EXHIBIT 10.2
AMENDMENT #2
TO
MERGER AGREEMENT
This Amendment #2 to Merger Agreement (the "2nd Amendment") is entered
into as of __________, 2005, by and between RCG Companies Incorporated ("RCG"),
WTI Acquisition, Inc. ("Sub"), and Farequest Holdings, Inc. ("Farequest"), and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ("Seller").
RECITALS:
A. The parties hereto entered into that certain Agreement and Plan of
Merger on November 30, 2004, as amended on December 29, 2004 (the "Agreement").
B. The parties hereto desire to amend the terms of the Agreement.
NOW THEREFORE, in consideration of the agreements set forth herein and
other consideration, the receipt and adequacy of which is hereby acknowledged,
the parties hereto agree as follows:
1. Terms. All capitalized terms not otherwise defined herein shall have
the meaning set forth in the Agreement.
2. Merger Consideration.
A. Section 2.1(a) of the Agreement is hereby deleted in its
entirety and replaced with the following:
"(a) Every share of Farequest's common stock, par value $.001
per share (the "FAREQUEST SHARES"), issued and outstanding immediately
prior to the Effective Time shall be converted into the right to
receive (i) a share of RCG common stock, $.04 par value per share,
multiplied by the Common Stock Exchange Ratio (the "RCG COMMON STOCK"),
which will result in an aggregate of 4,779,196 shares to be issued as
of the Effective Time (the result of which the holders of the Farequest
Shares shall own initially 19.9% of the outstanding common stock of RCG
as of the Effective Time), (ii) a share of RCG Series B Preferred
Stock, $.04 par value per share, with such terms, preferences, and
rights as are set forth in the Certificate of Designation attached
hereto as Exhibit 2.1(a)(i), multiplied by the Preferred Stock Exchange
Ratio (the "RCG SERIES B PREFERRED STOCK"), which will result in an
aggregate of 1,527,389 shares to be issued as of the Effective Time
(resulting, upon conversion of the RCG Series B Preferred Stock
pursuant to the terms thereof, in the issuance of shares that when
aggregated with all the RCG Common Stock issued to holders of Farequest
Shares in the Merger, result in the Farequest stockholders immediately
prior to the Effective Time beneficially owning the equivalent of 45%
of the outstanding common stock of RCG as of the Effective Time), plus
the sum of 0.96 multiplied by the aggregate number of shares of RCG
common stock issued upon conversion prior to the Effective Time of the
Series A 6% Convertible Preferred Stock of RCG), (iii) a right to
receive either (A) additional shares of RCG Series B Preferred Stock if
the RCG Series B Preferred Stock has not been converted, or (B)
additional shares of Common Stock if the RCG Series B Preferred Stock
has been converted, if and when there are issuances of shares of RCG
Common Stock upon the conversion after the Effective Time of the Series
A 6% Convertible Preferred Stock of RCG (the "CONTINGENT SHARES" as
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defined below), and (iv) a pro rata interest in a Promissory Note in
the form attached hereto as Exhibit 2.1(a)(ii) (the "PROMISSORY NOTE"),
payable, within one year of the Effective Time, at the option of RCG,
in either (A) an amount in cash equal to the lesser of (i) $6,037,872
or (ii) 19% of the value of the total maximum consideration payable
under this Section 2.1(a), with Maker's common stock valued for this
purpose at the closing price of RCG common stock as of the date
immediately prior to the Effective Time, and Maker's series B preferred
stock valued for this purpose on an as-converted basis with Maker's
common stock issuable upon such conversion valued at the closing price
of RCG common stock as of the date immediately prior to the Effective
Time, or (B) 3,018,936 shares of RCG Common Stock (resulting in the
issuance of shares that when aggregated with all the RCG Common Stock
and RCG Series B Preferred Stock (on an as converted basis) issued to
holders of Farequest Shares in the Merger, result in the Farequest
stockholders immediately prior to the Effective Time beneficially
owning the equivalent of 49% of the outstanding common stock of RCG as
of the Effective Time). The Promissory Note shall bear interest at four
percent (4%) per annum. Any interest shall be payable at maturity at
RCG's option in either cash or RCG Common Stock valued at the greater
of (i) $2.00 per share or (ii) Market Value at the maturity date. Ten
percent (10%) of the number of shares of RCG Common Stock and RCG
Preferred Stock each Farequest stockholder is entitled to receive based
upon clause (i) and clause (ii), shall be placed in escrow (the
"FAREQUEST ESCROW SHARES") and distributed in accordance with the terms
of the Escrow Agreement. The Option Proportion of (i) the total number
of shares of RCG Common Stock to be delivered to the Farequest
stockholders, (ii) the total number of shares of RCG Series B Preferred
Stock to be delivered to the Farequest stockholders, (iii) the total
number of Contingent Shares to be delivered to the Farequest
stockholders, and (iv) the Promissory Note, shall be placed in an
additional escrow account ("ADDITIONAL ESCROW ACCOUNT") whose sole
purposes are to satisfy the rights of any option or warrant holders
upon any exercise of options or warrants held by Farequest option or
warrant holders identified on Schedule 2.1(a) and to administratively
distribute the proceeds from the Promissory Note to the Farequest
stockholders after its maturity date and in accordance with the terms
of the Additional Escrow Account. Such Additional Escrow Account shall
be sufficient to satisfy the exercise of all outstanding options and
warrants of Farequest, including any anti-dilution provisions thereof.
