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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
whOOdoo.com,
Inc., Greystone Credit Inc. and Permastoprust International,
Inc.), with
principal offices located at 7 Reid Street, Suite 312, Hamilton
Bermuda, HM11
prior to the Exchange Closing (as defined below) and to be
located at 300 East
Sonterra Boulevard, San Antonio, Texas, 78258 as of and after
the Exchange
Closing ("RCGI"), and THE LONGVIEW FUND, L.P., a California
limited partnership
with its principal offices located at 600 Montgomery Street,
44th Floor, San
Francisco, CA 94111 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
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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 Michael J.
Pawelek, Wayne A. Psencik and Sherry L. Spurlock (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 Katten Muchin Rosenman LLP,
525 West Monroe
Street, Suite 1900, Chicago, Illinois 60661, 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 Katten
Muchin Rosenman LLP,
525 West Monroe Street, Suite 1900, Chicago, Illinois
60661-3693, 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
8
<PAGE>
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 1933 Act)
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
Sarbanes-Oxley Act of 2002,
as amended, and the rules and regulations thereunder
(collectively,
"Sarbanes-Oxley"). 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
<PAGE>
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 1934
Act) 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 EDGAR 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
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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
<PAGE>
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 Sarbanes-Oxley 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
<PAGE>
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, choate 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, choate
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
<PAGE>
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 1934 Act)
nor any other
20
<PAGE>
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 mark 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
<PAGE>
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
<PAGE>
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
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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),
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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 1934 Act) and made publicly available on the SEC's
EDGAR 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
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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,
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