with the SEC, without the express prior written
consent of Buyer. In the event of a breach of the foregoing covenant by RCGI,
any of the Subsidiaries, or any of its or their respective officers, directors,
employees and agents, in addition to any other remedy provided herein or in the
Transaction Documents, Buyer shall have the right to make a public disclosure in
the form of a press release, public advertisement or otherwise, of such material
nonpublic information without the prior approval by RCGI, the Subsidiaries, or
any of its or their respective officers, directors, employees or agents. Buyer
shall not have any liability to RCGI, the Subsidiaries, or any of its or their
respective officers, directors, employees, stockholders or agents for any such
disclosure. Notwithstanding anything to the contrary herein, in the event that
RCGI believes that a notice or communication to Buyer or Investor contains
material, nonpublic information relating to RCGI or any of the Subsidiaries,
RCGI shall so indicate to Buyer or Investor contemporaneously with delivery of
such notice or communication, and such indication shall provide Buyer or
Investor the means to refuse to receive such notice or communication; and in the
absence of any such indication, the holders of the Securities shall be allowed
to presume that all matters relating to such notice or communication do not
constitute material, nonpublic information relating to RCGI or any of the
Subsidiaries. Upon receipt or delivery by RCGI or any of the Subsidiaries of any
notice in accordance with the terms of the Transaction Documents, unless RCGI
has in good faith determined that the matters relating to such notice do not
constitute material, nonpublic information relating to RCGI or the Subsidiaries,
RCGI shall within one Business Day after any such receipt or delivery publicly
disclose such material, nonpublic information pursuant to the securities laws.
k. Pledge of Securities. RCGI acknowledges and agrees that the
Securities of Buyer may be pledged by Buyer or its transferees (each, including
Buyer, an "Investor") in connection with a bona fide margin agreement or other
loan secured by the Securities. The pledge of Securities shall not be deemed to
be a transfer, sale or assignment of the Securities hereunder, and no Investor
effecting any such pledge of Securities shall be required to provide RCGI with
any notice thereof or otherwise make any delivery to RCGI pursuant to this
Agreement or any other Transaction Document, including Section 2(f) of this
Agreement. RCGI hereby agrees to execute and deliver such documentation as a
pledgee of the Securities may reasonably request in connection with a pledge of
the Securities to such pledgee by an Investor.
l. Notices. From the date of this Agreement until the latest of
(X) the date that is the last day of the Additional Note Issuance Period, (Y)
the first date on which no RCGI Notes remain outstanding, and (Z) the date on
which the Security Agreement has terminated (the period ending on such latest
date, the "Security Period").
(i) Locations. Promptly (but in no event less than ten
(10) days prior to the occurrence thereof) notify Buyer of the proposed opening
of any new place of business or new location of Collateral (as defined in the
Security Agreement), the closing of any existing place of business or location
of Collateral, any change in the location of such Person's books, records and
accounts (or copies thereof), the opening or closing of any post office box, the
opening or closing of any bank account or, if any of the Collateral consists of
Goods (as defined in the Security Agreement) of a type normally used in more
than one state, the use of any such Goods in any state other than a state in
which such Person has previously advised Buyer that such Goods will be used.
34
(ii) Names and Trade Names. Notify Buyer in writing (i) at
least thirty (30) days in advance of any change in such Person's legal name and
(ii) within ten (10) days of the change of the use of any trade name, assumed
name, fictitious name or division name not previously disclosed to Buyer in
writing.
(iii) ERISA Matters. Promptly notify Buyer of (x) the
occurrence of any "reportable event" (as defined in the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), which might result in the
termination by the Pension Benefit Guaranty Corporation (the "PBGC") of any
employee benefit plan ("Plan") covering any officers or employees of such
Person, any benefits of which are, or are required to be, guaranteed by the
PBGC, (y) receipt of any notice from the PBGC of its intention to seek
termination of any Plan or appointment of a trustee therefor or (z) its
intention to terminate or withdraw from any Plan.
(iv) Environmental Matters. Immediately notify Buyer upon
becoming aware of any investigation, proceeding, complaint, order, directive,
claim, citation or notice with respect to any non-compliance with or violation
of the requirements of any Environmental Law by such Person or the generation,
use, storage, treatment, transportation, manufacture handling, production or
disposal of any Hazardous Materials in violation of the requirements of any
Environmental Law or any other environmental, health or safety matter which
affects such Person or its business operations or assets or any properties at
which such Person has transported, stored or disposed of any Hazardous
Materials, unless the foregoing could not reasonably be expected to have a
Material Adverse Effect.
(v) Default; Material Adverse Effect. Promptly advise
Buyer of any material adverse change in the business, property, assets,
operations or financial condition of such Person, any other Material Adverse
Effect, or the occurrence of any Event of Default (as defined in any RCGI Notes)
or the occurrence of any event which, if uncured, will become an Event of
Default after notice or lapse of time (or both).
All of the foregoing notices shall be provided by RCGI or the applicable
Subsidiary to Buyer in writing.
m. Compliance with Laws and Maintenance of Permits. During the
Reporting Period, RCGI shall, and shall cause each of the Subsidiaries to,
maintain all governmental consents, franchises, certificates, licenses,
authorizations, approvals and permits, the lack of which would reasonably be
expected to have a Material Adverse Effect and to remain in compliance with all
Laws (including Environmental Laws and Laws relating to taxes, employer and
employee contributions and similar items, securities, ERISA or employee health
and safety) the failure with which to comply would have a Material Adverse
Effect on such Person. Following any determination by Buyer in its sole
discretion that there is non-compliance, or any condition which requires any
action by or on behalf of RCGI or any of the Subsidiaries in order to avoid
non-compliance, with any Environmental Law, Buyer may, at such Person's expense,
cause an independent environmental engineer reasonably acceptable to Buyer to
conduct such tests of the relevant site(s) as are appropriate and prepare and
35
deliver to Buyer a report setting forth the results of such tests, a proposed
plan for remediation and an estimate of the costs thereof, and RCGI and/or its
applicable Subsidiary(ies) shall promptly undertake such recommended or
necessary remedial actions as shall be necessary to avoid a Material Adverse
Effect
n. Inspection and Audits. During the Security Period, (i) RCGI
shall, and shall cause each of the Subsidiaries to, permit Buyer, or any Persons
designated by Buyer, to call at such Person's places of business at any
reasonable times and upon prior notice, and, without unreasonable hindrance or
delay, to inspect, examine and audit the Collateral and to inspect, audit, check
and make extracts from such Person's books, records, journals, orders, receipts
and any correspondence and other data relating to such Person's business, the
Collateral or any transactions between the parties hereto, and shall have the
right to make such verification concerning such Person's business as Buyer may
consider reasonable under the circumstances; and (ii) Buyer, through its
officers, employees or agents shall have the right, at any time and from time to
time, in Buyer's name, to verify the validity, amount or any other matter
relating to any of RCGI's or any of the Subsidiaries' Accounts (as defined in
the Security Agreement), by mail, telephone, telecopy, electronic mail or
otherwise. Notwithstanding anything to the contrary herein, upon written request
to RCGI by Buyer, RCGI shall promptly provide Buyer with any financial,
operating or other type of information requested by Buyer, subject to Buyer's
execution of a confidentiality agreement reasonably acceptable to RCGI, with
respect to such information, which execution shall constitute a waiver, with
respect to any material non-public information regarding RCGI and the Included
Subsidiaries provided to Buyer directly in response to such written request, of
the restriction herein on RCGI's disclosure to Buyer of material nonpublic
information. RCGI shall pay to Buyer all costs and out-of-pocket expenses
incurred by Buyer in the exercise of its rights hereunder, and all of such fees,
costs and expenses shall constitute Indebtedness hereunder, shall be payable on
demand and, until paid, shall bear interest at the Interest Rate (as defined in
the RCGI Note).
o. Insurance. During the Security Period, RCGI shall, and RCGI
shall cause each of the Subsidiaries to:
(i) Keep the Collateral properly housed (to the extent
possible) and insured for the full insurable value thereof against loss or
damage by fire, theft, explosion, sprinklers, collision (in the case of motor
vehicles) and such other risks with companies that regularly insure Persons
engaged in businesses similar to that of such Person, such coverage and the
premiums payable in respect thereof to be acceptable in scope and amount to the
Collateral Agent. Original (or certified) copies of such policies of insurance
have been or shall be, no later than ten (10) days prior to the Exchange Closing
Date and each Additional Closing Date, delivered to Buyer, together with
evidence of payment of all premiums therefor, and shall contain an endorsement,
in form and substance reasonably acceptable to Collateral Agent, showing loss
under such insurance policies payable to Collateral Agent. Such endorsement, or
an independent instrument furnished to the Collateral Agent, shall provide that
the insurance company shall give the Collateral Agent at least 30 days written
notice before any such policy of insurance is altered or canceled and that no
act, whether willful or negligent, or default of RCGI or the applicable Included
Subsidiary or any other Person shall affect the right of the Collateral Agent to
recover under such policy of insurance in case of loss or damage. In addition,
36
RCGI or the applicable Included Subsidiary shall cause to be executed and
delivered to the Collateral Agent an assignment of proceeds of its business
interruption insurance policies (if any).
(ii) Maintain, at its expense, such public liability and
third party property damage insurance with companies that regularly insure
Persons engaged in businesses similar to that of such Person, such coverage and
the premiums payable in respect thereof to be acceptable in scope and amount to
the Collateral Agent. Original (or certified) copies of such policies have been
or shall be, no later than ten (10) days prior to the Exchange Closing Date,
delivered to Buyer, together with evidence of payment of all premiums therefor;
each such policy shall contain an endorsement showing the Collateral Agent as an
additional insured thereunder and providing that the insurance company shall
give Collateral Agent at least thirty (30) days written notice before any such
policy shall be altered or canceled.
(iii) If RCGI or any of the Included Subsidiaries at any
time or times hereafter shall fail to obtain or maintain any of the policies of
insurance required above or to pay any premium relating thereto, Buyer, without
waiving or releasing any obligation or default by RCGI hereunder, may (but shall
be under no obligation to) obtain and maintain such policies of insurance and
pay such premiums and take such other actions with respect thereto as Buyer
deems advisable. Such insurance, if obtained by Buyer, may, but need not,
protect RCGI's and the Included Subsidiaries' interests or pay any claim made by
or against RCGI and the Included Subsidiaries with respect to the Collateral.