For purposes of this Agreement, the "CONTINGENT SHARES" shall mean for
each Farequest Share, that fraction of a share of RCG Series B
Preferred Stock which shall, when converted to RCG common stock
pursuant to the terms thereof, result in the issuance of that number of
shares of RCG common stock equal to the quotient of (I) the Additional
RCG Shares, divided by (II) the number of Farequest Shares outstanding
as of the Effective Time, that are issuable to the holder thereof from
time to time in accordance with Section 2.4 below to keep the Farequest
stockholders' ownership percentage (assuming conversion of the RCG
Series B Preferred Stock pursuant to the terms thereof) from being
diluted by the issuance of any shares of RCG common stock issuable upon
conversion after the Effective Time of the Series A 6% Convertible
Preferred Stock of RCG. For purposes of this Agreement, "ADDITIONAL RCG
SHARES" shall mean that number of shares determined by multiplying (x)
the number of shares of RCG common stock issued upon the conversion
after the Effective Time of the Series A 6% Convertible Preferred Stock
of RCG from time to time on or before the date that is five (5) years
following the Effective Time, by (y) .96. For avoidance of doubt
Exhibit 2.1(b) shall set forth an example of this calculation."
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B. Section 2.1(b) of the Agreement is hereby deleted in its entirety
and replaced with the following:
"(b) All Farequest Shares shall be canceled and retired, and
each certificate representing any such Farequest Shares shall
thereafter (i) represent only the right to receive the RCG Common
Stock, RCG Series B Preferred Stock, the Contingent Shares and the
Promissory Notes issuable in exchange for such Farequest Shares and
(ii) entitle the holder thereof to vote with respect to, and receive
dividends, if declared, on, such number of shares of RCG Common Stock
and RCG Series B Preferred Stock which such holder is entitled to
receive in exchange for such certificates, provided that dividends
shall be paid to such holder, without interest, only upon surrender of
certificates in accordance with Section 2.4."
3. Farequest Options and Warrants. Section 2.2 of the Agreement is
hereby deleted in its entirety and replaced with the following:
"2.2 Effect on Farequest Options and Warrants. Every Farequest
option or warrant issued and outstanding immediately prior to the
Effective Time shall be revised to provide that any outstanding options
or warrants shall only be exercisable for the aggregate per share
merger consideration including the shares of RCG Common Stock, RCG
Series B Preferred Stock, Contingent Shares and a pro rata interest in
the proceeds of the Promissory Note held in the Additional Escrow
Account. At the Effective Time, the Stockholder Representative, on
behalf of the Farequest stockholders, option holders and warrant
holders, RCG and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇ (the "ADDITIONAL
ESCROW AGENT") shall enter into an escrow agreement substantially in
the form of Exhibit 2.2 hereof (the "ADDITIONAL ESCROW AGREEMENT") and
establish the Additional Escrow Account. At the Effective Time, RCG
shall deliver to the Additional Escrow Agent the Option Proportion of
(i) the total number of shares of RCG Common Stock to be delivered to
the Farequest stockholders, (ii) the total number of shares of RCG
Series B Preferred Stock to be delivered to the Farequest stockholders,
(iii) a certificate representing the Contingent Shares, and (iv) the
Promissory Note, as directed by the Stockholders' Representative, which
also shall be held in an escrow account in accordance with the terms of
the Additional Escrow Agreement for the purpose of permitting the
Farequest option and warrant holders listed on Schedule 2.1(a) to
exercise their options and warrants in return for shares of RCG common
stock, RCG Series B Preferred Stock (including their interest in the
Contingent Shares) and their pro rata interest in the Promissory Note.
