EXHIBIT 10.8
THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON
SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO RIVIERA TOOL COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE TERM NOTE
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FOR VALUE RECEIVED, RIVIERA TOOL COMPANY, a Michigan
corporation (the "COMPANY"), promises to
pay to LAURUS MASTER FUND, LTD., c/o
M&C Corporate Services Limited, P.O.
Box 309 GT, Ugland House, South Church
Street, George Town, Grand Cayman, Cayman
Islands, Fax: 345-949-8080 (the
"HOLDER") or its registered assigns or
successors in interest, the sum of Three
Million Two Hundred Thousand Dollars
($3,200,000), together with any accrued and
unpaid interest hereon, on May 17, 2008
(the "MATURITY DATE") if not sooner
paid.
Capitalized terms used herein without definition shall have
the meanings ascribed to such terms in that
certain Securities Purchase
Agreement dated as of the date hereof by
and between the Company and the Holder
(as amended, modified and supplemented from
time to time, the "PURCHASE
AGREEMENT").
The following terms shall apply to this Secured Convertible
Term Note (this "NOTE"):
ARTICLE I
CONTRACT RATE AND AMORTIZATION
1.1 Contract
Rate. Subject to Sections 4.2 and 5.10,
interest payable on the outstanding
principal amount of this Note (the
"PRINCIPAL AMOUNT") shall accrue at a rate
per annum equal to the "prime rate"
published in The Wall Street Journal from
time to time (the "PRIME RATE"), plus
four percent (4%) (the "CONTRACT RATE").
The Contract Rate shall be increased or
decreased as the case may be for each
increase or decrease in the Prime Rate in
an amount equal to such increase or
decrease in the Prime Rate; each change to
be effective as of the day of the change in
the Prime Rate. Subject to Section
1.2, the Contract Rate shall not be less
than six and one half percent (6.50%).
1.2 Contract
Rate Adjustments and Payments. The Contract
Rate shall be calculated on the last
business day of each calendar month
hereafter (other than for increases or
decreases in the Prime Rate which shall
be calculated and become effective in
accordance with the terms of Section 1.1)
until the Maturity Date (each a
"DETERMINATION DATE") and shall be subject to
adjustment as set forth herein. If (i) the
Company shall have registered the
shares of the Common Stock underlying the
conversion of this Note and the Option
on a registration statement declared
effective by the Securities and Exchange
Commission (the "SEC"), and
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(ii) the market price (the "MARKET PRICE")
of the Common Stock as reported by
Bloomberg, L.P. on the Principal Market for
the five (5) trading days
immediately preceding a Determination Date
exceeds the then applicable Fixed
Conversion Price by at least twenty-five
percent (25%), the Contract Rate for
the succeeding calendar month shall
automatically be reduced by 200 basis points
(200 b.p.) (2%) for each incremental
twenty-five percent (25%) increase in the
Market Price of the Common Stock above the
then applicable Fixed Conversion
Price. Notwithstanding the foregoing (and
anything to the contrary contained
herein), in no event shall the Contract
Rate be less than zero percent (0%).
Interest shall be (i) calculated on the
basis of a 360 day year, and (ii)
payable monthly, in arrears, commencing on
June 1, 2005 and on the first
business day of each consecutive calendar
month thereafter until the Maturity
Date (and on the Maturity Date), whether by
acceleration or otherwise. For the
avoidance of doubt, all determinations with
respect to market price and trading
volume of the Common Stock shall be made
based upon information reported by
Bloomberg, L.P. on the relevant
date(s).
1.3 Principal
Payments. Amortizing payments of the aggregate
principal amount outstanding under this
Note at any time (the "PRINCIPAL
AMOUNT") shall be made by the Company on
September 1, 2005 and on the first
business day of each succeeding month
thereafter until the Maturity Date (each,
an "AMORTIZATION DATE"). Subject to Article
III below, commencing on the first
Amortization Date, the Company shall make
monthly payments to the Holder on each
Repayment Date, each such payment in the
amount of $96,969.70 together with any
accrued and unpaid interest on such portion
of the Principal Amount plus any and
all other unpaid amounts which are then
owing under this Note, the Purchase
Agreement and/or any other Related
Agreement (collectively, the "MONTHLY
AMOUNT"). Any outstanding Principal Amount
together with any accrued and unpaid
interest and any and all other unpaid
amounts which are then owing by the
Company to the Holder under this Note, the
Purchase Agreement and/or any other
Related Agreement shall be due and payable
on the Maturity Date.
ARTICLE II
CONVERSION AND REDEMPTION
2.1 Payment of
Monthly Amount.