Such insurance may be more expensive than the cost of insurance RCGI and the
Included Subsidiaries may be able to obtain on their own and may be cancelled
only upon RCGI and the Included Subsidiaries' providing evidence that they have
obtained the insurance as required above. All sums disbursed by Buyer in
connection with any such actions, including court costs, expenses, other charges
relating thereto and reasonable attorneys' fees, shall constitute Indebtedness
under the RCGI Notes, shall be payable on demand by RCGI to Buyer and, until
paid, shall bear interest at the highest rate then applicable to principal under
the RCGI Notes.
p. Collateral. During the Security Period, RCGI shall, and shall
cause the Included Subsidiaries to, maintain the Collateral in good condition,
repair and order and shall make all necessary repairs to the Equipment (as
defined in the Security Agreement) and replacements thereof so that the
operating efficiency and the value thereof shall at all times be preserved and
maintained, subject to normal wear and tear after the Exchange Closing Date.
q. Taxes. During the Security Period, RCGI shall, and RCGI shall
cause each of the Subsidiaries to file all required tax returns and pay all of
its taxes when due, subject to any extensions granted by the applicable taxing
authority, including taxes imposed by federal, state or municipal agencies, and
shall cause any Liens for taxes to be promptly released; provided, that a Person
shall have the right to contest the payment of such taxes in good faith by
appropriate proceedings so long as (i) the amount so contested is shown on such
Person's financial statements; (ii) the contesting of any such payment does not
give rise to a Lien for taxes; (iii) such Person keeps on deposit with the
Collateral Agent (such deposit to be held without interest) an amount of money
which, in the sole judgment of the Collateral Agent, is sufficient to pay such
taxes and any interest or penalties that may accrue thereon; and (iv) if such
Person fails to prosecute such contest with reasonable diligence, the Collateral
37
Agent may apply the money so deposited in payment of such taxes. If RCGI or an
Included Subsidiary fails to pay any such taxes (other than taxes not yet due,
subject to an extension or subject to a contest) and in the absence of any such
contest by such Person, Buyer may (but shall be under no obligation to) advance
and pay any sums required to pay any such taxes and/or to secure the release of
any Lien therefor, and any sums so advanced by Buyer shall constitute
Indebtedness under the RCGI Notes, shall be payable by RCGI to Buyer on demand,
and, until paid, shall bear interest at the highest rate then applicable to
principal under the RCGI Notes.
r. Intellectual Property. During the Reporting Period, RCGI
shall, and shall cause each of the Subsidiaries to, maintain adequate licenses,
patents, patent applications, copyrights, service marks and trademarks to
continue its business as presently proposed to be conducted by it (including as
described to Buyer prior to the date hereof) or as hereafter conducted by it,
unless the failure to maintain any of the foregoing would not reasonably be
expected to have a Material Adverse Effect.
s. Patriot Act, Investor Secrecy Act and Office of Foreign Assets
Control. As required by federal law and Buyer's policies and practices, Buyer
may need to obtain, verify and record certain customer identification
information and documentation in connection with opening or maintaining
accounts, or establishing or continuing to provide services, and, from the date
of this Agreement until the end of the Reporting Period, RCGI agrees to, and
shall cause each of the Subsidiaries to, provide such information.
t. Drilling Title Opinions. During the Security Period, prior to
RCGI's or any of the Subsidiaries' drilling on any of the Real Property, RCGI or
such Included Subsidiary will obtain a customary drilling title opinion with
respect to such Real Property. Upon written request to RCGI by Buyer, RCGI shall
promptly provide Buyer with a copy of such drilling title opinion, subject to
Buyer's execution of a confidentiality agreement reasonably acceptable to RCGI
with respect thereto; provided, however, that any such request shall constitute
a waiver, with respect to any material non-public information regarding RCGI and
the Included Subsidiaries contained in such drilling title opinion, of the
restriction herein on RCGI's disclosure to Buyer of material non-public
information.
u. Security Covenants. During the Security Period, RCGI shall,
and RCGI shall cause each of the Included Subsidiaries to, at its own respective
cost and expense, cause to be promptly and duly taken, executed, acknowledged
and delivered all such further acts, documents and assurances as may from time
to time be necessary or as Buyer or the Collateral Agent may from time to time
request in order to carry out the intent and purposes of this Agreement, the
Security Documents and the other Transaction Documents and the transactions
contemplated hereby and thereby, including all such actions to establish,
create, preserve, protect and perfect a first priority Lien (subject only to
Permitted Liens) in favor of the Collateral Agent for the benefit of Buyer on
the Collateral (as each term is defined in the Security Agreement, and including
Collateral acquired after the date hereof), including on any and all assets of
RCGI and each of the Included Subsidiaries, whether now owned or hereafter
acquired.
38
(i) Without limiting the generality of the foregoing, in
the event that RCGI or any of the Included Subsidiaries shall, at any time
during the Security Period, acquire or form any new Included Subsidiary after
the date hereof, RCGI shall, or shall cause the respective Included Subsidiary
to cause such new Subsidiary (which shall be an Included Subsidiary), upon such
acquisition or concurrently with such formation, as applicable, (A) to execute,
and thereafter perform its obligations under, the Security Agreement and the
Guaranty and to take such other action (including authorizing the filing of such
UCC financing statements and delivering certificates in respect of the equity
securities of such Included Subsidiary), as shall be necessary or appropriate to
establish, create, preserve, protect and perfect a first priority Lien (subject
only to Permitted Liens) in favor of Collateral Agent for the benefit of
Collateral Agent and Buyer on all assets, both real and personal, in which such
new Subsidiary has or may thereafter acquire any interest, (B) to execute such
other Security Documents, in form and content acceptable to Collateral Agent, as
may be required or requested by Collateral Agent in connection with the actions
contemplated by the preceding clause (A), and (C) to deliver such proof of
corporate (or comparable) action, incumbency of officers, opinions of counsel
and other documents as Collateral Agent shall have reasonably required or
requested.
(ii) During the Security Period, (A) RCGI shall, and RCGI
shall cause each of the Included Subsidiaries to, take such action from time to
time as shall be necessary to ensure that each of the Subsidiaries is a
wholly-owned Subsidiary, and that Collateral Agent shall have, for the benefit
of Collateral Agent and Buyer, a first priority Lien on all Capital Stock or
other equity securities of each of the Included Subsidiaries concurrently with
acquisition or formation of such Subsidiary; and (B) RCGI shall, or shall cause
each of the Included Subsidiaries to deliver promptly to Collateral Agent, to
the extent required by the applicable Security Documents, the certificates
evidencing such securities, accompanied by undated powers executed in blank and
to take such other action as Collateral Agent shall request to perfect the
security interest created therein pursuant to such Security Documents. As used
in this Agreement, "Capital Stock" means any and all shares, interests,
participations or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person (other than
a corporation) and any and all warrants, rights or options to purchase any of
the foregoing.
(iii) Concurrently with the acquisition by RCGI or any of
Included Subsidiaries, at any time during the Security Period, of any real
estate or real property leasehold interests, RCGI shall deliver or cause to be
delivered to the Collateral Agent, with respect to such real estate, (A) a
mortgage or deed of trust, as applicable, in form and substance satisfactory to
the Collateral Agent, executed by the title holder thereof, (B) an ALTA lender's
title insurance policy issued by a title insurer reasonably satisfactory to the
Collateral Agent in form and substance and in amounts reasonably satisfactory to
the Collateral Agent ensuring the Collateral Agent's first priority Lien on such
real estate, free and clear of all defects, encumbrances and Liens except
Permitted Liens; (C) a current ALTA survey, certified to the Collateral Agent by
a licensed surveyor, in form and substance satisfactory to the Collateral Agent,
(D) a certificate, in form and substance acceptable to the Collateral Agent, to
the Collateral Agent from a national certification agency acceptable to the
Collateral Agent, certifying that such real estate is not located in a special
flood hazard area, and (E) in the case of real estate that consists of a
leasehold estate, such estoppel letters, consents and waivers from the landlords
and non-disturbance agreements from any holders of mortgages or deeds of trust
39
on such real estate as may be requested by the Collateral Agent, all of which
shall be in form and substance satisfactory to the Collateral Agent.
(iv) With respect to any Production Proceeds (as defined
in the Mortgages) received by RCGI or any of the Included Subsidiaries during
the Security Period which constitute (A) payment of oil or gas proceeds received
on account of, or for the benefit of, any third-party owner of oil or gas
interests or (B) taxes, charges, costs and expenses that are required to be paid
on account of such Production Proceeds on account of, or for the benefit of, any
third-party owner of oil or gas interests (the items in clauses (A) and (B), the
"Third-Party Production Proceeds"), RCGI shall, and shall cause such Included
Subsidiaries to, segregate that portion of Production Proceeds received on any
day constituting Third-Party Production Proceeds into a segregated Deposit
Account (as defined in the Security Agreement) covered by an Account Control
Agreement (as defined in the Security Agreement) which only has Third-Party
Production Proceeds on deposit therein at any time. RCGI shall, and shall cause
such Included Subsidiaries to, deposit all Production Proceeds not constituting
Third-Party Production Proceeds into a Deposit Account of RCGI or such Included
Subsidiary, respectively, which does not contain Third-Party Production Proceeds
or any other Production Proceeds that are subject to an ownership interest or
other claim by any third-party. RCGI shall provide written notice to the holders
of the RCGI Notes as to which Deposit Account is segregated for Third-Party
Production Proceeds, and shall not change the Deposit Account segregated for
Third-Party Production Proceeds without prior written consent of the holders of
the RCGI Notes. RCGI shall, and shall cause such Included Subsidiaries to,
receive, collect and enforce their rights to receive payment of Production
Proceeds, enforcing liens and security interests in respect thereof and
protecting their interests in and to all Production Proceeds.
(v) During the Security Period, RCGI shall, and shall
cause each of the Included Subsidiaries to, (A) refrain from engaging to any
extent in any business other than the ownership and operation of oil, gas and
other hydrocarbon drilling, exploration and development rights, concessions,
working interests and participation interests and hydrocarbon transportation
facilities and businesses reasonably related thereto or in furtherance thereof,
and (B) preserve, renew and keep in full force and effect their respective
material rights, privileges and franchises necessary or desirable in the normal
conduct of their business.
v. Subsidiary Interests. At all times following the Exchange
Closing, all of the equity interests of each of the Included Subsidiaries shall
be certificated or otherwise represented in tangible form. At all times
following the date of this Agreement, all of the equity interests of Sonterra
shall be certificated or otherwise represented in tangible form.
w. Divestiture. RCGI shall sell, transfer or otherwise divest
itself of all interests in the Excluded Subsidiaries in a transaction that is
negotiated on an arm's length basis, is on terms and conditions that RCGI
reasonably believes are no less favorable to RCGI than those that would have
been obtained on an arm's length basis from a third party that is not a Related
Party (the "Divestiture"), as soon as reasonably practicable after the Exchange
Closing Date and following the Divestiture shall have no interest in, or
obligations with respect to, any of the assets or liabilities of the Excluded
Subsidiaries or the businesses thereof. RCGI shall not incur, or be subject to,
40
any expense or liability in connection with the Divestiture. As of the date
hereof and at all times, thereafter, no Excluded Subsidiary (while it remains a
Subsidiary) shall employ any employees, or engage in any business operations or
other activities, and except for the Permitted Insurance Sub Accounts and the
Permitted Insurance Sub Funds, no Excluded Subsidiary shall have, or be
authorized to maintain, any bank account, brokerage account or other account
with any financial institution, or possess any cash or have, or be authorized,
to have any other means to acquire cash or to use or spend cash or credit. At no
time prior to the Divestiture shall any additional monies or funds shall be
deposited, or be permitted to be deposited, into the Permitted Insurance Sub
Account. As used in this Agreement, the "Permitted Insurance Sub Accounts" means
the bank accounts of the Excluded Subsidiaries listed on Schedule 3(u) as each
such account exists as of the date of this Agreement; and "Permitted Insurance
Sub Funds" means funds in the Permitted Insurance Sub Accounts necessary to
capitalize the Excluded Subsidiaries for purposes of maintaining their insurance
license, in an amount not in excess of $135,000.
x. Existing Options. RCGI shall, and RCGI shall cause each of the
Subsidiaries to, at its own respective cost and expense, cause to be promptly
and duly taken, executed, acknowledged and delivered all such further acts,
documents and assurances as may be necessary or proper, or as Buyer may
reasonably request, to cancel and otherwise terminate, all rights and
obligations with respect to, all Existing Options.
y. Further Instruments and Acts. From the date of this Agreement
until the end of the Reporting Period, upon request of Buyer, and RCGI will
execute and deliver such further instruments and do such further acts as may be
reasonably necessary or proper to carry out more effectively the purposes of
this Agreement and the other Transaction Documents.
z. Guarantee of Obligations under Sonterra SPA. From and after
the Exchange Closing, RCGI shall, and hereby does, fully, irrevocably and
unconditionally guarantee, to the Buyer and the Collateral Agent, not merely as
a surety but also as a co-debtor, the prompt and complete payment and
performance by Sonterra of all of its liabilities and obligations (including
indemnification obligations) under the Sonterra SPA, excluding any obligations
with respect to any securities cancelled pursuant to Section 1(a)(i). RCGI
agrees to execute such further documentation and take such further action as is
necessary to carry out the intent of this provision.
aa. Information Statement.