The number of shares of RCG Common Stock and RCG Series B Preferred
Stock (including the related interest in the Contingent Shares) and
interest in the Promissory Note remaining at the end of the escrow
period that are not subject to a claim of a Farequest option or warrant
holder shall be distributed, pursuant to the terms of the Additional
Escrow Agreement, to the Farequest stockholders (including those who
received RCG Common Stock or RCG Series B Preferred Stock from the
Additional Escrow Account), in proportion to their respective
percentage interests immediately prior to the Effective Time, assuming
for this purpose that option and warrant holders who exercised their
options and warrants in the Additional Escrow Account had exercised
such options and warrants immediately prior to the Effective Time."
4. Exchange Procedures.
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A. Section 2.4(a) of the Agreement is hereby deleted in its entirety
and replaced with the following:
"(a) RCG shall authorize its transfer agent to act as exchange
agent hereunder (the "EXCHANGE AGENT") for the purposes of exchanging
certificates representing Farequest Shares, the Contingent Shares, the
Promissory Note, shares of RCG Common Stock and shares of RCG Series B
Preferred Stock. Reasonably contemporaneous with the Effective Time,
RCG shall deposit with the Exchange Agent, in trust for the holders of
Certificates (as defined in Section 2.4(b) below), certificates
representing the shares of RCG Common Stock and RCG Series B Preferred
Stock issuable pursuant to Section 2.1(a) in exchange for Farequest
Shares, less the Farequest Escrow Shares that RCG is required to
deposit into the escrow in accordance with the Escrow Agreement (the
"FAREQUEST CLOSING CERTIFICATES").
B. Section 2.4(b) of the Agreement is hereby deleted in its entirety
and replaced with the following:
"(b) Promptly after the Effective Time, the Exchange Agent or
other firm designated by the Stockholders' Representative shall mail or
cause to be mailed to each record holder, as of the Effective Time, of
an outstanding certificate or certificates which immediately prior to
the Effective Time represented Farequest Shares (the "CERTIFICATES"), a
letter of transmittal and instructions for use in effecting the
surrender of the Certificates for exchange therefore. Upon surrender to
the Exchange Agent of a Certificate, together with such letter of
transmittal duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefore that number of shares of RCG
Common Stock and RCG Series B Preferred Stock (less any Farequest
Escrow Shares that RCG is required to deposit into the escrow in
accordance with the Escrow Agreement) together with the Contingent
Share and an interest in the Promissory Note which such holder has the
right to receive under Section 2.1(a) and such Certificate shall
forthwith be canceled. If any such shares are to be issued to a Person
other than the Person in whose name the Certificate surrendered in
exchange therefore is registered, it shall be a condition of exchange
that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the Person requesting
such exchange shall pay any transfer or other taxes required by reason
of the exchange to a Person other than the registered holder of the
Certificate surrendered or such Person shall establish to the
satisfaction of the Surviving Corporation that such tax has been paid
or is not applicable.
Following the Effective Time, RCG will cause its Exchange
Agent to issue to the Farequest stockholders any shares of RCG Common
stock and/or RCG Series B Preferred Stock issuable as a result of the
Contingent Shares granted hereunder upon each of the following events:
(a) each instance in which RCG issues an aggregate of 1,000,000 shares
of its common stock as a result of the conversion from time to time by
the holders of RCG's Series A 6% Convertible Preferred Stock; (b) the
first day of each calendar quarter following the Effective Time, except
if the fair market value of the RCG Common Stock and RCG Series B
Preferred Stock to be issued for the Contingent Shares as of such date
is less than $200,000, then such issuance may be delayed to the first
day of that next following calendar quarter; (c) not less than five (5)
days prior to any time RCG or its Board of Directors declares a record
date entitling holders of its common stock to vote in any annual or
special meeting of its Stockholders; provided, however, that
notwithstanding the foregoing, any shares required to be issued as a
result of the Contingent Shares shall be issued no later than the date
that is five (5) years following the Effective Time (the date upon
which each issuance is triggered being referred to as a "CONTINGENT
SHARE EVENT"). Upon the occurrence of a Contingent Share Event, RCG
shall cause its transfer agent to distribute the number of shares of
RCG common stock and RCG Series B Preferred Stock that are issuable
pursuant to the terms of the Contingent Shares and this Agreement based
upon the cumulative number of shares of RCG Series A 6% Convertible
Preferred Stock converted into RCG common stock at such time less any
shares of RCG Common Stock and RCG Series B Preferred Stock previously
distributed to the Farequest stockholders as a result of the Contingent
Shares."