(a) Payment in Cash or
Common Stock. If the Monthly
Amount (or a portion of such Monthly Amount
if not all of the Monthly Amount may
be converted into shares of Common Stock
pursuant to Section 3.2) is required to
be paid in cash pursuant to Section 2.1(b),
then the Company shall pay the
Holder an amount in cash equal to 102% of
the Monthly Amount due and owing to
the Holder on the Amortization Date. If the
Monthly Amount (or a portion of such
Monthly Amount if not all of the Monthly
Amount may be converted into shares of
Common Stock pursuant to Section 3.2) is
required to be paid in shares of Common
Stock pursuant to Section 2.1(b), the
number of such shares to be issued by the
Company to the Holder on such Amortization
Date (in respect of such portion of
the Monthly Amount converted into shares of
Common Stock pursuant to Section
2.1(b)), shall be the number determined by
dividing (i) the portion of the
Monthly Amount converted into shares of
Common Stock, by (ii) the then
applicable Fixed Conversion Price. For
purposes hereof, subject to Section 3.6
hereof, the initial "FIXED CONVERSION
PRICE" means $1.66.
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(b) Monthly Amount
Conversion Conditions. Subject to
Sections 2.1(a), 2.2, and 3.2 hereof, the
Holder shall convert into shares of
Common Stock all or a portion of the
Monthly Amount due on each Amortization
Date if the following conditions (the
"CONVERSION CRITERIA") are satisfied: (i)
the average closing price of the Common
Stock as reported by Bloomberg, L.P. on
the Principal Market for the five (5)
trading days immediately preceding such
Amortization Date shall be greater than or
equal to 115% of the Fixed Conversion
Price, and (ii) the amount of such
conversion does not exceed twenty five
percent (25%) of the aggregate dollar
trading volume of the Common Stock for the
period of twenty-two (22) trading days
immediately preceding such Amortization
Date. If subsection (i) of the Conversion
Criteria is met but subsection (ii) of
the Conversion Criteria is not met as to
the entire Monthly Amount, the Holder
shall convert only such part of the Monthly
Amount that meets subsection (ii) of
the Conversion Criteria. Any portion of the
Monthly Amount due on an
Amortization Date that the Holder has not
been able to convert into shares of
Common Stock due to the failure to meet the
Conversion Criteria, shall be paid
in cash by the Company at the rate of 102%
of the Monthly Amount otherwise due
on such Amortization Date, within three (3)
business days of such Amortization
Date.
2.2 No Effective
Registration. Notwithstanding anything to
the contrary herein, none of the Company's
obligations to the Holder may be
converted into Common Stock unless (a)
either (i) an effective current
Registration Statement (as defined in the
Registration Rights Agreement)
covering the shares of Common Stock to be
issued in connection with satisfaction
of such obligations exists, or (ii) an
exemption from registration for resale of
all of the Common Stock issued and issuable
is available pursuant to Rule 144 of
the Securities Act, and (b) no Event of
Default (as hereinafter defined) exists
and is continuing, unless such Event of
Default is cured within any applicable
cure period or otherwise waived in writing
by the Holder.
2.3 Optional
Redemption in Cash. The Company may prepay this
Note ("OPTIONAL REDEMPTION") by paying to
the Holder a sum of money equal to one
hundred twenty percent (120%) of the
Principal Amount outstanding at such time
together with accrued but unpaid interest
thereon and any and all other sums
due, accrued or payable to the Holder
arising under this Note, the Purchase
Agreement or any other Related Agreement
(the "REDEMPTION AMOUNT") outstanding
on the Redemption Payment Date (as defined
below). The Company shall deliver to
the Holder a written notice of redemption
(the "NOTICE OF REDEMPTION")
specifying the date for such Optional
Redemption (the "REDEMPTION PAYMENT
DATE"), which date shall be seven (7)
business days after the date of the Notice
of Redemption (the "REDEMPTION PERIOD"). A
Notice of Redemption shall not be
effective with respect to any portion of
this Note for which the Holder has
previously delivered a Notice of Conversion
(as hereinafter defined) or for
conversions elected to be made by the
Holder pursuant to Section 3.3 during the
Redemption Period. The Redemption Amount
shall be determined as if the Holder's
conversion elections had been completed
immediately prior to the date of the
Notice of Redemption. On the Redemption
Payment Date, the Redemption Amount must
be paid in good funds to the Holder. In the
event the Company fails to pay the
Redemption Amount on the Redemption Payment
Date as set forth herein, then such
Redemption Notice will be null and
void.
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ARTICLE III
HOLDER'S CONVERSION RIGHTS
3.1 Optional
Conversion. Subject to the terms set forth in
this Article III, the Holder shall have the
right, but not the obligation, to
convert all or any portion of the
outstanding Principal Amount and/or accrued
interest and fees due and payable into
fully paid and nonassessable shares of
Common Stock at the Fixed Conversion Price.
The shares of Common Stock to be
issued upon such conversion are herein
referred to as, the "CONVERSION SHARES."