---------------------
(i) RCGI shall (A) as promptly as reasonably practicable
after the date of this Agreement, prepare and file with the SEC the Information
Statement, (B) respond as promptly as reasonably practicable to any comments
received from the SEC with respect thereto and provide copies of such comments
to the Buyer promptly upon receipt, (C) as promptly as reasonably practicable
prepare and file any amendments or supplements necessary to be filed in response
to any SEC comments or as required by Law, (D) use its reasonable best efforts
to have cleared by the SEC the Information Statement and all other customary
materials relating thereto, (E) cause the Information Statement and all required
amendments and supplements thereto to be mailed to the holders of RCGI Common
Shares entitled to receipt thereof as promptly as reasonably practicable after
41
the later of (I) the tenth (10th) day after the filing of the preliminary
Information Statement with the SEC or (II) the second Business Day after RCGI is
notified by the SEC that (1) it will not be reviewing the Information Statement
or (2) that it has no further comments on the preliminary Information Statement,
(F) to the extent required by applicable Law, as promptly as reasonably
practicable prepare, file and distribute to RCGI's stockholders any supplement
or amendment to the Information Statement if any event shall occur which
requires such action at any time prior to the Exchange Closing Date, and (G)
otherwise use its reasonable best efforts to comply with all requirements of Law
applicable to the Information Statement and the transactions contemplated
hereby. The Buyer shall cooperate with RCGI in connection with the preparation
and filing of the Information Statement, including promptly furnishing RCGI upon
request with any information with respect to the Buyer as may be required to be
set forth in the Information Statement under the 1934 Act. RCGI will provide to
the Buyer and its counsel the reasonable opportunity to review and comment upon
the Information Statement, or any amendments or supplements thereto, prior to
filing the same with the SEC. If, at any time prior to the Exchange Closing
Date, any information relating to RCGI, the Subsidiaries or any of their
respective Affiliates should be discovered by RCGI which should be set forth in
an amendment or supplement to the Information Statement, so that the Information
Statement, as applicable, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading, RCGI shall promptly notify the Buyer
and, to the extent required by applicable Law, RCGI shall disseminate an
appropriate amendment thereof or supplement thereto describing such information
to RCGI's stockholders.
(ii) RCGI represents, warrants and covenants that (A) none
of the information included or incorporated by reference in the Information
Statement or any other document filed with the SEC in connection with the
transactions contemplated by this Agreement (the "Other Filings") shall, in the
case of the Information Statement, at the date it is first mailed to RCGI's
stockholders or on the Exchange Closing Date or at the time of any amendment or
supplement thereof, or, in the case of any Other Filing, at the date it is first
mailed to RCGI's stockholders or at the date it is first filed with the SEC,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that no representation, warranty or covenant is made by RCGI
with respect to statements made therein with respect to the Buyer based on
information supplied by the Buyer in writing to RCGI in connection with the
preparation of the Information Statement or the Other Filings expressly for
inclusion therein and (B) the Information Statement shall comply as to form in
all material respects with the applicable requirements of the 1934 Act.
(iii) The Buyer represents, warrants and covenants that
none of the information supplied by the Buyer in writing to RCGI expressly for
inclusion in the Information Statement or the Other Filings will, in the case of
the Information Statement, at the date it is first mailed to RCGI's stockholders
or on the Exchange Closing Date or at the time of any amendment or supplement
thereof, or, in the case of any Other Filing, at the date it is first mailed to
RCGI's stockholders or at the date it is first filed with the SEC, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
42
bb. Additional Financial Information. RCGI shall deliver to Buyer
on the Exchange Closing Date and on each Additional Closing Date, a pro forma
consolidated balance sheet (the "Pro Forma Balance Sheet") of RCGI and the
Subsidiaries dated as of the date of the last day of the period covered by the
most recently filed Periodic Report, and a pro forma capitalization table (the
"Pro Forma Cap Table") of RCGI as of such Closing Date, that give effect to the
transactions contemplated by this Agreement and each of the other Transaction
Documents as occurring on or as of such Closing Date. RCGI represents and
warrants to Buyer that each of the Pro Forma Balance Sheet and the Pro Forma Cap
Table, (i) shall fairly present such pro forma financial position or
capitalization, as applicable, (ii) shall be prepared based upon assumptions
that provide a reasonable basis for presenting the effects of such transactions,
and the pro forma adjustments shall give appropriate effect to such assumptions,
(iii) shall be based upon financial information prepared in accordance with
GAAP, (iv) shall be consistent with the books and records of RCGI and the
Subsidiaries and their respective predecessors (which shall be true, accurate
and complete) and (v) shall fairly present such information as of the dates
presented.
5. NEGATIVE COVENANTS
------------------
a. Prohibition Against Variable Priced Securities. From the date
of this Agreement until the end of the Reporting Period, (i) RCGI shall not in
any manner issue or sell any Options (as defined below) or Convertible
Securities that are convertible into or exchangeable or exercisable for RCGI
Common Shares at a price that varies or may vary with the market price of RCGI
Common Shares, including by way of one or more resets to a fixed price or
increases in the number of RCGI Common Shares issued or issuable, or at a price
that upon the passage of time or the occurrence of certain events automatically
is reduced or is adjusted or at the option of any Person may be reduced or
adjusted, whether or not based on a formulation of the then-current market price
of the RCGI Common Shares. From the date of this Agreement until the Exchange
Closing Date, RCGI shall not, nor shall it permit any of the Subsidiaries, to
issue any RCGI Common Shares, Options, Convertible Securities or other
securities of any type, other than RCGI Common Shares issuable upon exercise of
the Warrants or the Initial Officer Options.
b. Status. From the date of this Agreement until the end of the
Reporting Period, RCGI shall not, nor will it permit any of the Subsidiaries to,
become a USRPHC; and upon Buyer's request, RCGI shall inform Buyer whether any
of the Securities then held by Buyer constitute a U.S. real property interest
pursuant to Treasury Regulation Section 1.897-2(h) without regard to Treasury
Regulation Section 1.897-2(h)(3).
c. Stay, Extension and Usury Laws. RCGI covenants (to the extent
that it may lawfully do so) that it shall not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law or other law that would prohibit or forgive it from
paying all or any portion of any principal of, or interest or premium on, any of
the RCGI Notes as contemplated herein or therein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of any of the Transaction Documents; and RCGI (to the extent it may
lawfully do so), on behalf of itself and the Subsidiaries, hereby expressly
43
waives all benefit or advantage of any such law, and covenants that it will not,
by resort to any such law, hinder, delay or impede the execution of any power
herein granted to Buyer, but will suffer and permit the execution of every such
power as though no such law has been enacted.
d. Payment Restrictions Affecting Subsidiaries. From the date of
this Agreement until the later of end of the Security Period, (i) RCGI shall
not, nor will it permit any of the Subsidiaries to, enter into or assume any
agreement prohibiting or otherwise restricting the creation or assumption of any
Lien upon its properties or assets, whether now owned or hereafter acquired, or
requiring the grant of any security for an obligation, except to the extent any
such agreement provides for Permitted Liens; and (ii) except as provided herein,
RCGI shall not, and shall not cause or permit the Subsidiaries to, directly or
indirectly create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or consensual restriction of any kind on the ability of
any such Subsidiary to: (A) pay dividends or make any other distribution on any
of such Person's Capital Stock owned by RCGI or any other Subsidiary; (B) pay
any Indebtedness owed to RCGI or any other Subsidiary; (C) make loans or
advances to RCGI or any other Subsidiary; or (D) transfer any of its property or
assets to RCGI or any other Subsidiary.
e. Prepayments. Except for the intercompany indebtedness, from
the date of this Agreement until the end of the Reporting Period, RCGI shall
not, nor will RCGI permit any of the Subsidiaries to, prepay any Indebtedness
that is in parity with or subordinate to the RCGI Notes by structure or
contract.
f. Indebtedness. From the date of this Agreement until the end of
the Reporting Period, RCGI shall not, and RCGI shall cause each of the
Subsidiaries not to, create, incur, assume, extend the term of, become obligated
on or suffer to exist (directly or indirectly), any Indebtedness other than
Indebtedness under the RCGI Notes issued pursuant to this Agreement, except that
RCGI and the Subsidiaries may, after the Exchange Closing, (i) incur
non-convertible Indebtedness for borrowed money in an aggregate principal amount
outstanding not in excess of $3,000,000, but only to the extent (A) a
subordination agreement in favor of and in form and substance satisfactory to
Buyer in its sole and absolute discretion is executed and delivered to Buyer
with respect thereto (which subordination agreement shall prohibit payments in
respect of such subordinated Indebtedness for so long as any RCGI Notes are
outstanding), (B) the terms of such subordinated Indebtedness does not require
or permit payment of principal thereon until at least ninety (90) days after the
Maturity Date of any outstanding RCGI Notes, and (C) such subordinated
Indebtedness is not secured by any of the assets of RCGI or any of the
Subsidiaries; (ii) incur purchase money Indebtedness or Capital Lease
Obligations in an aggregate amount not to exceed $200,000 outstanding at any
time; (iii) incur unsecured intercompany Indebtedness amongst RCGI and one or
more of its wholly-owned domestic Subsidiaries that is a party to, and in
compliance with, the Security Agreement and the Guaranty, to the extent such
Indebtedness is evidenced by a promissory note that has been pledged to
Collateral Agent; (iv) incur Indebtedness of RCGI and the Subsidiaries for
taxes, assessments, municipal or governmental charges not yet due; and (v) incur
obligations of RCGI and the Subsidiaries resulting from endorsements for
collection or deposit in the ordinary course of business.