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C. Section 2.4(c) of the Agreement is hereby deleted in its entirety
and replaced with the following:
"(c) No dividends or other distributions with respect to the
RCG Common Stock or RCG Series B Preferred Stock constituting all or a
portion of the consideration payable to the holders of Farequest Shares
shall be paid to the holder of any unsurrendered Certificate
representing Farequest Shares until such Certificate is surrendered as
provided for in this Section 2.4. Subject to the effect of applicable
Laws, following such surrender, there shall be paid, without interest,
to the record holder of the certificates representing RCG Common Stock
and RCG Series B Preferred Stock (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time payable prior to or on the date of such surrender with
respect to such whole shares of RCG Common Stock and RCG Series B
Preferred Stock, less the amount of any withholding taxes which may be
required thereon under any provision of federal, state, local or
foreign tax law and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective
Time, but prior to the date of surrender and a payment date subsequent
to the date of surrender payable with respect to such shares of RCG
Common Stock and RCG Series B Preferred Stock, less the amount of any
withholding taxes which may be required thereon under any provision of
federal, state, local or foreign tax law. Any fractional shares shall
be rounded up to the next whole share."
D. Section 2.4(d) of the Agreement is hereby deleted in its entirety
and replaced with the following:
"(d) Any portion of the RCG Common Stock and RCG Series B
Preferred Stock made available to the Exchange Agent pursuant to
Section 2.4(a) that remains unclaimed by the holders of Farequest
Shares six (6) months after the date on which Certificates representing
such shares were deposited with the Exchange Agent by RCG shall be
returned to RCG and any such holder who has not exchanged his, her or
its Farequest Shares in accordance with this Section 2.4 prior to that
time shall thereafter look only to RCG for his, her or its claim for
RCG Common Stock or RCG Series B Preferred Stock, and applicable
dividends or other distributions. Neither RCG nor SUB shall be liable
to any holder of Farequest Shares with respect to any RCG Common Stock
or RCG Preferred Stock delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law."
5. Registration Statement and Proxy Statement. Section 5.5 of the
Agreement is hereby deleted in its entirety and replaced with the following:
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"5.5 Registration Statement and Proxy Statement. RCG shall use
all commercially reasonable efforts to file with the SEC as soon as
practicable post Closing, a Proxy Statement and a Registration
Statement. Farequest shall cooperate with RCG with regard to such
filings. RCG and Farequest shall use all commercially reasonable
efforts to have the Registration Statement declared effective by the
SEC as promptly as practicable."
6. RCG Series B Preferred Stock. The following shall be added as
Section 6.7 of the Agreement:
"6.7 RCG Series B Preferred Stock. The Certificate of
Designation of the Series B Preferred Stock, in the form of the
attached Exhibit 2.1(a)(i), shall have been filed with the Delaware
Secretary of State."
7. Registration Rights. The following shall be added as Section 6.8 of
the Agreement:
"6.8 Registration Rights Agreement. The Registration Rights
Agreement, in the form of the attached Exhibit 6.8, shall have been
executed by all parties thereto."
8. Farequest Working Capital. Section 7.13 of the Agreement is hereby
deleted in its entirety and replaced with the following:
"7.13 [INTENTIONALLY OMITTED]"
9. Seller Lock-Up. The following shall be added as Section 7.17 of the
Agreement:
"Seller Lock-Up. The Lock-up Agreement, in the form of the
attached Exhibit 7.17, shall have been executed by Seller and RCG."
10. Warrants/Options. The following shall be added as Section 7.18 of
the Agreement:
"Warrant/Option Waivers. RCG shall have received executed
waiver letters, in the form of the attached Exhibit 7.18(a), from each
Farequest warrant/option holder listed on Schedule 7.18."