3.2 Conversion
Limitation. Notwithstanding anything
contained herein to the contrary, the
Holder shall not be entitled to exercise
pursuant to the terms of this Note an
amount that would be convertible into that
number of shares of Common Stock which
would exceed the difference between the
number of shares of Common Stock
beneficially owned by such Holder or issuable
upon exercise of any option or warrant held
by such Holder and 4.99% of the
outstanding shares of Common Stock of the
Company. For the purposes of the
immediately preceding sentence, beneficial
ownership shall be determined in
accordance with Section 13(d) of the
Exchange Act and Regulation 13d-3
thereunder. The limitation described in
this Section 3.2 shall automatically
become null and void without any notice to
the Company upon the occurrence and
during the continuance beyond any
applicable grace period of an Event of
Default, or upon 65 days prior notice to
the Company, except that at no time
shall the beneficial ownership exceed
19.99% of the Common Stock.
Notwithstanding anything contained herein
to the contrary, the number of shares
of Common Stock issuable by the Company and
acquirable by the Holder at a price
below $1.10 per share pursuant to the terms
of this Note, the Purchase
Agreement, any Related Agreement, the
Secured Convertible Minimum Borrowing Note
made by the Company to the Holder dated the
date hereof (as amended, modified
and/or supplemented from time to time, the
"MB Note"), the Secured Revolving
Note made by the Company to the Holder
dated the date hereof (as amended,
modified and/or supplemented from time to
time, the "Revolving Note" and
together with the MB Note, the "Other
Notes"), the Security Agreement (as
defined in the MB Note) or any Ancillary
Agreement (as defined in the Security
Agreement), shall not exceed an aggregate
of 754,492 shares of the Company's
Common Stock (subject to appropriate
adjustment for stock splits, stock
dividends, or other similar
recapitalizations affecting the Common Stock) (the
"Maximum Common Stock Issuance"), unless
the issuance of shares hereunder in
excess of the Maximum Common Stock Issuance
shall first be approved by the
Company's shareholders. If at any point in
time and from time to time the number
of shares of Common Stock issued pursuant
to the terms of this Note, the
Purchase Agreement, any Related Agreement,
the Other Notes, the Security
Agreement or any Ancillary Agreement
together with the number of shares of
Common Stock that would then be issuable by
the Company to the Holder in the
event of a conversion or exercise pursuant
to the terms of this Note, the
Purchase Agreement, any Related Agreement,
the Other Notes, the Security
Agreement or any Ancillary Agreement would
exceed the Maximum Common Stock
Issuance but for this paragraph, the
Company shall promptly call a shareholders
meeting to solicit shareholder approval for
the issuance of the shares of Common
Stock hereunder in excess of the Maximum
Common Stock Issuance. Shares of Common
Stock which may not be issued due to the
limitations set forth in this Section
3.2 shall not be deemed to be Conversion
Shares under this Note unless and until
their issuance is otherwise permitted as
contemplated herein.
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3.3 Mechanics of
Holder's Conversion. In the event that the
Holder converts amounts outstanding under
this Note into Common Stock, the
Holder shall give notice of such election
by delivering (by facsimile or email)
an executed and completed notice of
conversion in substantially the form of
Exhibit A hereto (appropriately completed)
("NOTICE OF CONVERSION") to the
Company and such Notice of Conversion shall
provide a breakdown in reasonable
detail of the Principal Amount, accrued
interest and fees that are being
converted. The Company shall have two and
one half (2.5) hours from the time
that such Notice of Conversion is delivered
to the Company (which Notice of
Conversion shall be delivered via facsimile
or email by the Holder to each of
Peter Canepa, Kenneth Rieth and John
LeHoty) to provide the Holder with written
notice (delivered to Holder via facsimile
or email) of the Company's decision to
purchase the number of shares of Common
Stock otherwise deliverable to the
Holder pursuant to the Notice of Conversion
(the "Designated Shares") for a
purchase price determined by multiplying
the Designated Shares by the intraday
high price of the Common Stock on the day
the Notice of Conversion was submitted
to the Company (the "Disposition Price").
The Disposition Price shall be paid by
the Company to the Holder by wire transfer
of immediately available funds within
two (2) business days of the date of the
Notice of Conversion. On each
Conversion Date (as hereinafter defined)
and in accordance with its Notice of
Conversion, the Holder shall make the
appropriate reduction to the Principal
Amount, accrued interest and fees as
entered in its records and shall provide
written notice thereof to the Company
within two (2) Business Days after the
Conversion Date. Each date on which a
Notice of Conversion is delivered or
telecopied to the Company in accordance
with the provisions hereof shall be
deemed a Conversion Date (the "CONVERSION
DATE"). Pursuant to the terms of the
Notice of Conversion, the Company shall
cause the transfer agent to transmit the
certificates representing the Conversion
Shares to the Holder by creditin