44
g. Liens. From the date of this Agreement until the later of end
of the Reporting Period and the date the Security Agreement has terminated, RCGI
shall not, and shall cause each of the Subsidiaries not to, grant or suffer to
exist (voluntarily or involuntarily) any Lien, claim, security interest or other
encumbrance whatsoever on any of its assets, other than Permitted Liens.
h. Sale of Collateral. During the Security Period, neither RCGI
nor any of the Subsidiaries shall sell, transfer, farm-out, assign or dispose of
any Real Property (and any of the Collateral used in connection with the
operation of such Real Property) (a "Collateral Disposition"), except in a good
faith, arm's length transaction with Persons who are not officers or directors,
provided that (i) the net cash proceeds of the Collateral Disposition are
immediately deposited into a Deposit Account (as defined in the Security
Agreement) covered by an Account Control Agreement, or, if any of the
consideration consists of Real Property or other assets, Buyers is provided with
a valid, perfected, first priority security interest therein within two Business
Days of the Collateral Disposition, (ii) immediately before and immediately
after giving effect to such Collateral Disposition, no Event of Default (as
defined in the RCGI Notes) shall have occurred and be continuing, and, within
the 90 days prior to such Collateral Disposition, no event shall have occurred
that, with the giving of notice or passage of time and without being cured would
constitute an Event of Default (any such Collateral Disposition, a "Permitted
Collateral Disposition"), and (iii) immediately before and immediately after
giving effect to such Collateral Disposition, there shall not be a Financial
Covenant Test Failure, and if such Collateral Disposition had occurred as of the
last day of the period covered by the most recently filed Periodic Report, there
would not have been a Financial Covenant Test Failure. Upon a Permitted
Collateral Disposition, the Buyer shall, and shall cause the Collateral Agent
(if applicable), at RCGI's sole expense, to promptly release any Lien
encumbering that portion of the Real Property and any of the Collateral used in
connection with the operation of such Real Property that is sold, transferred,
farmed-out, assigned, or disposed of, provided that RCGI and each applicable
Subsidiary shall have delivered to the Buyer or the Collateral Agent (if
applicable) a written notice from RCGI and each applicable Subsidiary, which
notice shall contain no material non-public information, (1) requesting the
release of the Liens encumbering the Real Property and Collateral to be sold,
transferred, farmed-out, assigned or disposed of, (2) describing the proposed
Real Property and Collateral sold, transferred, farmed-out, assigned or disposed
of, (3) stating the purchase price or other property to be received in
consideration for such sale or disposition of such Real Property and Collateral,
(4) if there is to be a substitution of Real Property or other assets for the
Real Property (and any related Collateral) that is subject to the Collateral
Disposition, specifying the Real Property or other assets intended to be
substituted therefor, (5) attaching an officer's certificate certifying that the
Permitted Collateral Disposition is in compliance with each of the requirements
of clause (ii) of the immediately preceding sentence and (6) attaching the form
of release requested by RCGI or its applicable Subsidiary to be authorized or,
if necessary, executed by the Secured Parties (as defined in the Security
Agreement) or the Collateral Agent, if applicable.
i. Corporate Existence; Leases. During the Reporting Period, the
RCGI shall maintain its corporate existence and shall not sell all or
substantially all of the RCGI's assets (including, for the avoidance of any
doubt, all or substantially all of the assets of the Subsidiaries in the
aggregate), except in the event of a merger or consolidation or sale or transfer
of all or substantially all of the RCGI's assets (including, for the avoidance
45
of any doubt, all or substantially all of the assets of the Subsidiaries in the
aggregate) where (i) the surviving or successor entity in such transaction (A)
assumes the RCGI's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (B) is a publicly traded
corporation whose common stock is listed on a national securities exchange, (ii)
immediately before and immediately after giving effect to such transaction, no
Event of Default (as defined in the RCGI Notes) shall have occurred and be
continuing, and (iii) immediately before and immediately after giving effect to
such transaction, there shall not be a Financial Covenant Test Failure, and if
such transaction had occurred as of the last day of the period covered by the
most recently filed Periodic Report, there would not have been a Financial
Covenant Test Failure. From the date of this Agreement until the first date
following the Closing Date on which the RCGI Notes and Warrant are not
outstanding, RCGI shall, and shall cause each of its Subsidiaries to, refrain
from violating, breaching or defaulting under in any respect, or taking or
failing to take any action that (with or without notice or lapse of time or
both) would constitute a violation or breach of, or default under, any term or
provision of any Lease to which RCGI or any of its Subsidiaries is a party,
except to the extent such violation, breach or default, action or inaction would
not and would not be reasonably expected to have, either individually or in the
aggregate, a Material Adverse Effect.
j. Restriction on Loans; Investments; Subsidiary Equity. During
the Security Period, RCGI shall not, and shall not permit any of its
Subsidiaries to, (i) except for Permitted Investments (as defined herein) in
which the holders of the RCGI Notes have a valid, perfected first priority
security interest, make any loans to, or investments in, any other person or
entity, including through lending money, deferring the purchase price of
property or services (other than trade accounts receivable on terms of 90 days
or less), purchasing any note, bond, debenture or similar instrument, entering
into any letter of credit, guaranteeing (or taking any action that has the
effect of guaranteeing) any obligations of any other person or entity, or
acquiring any equity securities of, or other ownership interest in, or making
any capital contribution to any other entity, other than unsecured intercompany
indebtedness permitted by Section 5(f) (and not otherwise prohibited hereunder)
and capital contributions to Included Subsidiaries incident to the formation and
capitalization of such Included Subsidiaries in accordance with this Agreement
and limited to de minimis amounts necessary to form and capitalize such Included
Subsidiaries, (ii) invest in, participate in, lease, purchase, obtain or
otherwise acquire any real property, facilities, or oil, gas or other mineral
drilling, exploration or development rights, concessions, working interests or
participation interests (collectively, "Interests"), in which Buyer is not
granted a valid, perfected first priority security interest in such Interests,
or (iii) issue, transfer or pledge any capital stock or equity interest in any
Subsidiary to any Person other than RCGI (other than the Divesture). "Permitted
Investments" means any investment in (A) direct obligations of the United States
or obligations guaranteed by the United States, in each case which mature and
become payable within 90 days of the investment by the Company or any
Subsidiary, (B) commercial paper rated at least A-1 by Standard & Poor's Ratings
Service and P-1 by Xxxxx'x Investors Services, Inc., (C) time deposits with,
including certificates of deposit issued by, any office located in the United
States of any bank or trust company which is organized under the laws of the
United States or any State thereof and has capital, surplus and undivided
profits aggregating at least $250,000,000 and which issues (or the parent of
which issues) certificates of deposit or commercial paper with a rating
described in clause (B) above, in each case which mature and become payable
46
within 90 days of the investment by the Company or any Subsidiary, (D)
repurchase agreements with respect to securities described in clause (A) above
entered into with an office of a bank or trust company meeting the criteria
specified in clause (C) above, provided in each case that such investment
matures and becomes payable within 90 days of the investment by the Company or
any Subsidiary, or (E) any money market or mutual fund which invests only in the
foregoing types of investments and the liquidity of which is satisfactory to the
Secured Party (as defined in the Security Agreement).
k. Equipment. During the Security Period, RCGI shall not, and
shall cause each of the Subsidiaries not to, (i) permit any Equipment to become
a fixture to Real Property unless such Real Property is owned or leased by such
Person and is subject to a mortgage in favor of the Collateral Agent, for the
benefit of Buyer, and if such Real Property is leased, is subject to a
landlord's agreement in favor of Buyer on terms acceptable to the Collateral
Agent, or (ii) permit any Equipment to become an accession to any other personal
property unless such personal property is subject to a first priority perfected
Lien in favor of the Collateral Agent, for the benefit of Buyer and any other
holders of the RCGI Notes.
l. Affiliate Transactions. During the Reporting Period, RCGI
shall not, and shall cause each of the Subsidiaries not to, enter into, amend,
modify or supplement any transaction, contract, agreement, instrument,
commitment, understanding or other arrangement with any Related Party, except
for transactions with Buyer, the Collateral Agent or Longview International and
intercompany transactions between or among RCGI and its wholly-owned Included
Subsidiaries, in each case as permitted (and not otherwise prohibited)
hereunder, and customary employment arrangements and benefit programs, on
reasonable terms, that are not otherwise prohibited by this Agreement.
m. Settling of Accounts. From the date of this Agreement until
the end of the Security Period, RCGI shall not, and shall cause each of the
Subsidiaries not to, sell, discount, settle or adjust any Account (as defined in
the Security Agreement); provided, that after the Exchange Closing, so long as
no Event of Default shall have occurred and be continuing, RCGI and the
Subsidiaries may (i) discount or settle past due Accounts on an arm's length
basis in the ordinary course of business, and (ii) provide early payment
discounts in respect of Accounts in the ordinary course of business, consistent
with past practice.
n. Executive Compensation. During the Reporting Period, RCGI
shall not, and shall cause each of the Subsidiaries not to, pay any salary,
bonus, management, consulting, incentive or other compensation, or provide any
perquisites or benefits, to any of the Principals except as set forth in their
respective Employment Agreements and shall not modify or amend any such
Employment Agreement.
o. Limitation on Sale and Leaseback Transactions. During the
Reporting Period, RCGI shall not, and shall cause each of the Subsidiaries not
to, directly or indirectly, enter into any arrangement with any Person whereby
in a substantially contemporaneous transaction RCGI or any of the Subsidiaries
sells or transfers all or substantially all of its right, title and interest in
an asset and, in connection therewith, acquires or leases back the right to use
such asset.
47
p. Investment Company; Public Utility. During the Reporting
Period, RCGI shall not, and shall cause each of the Subsidiaries not to, become
an "investment company," a company controlled by an "investment company," or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940; nor shall RCGI become, or permit any of the Subsidiaries to become,
subject to regulation as (i) a "public utility," (ii) "public utility company,"
(iii) a "holding company" of a "public utility" or a "public utility company,"
(iv) a "subsidiary company" of a such a "holding company," or (v) an affiliate
of a such a "holding company" or such a "subsidiary company," in each case as
such terms or similar terms are used within the meaning of any Law.
q. Real Property Leases. During the Security Period, RCGI shall
not, and shall cause each of the Subsidiaries not to, amend, modify, violate,
breach or default under in any respect, or take or fail to take any action that
(with or without notice or lapse of time or both) would constitute a violation
or breach of, or default under, any term or provision of, or would result in a
reversion of rights to a Person under, any Real Property Lease to which RCGI or
any of the Subsidiaries is a party, except to the extent such amendment,
modification, violation, breach or default, action or in-action could not
reasonably be expected, either individually or in the aggregate, to have a
Material Adverse Effect.
r. Restriction on Purchases or Payments. During the Security
Period, RCGI shall not, and RCGI shall cause each of the Subsidiaries not to,
(i) declare, set aside or pay any dividends on or make any other distributions
(whether in cash, stock, equity securities or property) in respect of any
Capital Stock or split, combine or reclassify any Capital Stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for any Capital Stock; provided however, that any Subsidiary may
declare, set aside or pay any dividends on or make any other distributions
(whether in cash, stock, equity securities or property) in respect of any of its
Capital Stock that is held solely by RCGI or by a domestic Subsidiary, provided
that all of the equity of such domestic Subsidiary is directly or indirectly
owned by RCGI, such domestic Subsidiary is controlled by RCGI and such domestic
Subsidiary is a party to the Guaranty Agreement and the Security Agreement, or
(ii) purchase, redeem or otherwise acquire, directly or indirectly, any shares
of RCGI's Capital Stock or the Capital Stock of any of the Subsidiaries.
s. No Avoidance of Obligations. During the Reporting Period, RCGI
shall not, and shall cause each of the Subsidiaries not to, enter into any
agreement which would limit or restrict RCGI's or any of the Subsidiaries'
ability to perform under, or take any other voluntary action to avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed by it under, this Agreement, the RCGI Notes or the other Transaction
Documents.