11. Indemnification. Section 9.7 of the Agreement is hereby deleted in
its entirety and replaced with the following:
"9.7 Basket and Limitation. Notwithstanding anything to the
contrary in the foregoing provisions of this Article 9, no party shall
be required to indemnify another party until the aggregate of the
Losses of the party seeking indemnification reaches $150,000, at which
point (i) RCG shall be liable for all such Losses of the Farequest
Indemnified Parties in excess of $150,000 up to a maximum liability
equal to the number of Farequest Escrow Shares, or the aggregate value
thereof, and (ii) the Farequest stockholders shall be liable for all
such Losses of the RCG Indemnified Parties in excess of $150,000 up to
a maximum liability equal to the Farequest Escrow Shares. For purposes
of this Article 9, the shares of RCG Common Stock shall be valued at
the average of closing price of RCG's common stock for the ten (10)
trading days prior to the distribution of the shares from the escrow or
issuance by RCG with respect to the Loss. For purposes of this Article
9, the shares of RCG Series B Preferred Stock shall be valued pursuant
to the foregoing formula on an as converted basis. Notwithstanding the
foregoing, the Stockholder's Representative shall be able to satisfy
any Losses by a cash payment to RCG (and in such event an equivalent
value of Escrow Shares shall be released from the Escrow under the
Escrow Agreement), only in the event that (i) the fair market value of
RCG's Common Stock is less than $2.00 per share at the time of payment
of such Loss and (ii) the Stockholder's Representative agrees to
indemnify and hold RCG harmless from any claims including those of
Farequest stockholders as a result of the Stockholder's Representative
ability to make such payments."
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12. Appointment and Duties of Stockholders' Representative. The last
sentence of Section 12.14(b) is hereby deleted in its entirety and replaced with
the following:
"By approval of this Agreement, each stockholder of Farequest hereby
irrevocably appoints Stockholders' Representative as his, her or its
agent for purposes of the first sentence of Section 12.14(a), for
purposes of acting on behalf of Farequest, for purposes of the Escrow
Agreement, the Additional Escrow Agreement and the Registration Rights
Agreement, and for all other purposes contemplated by this Section
12.14."
13. Definitions.
A. Exchange Ratio. The definition of "Exchange Ratio" in Section
13.1 of the Agreement is hereby deleted in its entirety.
B. Common Stock Exchange Ratio. The following definition of
"Common Stock Exchange Ratio is hereby added to Section 13.1 of the Agreement:
"COMMON STOCK EXCHANGE RATIO" shall mean the fraction which
has a numerator of 4,779,196 and the denominator which is the number of
outstanding common shares of Farequest as of immediately prior to the
Effective Time.
C. Preferred Stock Exchange Ratio. The following definition of
"Preferred Stock Exchange Ratio is hereby added to Section 13.1 of the
Agreement:
"PREFERRED STOCK EXCHANGE RATIO" shall mean the fraction which
has a numerator of 1,527,389 and the denominator which is the number of
outstanding common shares of Farequest as of immediately prior to the
Effective Time.
14. Farequest Warrants/Options. The following shall be added as Section
3.25 of the Agreement:
"3.25 Warrants/Options. Pursuant to the terms of all
outstanding Farequest options and warrants, at the Effective Time the
holders of said options/warrants shall be entitled, upon the exercise
of said options/warrants pursuant to the terms thereof, to receive the
per share merger consideration, on a fully diluted basis, payable by
RCG to the Farequest stockholders pursuant to the terms of this
Agreement. Any options/warrants that have been awarded by Farequest but
have not yet been issued shall, when issued, contain provisions to
effectuate the foregoing."
15. Exhibit 2.1(b). The last sentence of Exhibit 2.1(b) to the
Agreement is hereby deleted and replaced by the following:
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"To the extent any preferred shares have been converted prior
to Closing, 0.96 of that number of common shares issued as a result of
such converted preferred shares shall be added to the 17,321,146 number
of common shares to be issued pursuant to Section 2.1(a)."
16. Sole Amendments. The Parties hereby agree that except as modified
herein, the Agreement shall remain in full force and effect.
17. Counterparts. This 2nd Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, each of the parties hereto has caused this 2nd
Amendment to be executed on its behalf this __________, 2005.
RCG Companies Incorporated
By: ______________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: President
WTI Acquisition, Inc.
By: ______________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: President
Farequest Holdings, Inc.
By: ______________________________
Name: ______________________________
Its: ______________________________
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