t. Right to Participate in Future Financing. Subject to the
exceptions described below, during the period beginning on the date hereof and
ending on the later of (i) the second (2nd) anniversary of the Exchange Closing
and (ii) sixty (60) days after the first date following the Exchange Closing on
which no RCGI Notes remain outstanding, RCGI shall not, and RCGI shall cause
each of the Subsidiaries not to, (x) contract with any party for any debt or
equity financing (including any debt financing with an equity component), (y)
issue any debt or equity securities of RCGI or any Subsidiary or securities
48
convertible, exchangeable or exercisable into or for debt or equity securities
of RCGI or any Subsidiary (including debt securities with an equity component)
or (z) engage in "farm-out" financing transactions or similar transactions which
do not have operating obligations by the financing party as a material
component, in any form (a "Future Offering"), unless, after such Person has
received an offer regarding a Future Offering that it has a bona fide intention
to accept, such Person shall have first delivered to Buyer or its designee
appointed by Buyer written notice (the "Future Offering Notice") reporting that
it has received and is prepared to accept such offer and providing Buyer an
option (the "Buyer Purchase Option") to purchase up to 50% of the total amount
of securities to be issued in such Future Offering (the limitations referred to
in this and the preceding sentence are collectively referred to as the "Capital
Raising Limitations"). No Future Offering Notice shall contain any material
non-public information regarding the Company or any of the Subsidiaries. Upon
the written request of Buyer made within five (5) Business Days after its
receipt of a Future Offering Notice (an "Additional Information Request"), RCGI
shall provide Buyer with such additional information regarding the proposed
Future Offering, including the name of the buyer, and the terms and conditions
and use of proceeds thereof, as Buyer shall reasonably request. Buyer may
exercise its Buyer Purchase Option by delivering written notice (the "Buyer
Purchase Notice Date") to RCGI within five (5) Business Days after the later of
(i) Buyer's receipt of a Future Offering Notice or (ii) Buyer's receipt of all
of the information reasonably requested by Buyer in an Additional Information
Request, which notice shall state the quantity or percentage of securities being
offered in the Future Offering that Buyer will purchase, up to 50%. RCGI or the
Subsidiary, as appropriate, shall have 60 days following Buyer Purchase Notice
Date to sell the securities of the Future Offering (other than the securities to
be purchased by Buyer pursuant to this Section 5(s)), upon terms and conditions
no more favorable to the purchasers thereof than specified in the Future
Offering Notice. The exercise of Buyer Purchase Option shall be contingent upon,
and contemporaneous with, the consummation of such Future Offering, provided,
that notwithstanding Buyer's exercise of the Buyer Purchase Option with respect
to a particular Future Offering, the determination to complete any such Future
Offering shall be within RCGI's sole discretion. In connection with such
consummation, if Buyer has exercised a Buyer Purchase Option, then Buyer shall
deliver to RCGI duly and properly executed originals of any documents reasonably
required by RCGI or the Subsidiary, as appropriate, to effectuate such Future
Offering together with payment of the purchase price for the securities being
purchased by Buyer in such Future Offering, and RCGI or the Subsidiary, as
appropriate, shall promptly issue to Buyer the securities purchased thereby. In
the event RCGI or the Subsidiary, as appropriate, has not sold such securities
of the Future Offering within such 60-day period, then RCGI and the Subsidiaries
shall not thereafter issue or sell such securities or any other securities
subject to this Section 5(s) without first offering such securities to Buyer in
the manner provided in this Section 5(s). Buyer shall not be required to
participate or exercise its right of participation with respect to a particular
Future Offering in order to exercise its right of participation with respect to
later Future Offerings. The Capital Raising Limitations shall not apply to (i)
any transaction involving RCGI's issuances of securities (A) as consideration in
a merger or consolidation (the primary purpose or material result of which is
not to raise or obtain equity capital or cash), (B) in connection with any
strategic partnership or joint venture (the primary purpose or material result
of which is not to raise or obtain equity capital or cash), or (C) as
consideration for the acquisition of a business, product, license or other
assets by RCGI (the primary purpose or material result of which is not to raise
49
or obtain equity capital or cash), (ii) the issuance solely of RCGI Common
Shares in a Qualified Public Offering, (iii) the issuance of securities upon
exercise of the Initial Officer Options, provided that such Initial Officer
Options are not amended or modified on or after the date of their grant and
neither the 2007 Option Plan nor any Option Agreement is modified to differ from
the forms thereof attached as exhibits hereto, and further provided that the
exercise price or other purchase price is not reduced, adjusted or otherwise
modified and the number of shares issued or issuable is not increased (whether
by operation of law or in accordance with the relevant governing documents or
otherwise) on or after the Exchange Closing Date, or (iv) the grant of options,
or the issuance of other securities, to employees or directors of RCGI or the
Subsidiaries, under an RCGI stock option plan, restricted stock plan or stock
purchase plan approved by RCGI's Board of Directors and stockholders, in each
case only as and to the extent such issuance is permitted under this Agreement
and the other Transaction Documents.
u. Limits on Additional Issuances. Neither RCGI nor any
Subsidiary shall, in any manner, until the later of (i) 180 days after the
Exchange Closing Date and each Additional Closing Date, or (ii) the date on
which the registration statement required to be filed pursuant to Section 2 of
the Registration Rights Agreement is declared effective by the SEC (the
"Effective Date"), issue or sell any RCGI Common Shares, Convertible Securities
or Options, other than the XX Xxxxxx Shares (the "Equity Limitation"), or file
any registration statement other than as required by the Registration Rights
Agreement. The Equity Limitation shall not apply to (i) any transaction
involving RCGI's issuances of securities (A) as consideration in a merger or
consolidation (the primary purpose or material result of which is not to raise
or obtain equity capital or cash), (B) in connection with any strategic
partnership or joint venture (the primary purpose or material result of which is
not to raise or obtain equity capital or cash), or (C) as consideration for the
acquisition of a business, product, license or other assets by RCGI (the primary
purpose or material result of which is not to raise or obtain equity capital or
cash), (ii) the issuance of securities upon exercise of the Initial Officer
Options, provided such Initial Officer Options are not amended or modified on or
after the date hereof and provided that the exercise price or other purchase
price is not reduced, adjusted or otherwise modified and the number of shares
issued or issuable is not increased (whether by operation of law or in
accordance with the relevant governing documents or otherwise) on or after the
Exchange Closing Date, and (iv) the grant of options, or the issuance of other
securities, to employees or directors of RCGI or any of the Subsidiaries, under
any RCGI stock option plan, restricted stock plan or stock purchase plan
approved by RCGI's Board of Directors and stockholders, in each case only as and
to the extent such issuance is permitted under this Agreement and the other
Transaction Documents. "XX Xxxxxx Shares" means the 6,553,967 RCGI Common Shares
(subject to adjustment for the Reverse Stock Split) to be issued to X.X. Xxxxxx
& Company ("CKC") as compensation for services pursuant to the engagement letter
dated July 25, 2007 between RCGI and CKC, in an amount equal to quotient of
$180,000 divided by the Per Share Purchase Price.
v. No Integrated Offering. Neither RCGI nor any of the
Subsidiaries, nor any Affiliates of the foregoing or any Person acting on the
behalf of any of the foregoing, shall, directly or indirectly, make any offers
or sales of any security or solicit any offers to purchase any security, under
any circumstances that would require registration of any of the Securities under
50
the 1933 Act or cause the offering of the Securities to be integrated with prior
offerings by RCGI for purposes of the 1933 Act or any regulatory or
self-regulatory authority.
w. Regulation M. Neither RCGI, nor the Subsidiaries nor any
Affiliates of the foregoing shall take any action prohibited by Regulation M
under the 1934 Act, in connection with the offer, sale and delivery of the
Securities contemplated hereby.
6. CONDITIONS TO THE OBLIGATIONS OF RCGI TO CLOSE.
----------------------------------------------
a. Exchange Closing. The obligation of RCGI to take the actions
specified in Section 1(a) at the Exchange Closing is subject to the
satisfaction, at or before the Exchange Closing Date, of each of the following
conditions, provided that these conditions are for RCGI's sole benefit and may
be waived by RCGI at any time in its sole discretion by providing Buyer with
prior written notice thereof:
(i) Buyer and other party shall have executed each of the
Transaction Documents to be executed at the Exchange Closing to which it is a
party and delivered the same to RCGI.
(ii) Buyer shall have delivered to RCGI the certificates
representing the New Sonterra Common Shares, duly endorsed for transfer to RCGI.
(iii) Buyer shall have assigned and delivered to RCGI the
Sonterra Equity Note and the Sonterra Non-Equity Note, duly endorsed for
transfer to RCGI.
(iv) Buyer shall have delivered to RCGI the Sonterra
Warrants, duly endorsed for transfer to RCGI.
(v) The representations and warranties of Buyer herein
and in all of the Transaction Documents shall be true and correct as of the date
when made and as of the Exchange Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date,
which shall be true and correct as of such date), and Buyer shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by Buyer at or prior to the Exchange Closing Date.
(vi) The majority stockholder of RCGI shall have approved
the Certificate Amendment and shall not have rescinded such approval.
(vii) No injunction or other court or governmental agency
order shall be in effect that prohibits the transactions contemplated by this
Agreement to be effected at the Exchange Closing.
b. Additional Closings. The obligation of RCGI to take the
actions specified in Section 1(b) at any Additional Closing is subject to the
satisfaction, at or prior to the applicable Additional Closing Date, of each of
the following conditions, provided that these conditions are for RCGI's sole
51
benefit and may be waived by RCGI at any time in its sole discretion by
providing Buyer with prior written notice thereof:
(i) Buyer shall have delivered to RCGI the Additional
Purchase Price (less the amount withheld pursuant to Section 4(i)) for the
Additional RCGI Notes being purchased by Buyer at such Additional Closing by
wire transfer of immediately available funds pursuant to the wire instructions
provided by RCGI.
(ii) The representations and warranties of Buyer shall be
true and correct as of the date when made and as of such Additional Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date, which shall be true and correct as of such date),
and Buyer shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by Buyer at or prior to such Additional Closing Date.
(iii) No injunction or other court or governmental agency
order shall be in effect that prohibits the transactions contemplated by this
Agreement to be effected at such Additional Closing.
7. CONDITIONS TO BUYER'S OBLIGATION TO CLOSE.
-----------------------------------------
a. Exchange Closing. The obligation of Buyer to take the actions
specified in Section 1(a) at the Exchange Closing is subject to the
satisfaction, at or before the Exchange Closing Date, of each of the following
conditions, provided that these conditions are for Buyer's sole benefit and may
be waived only by Buyer at any time in its sole discretion by providing RCGI
with prior written notice thereof:
(i) The Flash Acquisition Closing shall have occurred.
(ii) Each of RCGI and the other parties to the Transaction
Documents (excluding Buyer and the Collateral Agent), as applicable, shall have
executed and delivered to Buyer the Account Control Agreements, the Guarantees,
the Pledge Agreement, the RCGI Mortgage Amendments, Registration Rights
Agreement, the Employment Agreements, the Security Agreement Joinder and each
other Transaction Document to be executed thereby at or prior to the Exchange
Closing.
(iii) RCGI shall have filed the Certificate Amendment and
effected the Reverse Stock Split (as approved by Buyer) and changed the name of
RCGI to Sonterra Resources, Inc., and delivered to Buyer a copy of the
Certificate of Amendment certified as of a date within ten (10) days of the
Exchange Closing Date, by the Secretary of State of the State of Delaware.
(iv) Sonterra shall have duly executed and delivered to
Buyer the Sonterra Mortgage Amendments (as defined in the Sonterra SPA), the
Guarantee and any other Transaction Documents to which Sonterra is a party.
52
(v) RCGI shall have delivered to Buyer a letter from
RCGI's transfer agent certifying the number of RCGI Common Shares outstanding as
of a date within five (5) days of the Exchange Closing Date.
(vi) As of the Exchange Closing Date, RCGI shall have
reserved out of its authorized and unissued RCGI Common Shares, solely for the
purpose of effecting the exercise of the RCGI Warrant, at least 49,586,777 RCGI
Common Shares (such number to be adjusted for the Reverse Stock Split any stock
split, stock dividend, stock combination or other similar transaction involving
the RCGI Common Shares effective at any time after the date of this Agreement).
(vii) RCGI shall have made all filings under all applicable
securities laws necessary to consummate the issuance of the Securities
(including the Initial RCGI Note) pursuant to this Agreement at the Exchange
Closing in compliance with such laws.
(viii) RCGI shall have executed and delivered to Buyer the
Initial RCGI Notes.
(ix) RCGI shall have executed and delivered to Buyer
certificates representing the New RCGI Common Shares.
(x) RCGI shall have executed and delivered to Buyer the
RCGI Warrant.
(xi) RCGI shall have duly adopted the 2007 Option Plan and
issued the Initial Officer Options thereunder.
(xii) All Existing Options shall have been cancelled all
rights and obligations with respect thereto shall have been terminated.
(xiii) The Board of RCGI shall have adopted, and not
rescinded or otherwise amended or modified, resolutions consistent with Section
3(b) above and in a form reasonably acceptable to Buyer (the "Resolutions").
(xiv) RCGI and each Included Subsidiary shall have
delivered and pledged to Buyer any and all Instruments, Negotiable Documents,
Chattel Paper (each of the foregoing terms, as defined in the Security
Agreement) and certificated securities (accompanied by stock powers executed in
blank), duly endorsed and/or accompanied by such instruments of assignment and
transfer executed by RCGI and each Included Subsidiary, as applicable, in such
form and substance as Buyer may request, in each case in accordance with the
Security Agreement, the Pledge Agreement and the other Security Documents.
(xv) RCGI and each Included Subsidiary shall have given,
executed, delivered, filed and/or recorded all Security Documents, the RCGI
Mortgage Amendments with respect to all of the Real Property, and any other
financing statements, notices, instruments, documents, agreements and other
papers that may be necessary or desirable (in the reasonable judgment of Buyer)
to create, preserve, perfect or validate the security interest in their
respective assets of RCGI granted to Buyer pursuant to the Security Agreement
and to enable Buyer to exercise and enforce its rights with respect to such
security interest.
53
(xvi) RCGI shall have delivered to Buyer a secretary's
certificate, dated as of the Exchange Closing Date, certifying as to (A) the
Resolutions, (B) the Certificate of Incorporation, certified as of a date within
ten (10) days of the Exchange Closing Date, by the Secretary of State of
Delaware, (C) the Bylaws of RCGI, (D) the certificate or articles of
incorporation or other organizational documents of each of the Subsidiaries,
each certified as of a date within ten (10) days of the Exchange Closing Date,
by the Secretary of State of the state of such entity's jurisdiction of
incorporation or organization, and (E) the bylaws or other similar documents of
each of the Subsidiaries, each as in effect at the Exchange Closing.
(xvii) RCGI shall have delivered to Buyer a certificate
evidencing the good standing of RCGI and each Subsidiary in such entity's state
or other jurisdiction of incorporation or organization issued by the Secretary
of State (or other applicable authority) of such state or jurisdiction of
incorporation or organization as of a date within ten (10) days of the Exchange
Closing Date.
(xviii) Buyer shall have received (A) the opinions of Xxxxx &
XxXxxxxx LLP and Xxxxxxxx & Knight LLP (or such other law firms as are
reasonably acceptable to Buyer) dated as of the Exchange Closing Date, which
opinions will collectively address, among other things, laws of the States of
Delaware, Texas and New York applicable to the transactions contemplated hereby,
and the security interests provided pursuant to the Security Agreement, in each
case in form, scope and substance reasonably satisfactory to Buyer, and
providing the opinions set forth in Exhibit 7(a)(xviii).
(xix) The representations and warranties of RCGI herein and
of RCGI and the Subsidiaries in all Transaction Documents shall be true and
correct as of the date when made and as of the Exchange Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date, which shall be true and correct as of such date) and RCGI and the
Subsidiaries shall have performed, satisfied and complied with the covenants,
agreements and conditions required by this Agreement and the other Transaction
Documents to be performed, satisfied or complied with by RCGI or the
Subsidiaries at or prior to the Exchange Closing Date. Buyer shall have received
a certificate, executed by the chief executive officer of RCGI, dated as of the
Exchange Closing Date, to the foregoing effect and as to such other matters as
may be reasonably requested by Buyer.
(xx) The Information Statement shall have been sent to the
stockholders of RCGI at least 20 days prior to the Exchange Closing Date.
(xxi) As of the Exchange Closing Date, RCGI shall have
delivered to Buyer the Pro Forma Balance Sheet and Pro Forma Cap Table required
by Section 4(bb).
(xxii) No injunction or other court or governmental agency
order shall be in effect that prohibits the transactions contemplated by this
Agreement to be effected at the Exchange.
(xxiii) The representations and warranties of Sonterra in the
Sonterra SPA Agreement and in all "Transaction Documents" (for purposes of this
Section 7(a)(xxiii), as defined in the Sonterra SPA) shall be true and correct
54
as of the date when made and as of the Exchange Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which shall be true and correct as of such date) and Sonterra shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Sonterra SPA and the other Transaction Documents to be
performed, satisfied or complied with by Sonterra at or prior to the Exchange
Closing Date. Buyer shall have received a certificate, executed by the chief
executive officer of Sonterra, dated as of the Exchange Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
Buyer.
(xxiv) RCGI shall have delivered to Buyer such other
documents relating to the transactions contemplated by this Agreement as Buyer
or its counsel may reasonably request.
b. Additional Closing. The obligation of Buyer to purchase
Additional RCGI Notes from RCGI or to take the actions specified in Section 1(b)
at any Additional Closing is subject to the satisfaction, at or prior to the
Additional Closing Date, of each of the following conditions, provided that
these conditions are for Buyer's sole benefit and may be waived by Buyer at any
time in its sole discretion by providing RCGI with prior written notice thereof:
(i) The Exchange Closing shall have occurred.
(ii) The Board of RCGI shall have adopted, and not
rescinded or otherwise amended or modified, the Resolutions.
(iii) RCGI shall have executed and delivered to Buyer the
Additional RCGI Notes being purchased by Buyer at such Additional Closing.
(iv) RCGI shall have delivered to Buyer a certificate
evidencing the good standing of RCGI and each Subsidiary in such entity's state
or other jurisdiction of incorporation or organization issued by the Secretary
of State (or other applicable authority) of such state or jurisdiction of
incorporation or organization as of a date within ten (10) days of the
Additional Closing Date.
(v) RCGI shall have delivered to Buyer a secretary's
certificate, dated as of the Additional Closing Date, certifying as to (A) the
Resolutions, (B) the Certificate of Incorporation, certified as of a date within
ten (10) days of the Additional Closing Date, by the Secretary of State of
Delaware, (C) the Bylaws of RCGI, (D) the certificate or articles of
incorporation or other organizational documents of each of the Subsidiaries,
each certified as of a date within ten (10) days of the Additional Closing Date,
by the Secretary of State of the state of such entity's jurisdiction of
incorporation or organization, and (E) the bylaws or other similar documents of
each of the Subsidiaries, each as in effect at the Additional Closing.
(vi) RCGI shall have complied with the requirements of
Section 1(b) (including the Additional Note Issuance Amount Limitations) and all
of the Additional Sale Notice Election Conditions set forth in Section 1(d)
shall have been satisfied at all times from the Exchange Closing Date until and
including such Additional Closing Date.
55
(vii) The representations and warranties of RCGI (including
any exceptions thereto contained in the schedules hereto) shall be true and
correct as of the date when made and as of such Additional Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date, which shall be true and correct as of such date),
provided that such representations shall be true and correct as of such
Additional Closing Date giving effect to the updates required by the last
sentence of this paragraph (viii) so long as there is nothing disclosed in any
such updates (or the representations as affected thereby) that could,
individually or in the aggregate, have a Material Adverse Effect as determined
by Buyer, in its sole discretion, and RCGI shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by RCGI at or
prior to such Additional Closing Date. Buyer shall have received a certificate,
executed by the Chief Executive Officer of RCGI, dated as of such Additional
Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by Buyer, including an update as of such Additional Closing
Date of the representations and related schedules contained in Sections 3(c),
3(f), 3(g), 3(h), 3(i), 3(n), 3(o), 3(p), 3(q), 3(s), 3(w), 3(z), and 3(bb).
(viii) Buyer shall have received (A) the opinions of Xxxxx &
XxXxxxxx and Xxxxxxxx & Xxxxxx LLP (or such other law firms as are reasonably
acceptable to Buyer), dated as of the Additional Closing Date, which opinions
will collectively address, among other things, laws of the States of Delaware,
New York and Texas (and any other states in which RCGI has properties or assets
as of such Additional Closing Date) applicable to the transactions contemplated
hereby and the security interests provided pursuant to the Security Agreement,
in form, scope and substance reasonably satisfactory to Buyer, and providing the
opinions set forth in Exhibit 7(a)(xviii).
(ix) RCGI shall have made all filings under all applicable
securities laws necessary to consummate the issuance of the Securities
(including the Additional RCGI Notes) pursuant to this Agreement in compliance
with such laws.
(x) All conditions set forth in Section 7(a) shall have
been satisfied and shall remain satisfied.
(xi) As of each Additional Closing Date, RCGI shall have
delivered to Buyer the Pro Forma Balance Sheet and Pro Forma Cap Table required
by Section 4(bb).
(xii) No injunction or other court or governmental agency
order shall be in effect that prohibits the transactions contemplated by this
Agreement to be effected at such Additional Closing.
(xiii) RCGI shall have paid to Buyer or its designee a
transaction fee in an amount equal to 1.0% of the principal amount of the
Additional RCGI Notes being purchased by Buyer at such Additional Closing (or,
if it be paid to Buyer, such amount shall have been, if Buyer so requests,
credited against the Additional Purchase Price payable hereunder to RCGI at such
Additional Closing).
56
(xiv) RCGI shall have delivered to Buyer such other
documents relating to the transactions contemplated by this Agreement as Buyer
or its counsel may reasonably request.
8. INDEMNIFICATION.
---------------
a. RCGI Indemnification Obligation. In consideration of Buyer's
execution and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of RCGI's obligations under the Transaction
Documents, RCGI (for purposes of this Section 8(a), the "Indemnifying Party")
shall defend, protect, indemnify and hold harmless Buyer and each other holder
of the Securities and all of their equityholders, partners, officers, directors,
members, managers, employees and direct or indirect investors and any of the
foregoing Persons' agents or other representatives (including those retained in
connection with the transactions contemplated by this Agreement) (for purposes
of this Section 8(a), collectively, the "Indemnitees") from and against any and
all actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(for purposes of this Section 8(a), the "Indemnified Liabilities"), incurred by
any Indemnitees as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Indemnifying Party in any of the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, (b) any breach of any
covenant, agreement or obligation of the Indemnifying Party contained in the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim brought
or made against such Indemnitees and arising out of or resulting from the
execution, delivery, performance or enforcement of the Transaction Documents in
accordance with the terms hereof or thereof or any other certificate, instrument
or document contemplated hereby or thereby in accordance with the terms thereof
(other than a cause of action, suit or claim brought or made against an
Indemnitee by such Indemnitee's owners, investors or Affiliates), (d) any assets
or transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of any of the Securities. To the
extent that the foregoing undertaking by the Indemnifying Party may be
unenforceable for any reason, such Indemnifying Party shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities that is permissible under applicable law.
b. Indemnification Procedures. Each Indemnitee (as defined under
Section 8(a)) shall (i) give prompt written notice to the Indemnifying Party of
any claim with respect to which it seeks indemnification or contribution
pursuant to this Agreement (provided, however, that the failure of the
Indemnitee to promptly deliver such notice shall not relieve the Indemnifying
Party of any liability, except to the extent that the Indemnifying Party is
prejudiced in its ability to defend such claim) and (ii) permit such
Indemnifying Party, as applicable, to assume the defense of such claim with
counsel selected by such Indemnifying Party and reasonably satisfactory to the
Indemnitee; provided, however, that any Indemnitee entitled to indemnification
hereunder shall have the right to employ separate counsel and to participate in
the defense of such claim, but the fees and expenses of such counsel shall be at
the expense of the Indemnitee unless (A) the Indemnifying Party has agreed in
writing to pay such fees and expenses, (B) the Indemnifying Party shall have
failed to assume the defense of such claim within five (5) days of delivery of
57
the written notice of the Indemnitee with respect to such claim or failed to
employ counsel selected by such Indemnifying Party and reasonably satisfactory
to the Indemnitee, or (C) in the reasonable judgment of the Indemnitee, based
upon advice of its counsel, a conflict of interest may exist between the
Indemnitee and the Indemnifying Party with respect to such claims (in which
case, if the Indemnitee notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such claim
on behalf of the Indemnitee). If the Indemnifying Party assumes the defense of
the claim, it shall not be subject to any liability for any settlement or
compromise made by the Indemnitee without its consent (but such consent shall
not be unreasonably withheld, conditioned or delayed). In connection with any
settlement negotiated by an Indemnifying Party, no Indemnifying shall, and no
Indemnitee shall be required by an Indemnifying Party to, (I) enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to the Indemnitee of a release from all liability in
respect to such claim or litigation, (II) enter into any settlement that
attributes by its terms any liability to the Indemnitee, or (III) consent to the
entry of any judgment that does not include as a term thereof a full dismissal
of the litigation or proceeding with prejudice. In addition, without the consent
of the Indemnitee, no Indemnifying Party shall consent to entry of any judgment
or enter into any settlement which provides for any action on the part of the
Indemnitee other than the payment of money damages which are to be paid in full
by the Indemnifying Party. If an Indemnifying Party fails or elects not to
assume the defense of a claim pursuant to clause (B) above, or is not entitled
to assume or continue the defense of such claim pursuant to clause (C) above,
the Indemnifying Party shall have the right without prejudice to its right of
indemnification hereunder to, in its discretion exercised in good faith and upon
advice of counsel, to contest, defend and litigate such claim and may settle
such claim, either before or after the initiation of litigation, at such time
and upon such terms as the Indemnitee deems fair and reasonable, provided that,
at least five (5) days prior to any settlement, written notice of its intention
to settle is given to the Indemnifying Party. If requested by the Indemnifying
Party, the Indemnitee agrees (at no expense to the Indemnitee) to reasonably
cooperate with the Indemnifying Party and its counsel in contesting any claim
that the Indemnifying Party elects to contest.
9. GOVERNING LAW; MISCELLANEOUS.
----------------------------
a. Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the New York City, borough of Manhattan, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof by
58
registered or certified mail, return receipt requested, or by deposit with a
nationally recognized overnight delivery service, to such party at the address
for such notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. The parties acknowledge that Buyer has executed
each of the Transaction Documents to be executed by it in the State of New York
and will have made the payment of the Purchase Price from its bank account
located in the State of New York. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY.
b. Counterparts. This Agreement and any amendments hereto may be
executed and delivered in one or more counterparts, and by the different parties
hereto in separate counterparts, each of which when executed shall be deemed to
be an original, but all of which taken together shall constitute one and the
same agreement, and shall become effective when counterparts have been signed by
each party hereto and delivered to the other parties hereto, it being understood
that all parties need not sign the same counterpart. In the event that any
signature to this Agreement or any amendment hereto is delivered by facsimile
transmission or by e-mail delivery of a ".pdf" format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or ".pdf" signature page were an original thereof. At the request of
any party each other party shall promptly re-execute an original form of this
Agreement or any amendment hereto and deliver the same to the other party. No
party hereto shall raise the use of a facsimile machine or e-mail delivery of a
".pdf" format data file to deliver a signature to this Agreement or any
amendment hereto or the fact that such signature was transmitted or communicated
through the use of a facsimile machine or e-mail delivery of a ".pdf" format
data file as a defense to the formation or enforceability of a contract, and
each party hereto forever waives any such defense.
c. Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements among Buyer, RCGI, and the Subsidiaries
and Persons acting on their behalf with respect to the matters discussed herein,
and this Agreement and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither RCGI
nor Buyer makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be amended, modified
or supplemented other than by an instrument in writing signed by RCGI and Buyer.
Any such amendment shall bind all holders of the RCGI Notes and the holder of
59
the RCGI Warrant. No such amendment shall be effective to the extent that it
applies to less than all of the holders of the RCGI Notes or RCGI Warrant then
outstanding.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to RCGI:
Prior to the Exchange Closing Date:
River Capital Group, Inc.
0 Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, XX00
Xxxxxxxxx: 000-000-0000
Attention: Mr. Xxxxxx Xxxxxx
On or after the Exchange Closing Date:
Sonterra Resources, Inc.
000 Xxxx Xxxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxx
Facsimile: 000-000-0000
Attention: Xxxxxxx X. Xxxxxxx
With a copy to:
Xxxxx & XxXxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxx
Xxx Xxxx, XX, 00000
Facsimile: 000-000-0000
Attention: Xxxxxx Xxxx Xxxxxxxx, Esq.
If to Buyer:
Longview Fund, L.P.
c/o Viking Asset Management, LLC
000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Facsimile: 000-000-0000
Attention: Xxxxxxx Xxxxxxx
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With a copy to:
c/o Viking Asset Management, LLC
00 Xxxxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx
Facsimile: 000-000-0000
And with a copy to:
Xxxxxx Xxxxxx Xxxxxxxx LLP
000 X. Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxx X. Xxxx, Esq.
Facsimile: 312-902-1061
or such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by a nationally recognized overnight delivery service shall be
rebuttable evidence of personal service, receipt by facsimile or deposit with a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Securities. RCGI shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least two-thirds (2/3) of the aggregate principal
of the RCGI Notes then outstanding except for a merger permitted pursuant to
Section 5(i). Buyer may assign some or all of its rights hereunder without the
consent of RCGI; provided, however, that any such assignment shall not release
Buyer from its obligations hereunder unless such obligations are assumed by such
assignee (as evidenced in writing) and RCGI has consented to such assignment and
assumption, which consent shall not be unreasonably withheld. Notwithstanding
anything to the contrary contained in the Transaction Documents, Buyer shall be
entitled to pledge the Securities in connection with a bona fide margin account
or other loan or financing arrangement secured by the Securities.
h. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and, to the extent provided in Section 8 hereof, each Indemnitee, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.
i. Survival. Unless this Agreement is terminated under Section
9(k), the representations and warranties of RCGI and Buyer contained in Sections
2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9, and the
61
indemnification and contribution provisions set forth in Section 8, shall
survive the Closings. RCGI acknowledges and agrees that the provisions of
Section 15 of each RCGI Note shall survive the redemption, repayment or
surrender of each such RCGI Note.
j. Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
k. Termination.
-----------
(i) In the event that the Exchange Closing shall not have
occurred on or before the third (3rd) Business Day following the earlier of (A)
December 31, 2007, or (B) the 20th calendar day after the mailing of the
Information Statement, due to RCGI's on the one hand, or Buyer's on the other
hand, failure to satisfy the conditions set forth in Sections 6(a) and 7(a)
above (and the nonbreaching party's failure to waive such unsatisfied
condition(s)), the nonbreaching party shall have the option to terminate this
Agreement with respect to such breaching party at the close of business on such
date without liability of any party to any other party; provided, however, that
if this Agreement is terminated pursuant to this Section 9(k)(i), RCGI shall be
obligated to pay Buyer (so long as Buyer is not a breaching party) its
transaction fees and reimbursement amounts as set forth in Section 4(i) as if
Buyer had purchased the Securities.
(ii) In the event that an Additional Closing shall not
have occurred on or before the eighth (8th) Business Day following an Additional
Sale Election Notice Date due to RCGI's or Buyer's failure to satisfy the
conditions set forth in Sections 6(b) and 7(b) above (and the nonbreaching
party's failure to waive such unsatisfied condition(s)), the nonbreaching party
shall have the option to terminate the obligations with respect to such
Additional Closing at the close of business on such date without liability of
any party to any other party with respect thereto (and without affecting any
other rights or obligations under this Agreement); provided, however, that if a
party's obligations with respect to such Additional Closing are terminated
pursuant to this Section 9(k)(ii), RCGI shall be obligated to pay Buyer (so long
as Buyer is not a breaching party) its transaction fees and reimbursement
amounts as set forth in Section 4(i) as if Buyer had purchased the Additional
RCGI Notes.
l. Placement Agent. RCGI acknowledges that it has engaged X. X.
Xxxxxx & Company as placement agent in connection with the sale of the RCGI
Notes and the RCGI Warrant. RCGI shall be responsible for the payment of any
placement agent's fees or broker's commissions relating to or arising out of the
transactions contemplated hereby. RCGI shall pay, and hold Buyer harmless
against, any liability, loss or expense (including attorneys' fees and
out-of-pocket expenses) arising in connection with any claim for any such
payment. RCGI represents and warrants to Buyer that it has not engaged any other
placement agent, broker or financial advisor (other than X. X. Xxxxxx & Company)
in connection with the acquisition of the Securities pursuant hereto. Buyer
represents to RCGI that, except for Buyer's general partner and its investment
62
advisor, whose fees and expenses are covered by RCGI's reimbursement obligation
under Section 4(i), Buyer has not engaged any placement agent, broker or
financial advisor in connection with the transactions contemplated hereby. Buyer
shall hold RCGI harmless against any liability, loss or expense (including
attorneys' fees and out-of-pocket expenses) arising in connection with any claim
for any payment by such a Person, other than a claim under Section 4(i) hereof.
m. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
n. Remedies. Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and all rights
and remedies that Buyer and holders have been granted at any time under any
other agreement or contract and all of the rights that Buyer and holders have
under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security or proving actual damages), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
o. Rescission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever Buyer exercises a right, election, demand or
option under a Transaction Document and RCGI or any of the Subsidiaries does not
timely perform its related obligations within the periods therein provided, then
Buyer may rescind or withdraw, in its sole discretion from time to time upon
written notice to RCGI, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.
p. Payment Set Aside. To the extent that RCGI or any of the
Subsidiaries makes a payment or payments to Buyer pursuant to this Agreement,
the Registration Rights Agreement, the RCGI Notes, the RCGI Warrant, the
Guaranty or any other Transaction Document or Buyer enforces or exercises its
rights hereunder or thereunder, and such payment or payments or the proceeds of
such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to RCGI or any
of the Subsidiaries, by a trustee, receiver or any other Person under any law
(including any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
q. Transfer Agent Instructions. RCGI shall issue irrevocable
instructions to its transfer agent in the form attached hereto as Exhibit M (the
"Irrevocable Transfer Agent Instructions"), and any subsequent transfer agent,
to issue certificates or credit shares to the applicable balance accounts at the
Depository Trust Company ("DTC"), registered in the name of Buyer or its
respective nominee(s), for Warrant Shares upon exercise of the RCGI Warrant, in
each case such amounts as specified from time to time by Buyer to RCGI. Prior to
registration of the Warrant Shares under the 1933 Act, all such certificates
63
shall bear the restrictive legend specified in Section 2(g). RCGI warrants that
no instruction other than the Irrevocable Transfer Agent Instructions referred
to in this Section 9(q) and stop transfer instructions to give effect to Section
2(f) (in the case of the New RCGI Common Shares and Warrant Shares, prior to
registration of the New RCGI Common Shares, or Warrant Shares respectively,
under the 0000 Xxx) will be given by RCGI to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
RCGI as and to the extent provided in this Agreement and the Registration Rights
Agreement. If Buyer provides RCGI with an opinion of counsel, in a generally
acceptable form, to the effect that a public sale, assignment or transfer of the
Securities may be made without registration under the 1933 Act or Buyer provides
RCGI with reasonable assurance that the Securities can be sold pursuant to Rule
144 without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, RCGI shall permit the
transfer and, in the case of the New RCGI Common Shares and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates or credit
shares to the applicable balance accounts at DTC in such name and in such
denominations as specified by Buyer and without any restrictive legend. RCGI
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to Buyer by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, RCGI acknowledges that the remedy
at law for a breach of its obligations under this Section 9(q) will be
inadequate and agrees, in the event of a breach or threatened breach by RCGI of
the provisions of this Section 9(q), that Buyer shall be entitled, in addition
to all other available remedies, to an order and/or injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
r. Independent Nature of Buyer. Buyer shall be entitled to
independently protect and enforce its rights, including the rights arising out
of this Agreement, the RCGI Notes, the RCGI Warrant, and the other Transaction
Documents, and it shall not be necessary for any other holder of any of the
Securities to be joined as an additional party in any proceeding for such
purpose.
s. Interpretative Matters. Unless the context otherwise requires,
(a) all references to Sections, Schedules or Exhibits are to Sections, Schedules
or Exhibits contained in or attached to this Agreement, (b) each accounting term
not otherwise defined in this Agreement has the meaning assigned to it in
accordance with GAAP, (c) words in the singular or plural include the singular
and plural and pronouns stated in either the masculine, the feminine or neuter
gender shall include the masculine, feminine and neuter, and (d) the use of the
word "including" in this Agreement shall be by way of example rather than
limitation.
* * * * * *
64
IN WITNESS WHEREOF, Buyer and RCGI have caused this Securities Exchange
and Additional Note Purchase Agreement to be duly executed as of the date first
written above.
RCGI:
----
RIVER CAPITAL GROUP, INC., a Delaware corporation
By: /s/ Xxxxxx Xxxxxx
--------------------------------
Name: Xxxxxx Xxxxxx
Title: Chief Executive Officer
BUYER:
------
THE LONGVIEW FUND, L.P., a California limited partnership
By: Viking Asset Management, LLC
Its: Investment Adviser
By: /s/ Xxxxx X. Xxxxxxx
--------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Chief Investment Officer
Signature Page to Securities Exchange and Additional Note Purchase Agreement
SCHEDULES
---------
Schedule I Initial Officer Option Allocation
Schedule 3(a) Organization and Qualification
Schedule 3(c)(i) Capitalization
Schedule 3(c)(ii) Capitalization
Schedule 3(c)(iii) Capitalization
Schedule 3(e) No Conflicts
Schedule 3(f) SEC Documents
Schedule 3(g) Absence of Certain Changes
Schedule 3(h) Absence of Litigation
Schedule 3(i) Full Disclosure; No Undisclosed Events, Liabilities,
Developments or Circumstances
Schedule 3(k) No General Solicitation
Schedule 3(n) Employee Relations
Schedule 3(o) Intellectual Property Rights
Schedule 3(p) Environmental Law Compliance
Schedule 3(q) Title
Schedule 3(s) Regulatory Permits
Schedule 3(t) Internal Accounting Controls, Disclosure Controls &
Procedures, Books and Records
Schedule 3(u) Bank Accounts
Schedule 3(v) Tax Status
Schedule 3(w) Transactions with Affiliates
Schedule 3(x) Application of Takeover Protections; Rights Agreement
Schedule 3(z) Outstanding Indebtedness; Liens
Schedule 3(bb) Real Property
Schedule 3(cc) Excluded Subsidiaries
Schedule 3(ff) Stock Options
EXHIBITS
--------
Exhibit A Form of RCGI Note
Exhibit B Form of Joinder to the Security Agreement
Exhibit C Form of Employment Agreement with X. Xxxxxxx
Exhibit D Form of Employment Agreement with X. Xxxxxxx
Exhibit E Form of Employment Agreement with X. Xxxxxxxx
Exhibit F Form of 2007 Stock Option Plan
Exhibit G Form of Option Agreement
Exhibit H Form of Registration Rights Agreement
Exhibit I Form of Account Control Agreement
Exhibit J Form of Guaranty
Exhibit K Form of Pledge Agreement
Exhibit L: Form of RCGI Mortgage Amendment
Exhibit M: Form of Irrevocable Transfer Agent Instructions
Exhibit 7(a)(xviii) Form of Legal Opinion
TABLE OF CONTENTS
-----------------
1. EXCHANGE OF COMMON SHARES, RCGI NOTES AND WARRANTS.....................4
a. Securities Exchange..............................................4
b. Purchase and Sale of Additional RCGI Notes.......................5
c. The Exchange Closing Date........................................6
d. Additional Closing Dates.........................................6
e. Exchange Closing Date Form of Payment............................7
f. Additional Closing Date Form of Payment..........................8
2. BUYER'S REPRESENTATIONS AND WARRANTIES.................................8
a. Investment Purpose...............................................8
b. Accredited Investor Status.......................................8
c. Reliance on Exemptions...........................................8
d. Information......................................................8
e. No Governmental Review...........................................9
f. Transfer or Resale...............................................9
g. Legends..........................................................9
h. Authorization; Enforcement; Validity............................10
i. Residency and Offices...........................................10
3. REPRESENTATIONS AND WARRANTIES OF RCGI................................11
a. Organization and Qualification..................................11
b. Authorization; Enforcement; Validity............................12
c. Capitalization..................................................13
d. Issuance of Securities..........................................14
e. No Conflicts....................................................14
f. SEC Documents; Financial Statements.............................16
g. Absence of Certain Changes......................................18
h. Absence of Litigation...........................................19
i. Full Disclosure; No Undisclosed Events, Liabilities,
Developments or Circumstances...................................19
j. Acknowledgment Regarding Buyer's Purchase of RCGI Notes and
Warrants........................................................19
k. No General Solicitation.........................................20
l. No Integrated Offering..........................................20
m. Dilutive Effect.................................................20
n. Employee Relations..............................................21
o. Intellectual Property Rights....................................21
p. Environmental Laws..............................................22
q. Title...........................................................23
r. Insurance.......................................................24
s. Regulatory Permits..............................................24
t. Internal Accounting Controls; Disclosure Controls and
Procedures; Books and Records...................................25
u. Bank Accounts...................................................26
v. Tax Status......................................................26
w. Transactions With Affiliates....................................26
x. Application of Takeover Protections; Rights Agreement...........27
y. Foreign Corrupt Practices.......................................27
z. Outstanding Indebtedness; Liens.................................27
aa. Ranking of RCGI Notes...........................................27
bb. Real Property...................................................28
cc. Excluded Subsidiaries...........................................29
dd. No Materially Adverse Contracts, Etc............................30
ee. Investment Company..............................................30
ff. Stock Options...................................................30
gg. Schedules.......................................................30
4. AFFIRMATIVE COVENANTS.................................................30
a. Reasonable Best Efforts.........................................30
b. Form D and Blue Sky.............................................30
c. Reporting Status................................................31
d. Use of Proceeds.................................................31
e. Financial Information of RCGI...................................31
f. Internal Accounting Controls....................................31
g. Reservation of Shares...........................................32
h. Listing.........................................................32
i. Expenses........................................................32
j. Disclosure of Transactions and Other Material Information.......33
k. Pledge of Securities............................................34
l. Notices.........................................................34
m. Compliance with Laws and Maintenance of Permits.................35
n. Inspection and Audits...........................................36
o. Insurance.......................................................36
p. Collateral......................................................37
q. Taxes...........................................................37
r. Intellectual Property...........................................38
s. Patriot Act, Investor Secrecy Act and Office of Foreign Assets
Control.........................................................38
t. Drilling Title Opinions.........................................38
u. Security Covenants..............................................38
v. Subsidiary Interests............................................40
w. Divestiture.....................................................41
x. Existing Options................................................41
y. Further Instruments and Acts....................................41
z. Guarantee of Obligations under Sonterra SPA.....................41
aa. Information Statement...........................................41
bb. Additional Financial Information................................43
5. NEGATIVE COVENANTS....................................................43
a. Prohibition Against Variable Priced Securities..................43
b. Status..........................................................43
c. Stay, Extension and Usury Laws..................................44
d. Payment Restrictions Affecting Subsidiaries.....................44
e. Prepayments.....................................................44
f. Indebtedness....................................................44
g. Liens...........................................................45
h. Sale of Collateral..............................................45
i. Corporate Existence; Leases.....................................46
j. Restriction on Loans; Investments; Subsidiary Equity............46
k. Equipment.......................................................47
l. Affiliate Transactions..........................................47
m. Settling of Accounts............................................47
n. Executive Compensation..........................................47
o. Limitation on Sale and Leaseback Transactions...................48
p. Investment Company; Public Utility..............................48
q. Real Property Leases............................................48
r. Restriction on Purchases or Payments............................48
s. No Avoidance of Obligations.....................................48
t. Right to Participate in Future Financing........................49
u. Limits on Additional Issuances..................................50
v. No Integrated Offering..........................................51
w. Regulation M....................................................51
6. CONDITIONS TO THE OBLIGATIONS OF RCGI TO CLOSE........................51
a. Exchange Closing................................................51
b. Additional Closings.............................................52
7. CONDITIONS TO BUYER'S OBLIGATION TO CLOSE.............................52
a. Exchange Closing................................................52
b. Additional Closing. :...........................................55
8. INDEMNIFICATION.......................................................57
a. RCGI Indemnification Obligation.................................57
b. Indemnification Procedures......................................57
9. GOVERNING LAW; MISCELLANEOUS..........................................58
a. Governing Law; Jurisdiction; Jury Trial.........................58
b. Counterparts....................................................59
c. Headings........................................................59
d. Severability....................................................59
e. Entire Agreement; Amendments....................................59
f. Notices.........................................................60
g. Successors and Assigns..........................................61
h. No Third Party Beneficiaries....................................62
i. Survival........................................................62
j. Further Assurances..............................................62
k. Termination.....................................................62
l. Placement Agent.................................................63
m. No Strict Construction..........................................63
n. Remedies........................................................63
o. Rescission and Withdrawal Right.................................63
p. Payment Set Aside...............................................63
q. Transfer Agent Instructions.....................................64
r. Independent Nature of Buyer.....................................64
s. Interpretative Matters..........................................65
