-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TccY6atvG0L08mjIfUB5l1mPc/XJ8fbZpbD4MuwX+qMlbXb3s7Umc4IM9gdXFHmu xhZ6L4ZeIosP5m0ViQ66Pw== 0001144204-03-007527.txt : 20031117 0001144204-03-007527.hdr.sgml : 20031117 20031117171458 ACCESSION NUMBER: 0001144204-03-007527 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20031107 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20031117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ERESOURCE CAPITAL GROUP INC CENTRAL INDEX KEY: 0000722839 STANDARD INDUSTRIAL CLASSIFICATION: LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES) [6552] IRS NUMBER: 232265039 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08662 FILM NUMBER: 031008690 BUSINESS ADDRESS: STREET 1: 6836 MORRISON BOULEVARD STREET 2: SUITE 200 CITY: CHARLOTTE STATE: NC ZIP: 28211 BUSINESS PHONE: 7043665054 MAIL ADDRESS: STREET 1: 2930 WELLINGTON CIRCLE SUITE 101 CITY: TALLAHASSEE STATE: FL ZIP: 32308 FORMER COMPANY: FORMER CONFORMED NAME: FLIGHTSERV COM DATE OF NAME CHANGE: 19990716 FORMER COMPANY: FORMER CONFORMED NAME: PROACTIVE TECHNOLOGIES INC DATE OF NAME CHANGE: 19950921 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE MEDICAL CORPORATION DATE OF NAME CHANGE: 19920703 8-K 1 v00574_8k.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): November 17, 2003 (October 17, 2003) RCG Companies Incorporated (Exact name of registrant as specified in its charter) Delaware 1-8662 (State or other jurisdiction of incorporation) (Commission File Number) 23-2265039 (IRS Employer Identification Number) 6836 Morrison Blvd., Suite 200, Charlotte, NC 28211 (Address of principal executive offices) (Zip Code) 1 ITEM 2. ACQUISITION On October 31, 2003, VE Holdings, Inc. ("Vacation Express") and SunTrips Inc. ("SunTrips"), both wholly-owned subsidiaries of MyTravel USA Holdings, Inc. ("MyTravel" or the "Seller"), entered into an amended and restated Asset Purchase Agreement ("Asset Purchase" or "Sale") with FS Tours, Inc. and FS SunTours, Inc., collectively the ("Purchaser" or the "Company"), which are wholly-owned direct subsidiaries of Flightserv, Inc. ("Flightserv"), which is a wholly-owned indirect subsidiary of RCG Companies Incorporated, formerly known as eResource Capital Group, Inc. ("RCG"). Under the terms of the asset purchase agreement, the Company will acquire substantially all of the assets and liabilities of Vacation Express and SunTrips, except for certain excluded items, in exchange for $12 million, of which $10 million was in the form of a seven-year promissory note from Flightserv secured by certain RCG investment holdings, and $2 million in the form of a working capital deficit. In conjunction with the Asset Purchase, the Company entered into a three-year agreement with MyTravel Canada Holidays, Inc. ("MyTravel Canada"), for certain services, including the purchasing of hotel accommodations for the Company on an exclusive basis. MyTravel Canada will be paid approximately $4.5 million over three years under this agreement. Additionally, the Company was required to obtain replacement letters of credit in the aggregate principal amount of $3 million. With the closing of these acquisitions, SunTrips and Vacation Express will continue to operate from their current locations, with FS Tours and FS SunTours assuming operational control. Air and hotel vacation packages will continue to be marketed and sold under the SunTrips and Vacation Express brands. ITEM 5. OTHER EVENTS On October 31, 2003, RCG completed a $4,000,000 private placement offering ("Private Placement") of RCG common stock to a group of private institutional investors ("Investors"). The offering was made pursuant to Regulation D. RCG issued 2,500,000 common shares at $1.60 per share. RCG has granted registration rights to the Investors. In connection with the Private Placement, RCG issued 3-year common stock warrants, which are exercisable six months from closing, to purchase 2,500,000 common shares of RCG common stock. The common stock warrants have an exercise price of $2.48 per, which was 110% of the closing bid price of RCG common stock at the closing date. Additionally, the common stock warrants have anti-dilution provisions. In connection with the Private Placement transaction, RCG paid a $280,000 cash commission and issued 200,000 RCG 5-year common stock warrants to its investment bank, HPC Capital Management ("HPC"). Additionally, RCG paid legal fees and expenses incurred in connection with the transaction. The summary of the Asset Purchase and Private Placement described above is qualified in its entirety by reference to the Asset Purchase Agreement, Stock Purchase Agreement, and Common Stock Purchase Warrant Agreement, which are attached as exhibits 10.1, 10.2, and 10.3 hereto and incorporated by reference herein. 2 The foregoing description is not a description of all of the material terms of the transaction. You should read the documents that are attached as exhibits to this report for a more complete understanding of the transaction. This Current Report on Form 8-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended. All forward-looking statements in this filing are based upon information available to the Company on the date of this release. The forward-looking statements contained herein involve risks and uncertainties, including the ability of the Purchaser to achieve the anticipated benefits of the Asset Purchase. Actual results and developments may differ materially from those described in this Report. Readers are cautioned not to place undue reliance on these forward-looking statements. For more information about the Company and risks arising when investing in or holding shares of the Company, investors are directed to the Company's most recent filings with the Securities and Exchange Commission. Item 7. Financial Statements and Exhibits (a) Not Applicable (b) Pro forma financial information will be filed by an amendment to this report within the time period required by the rules of the Securities and Exchange Commission. (c) Exhibits 10.1 Amended and Restated Asset Purchase Agreement dated October 31, 2003, by and among FS Tours, Inc., FS SunTours, Inc., VE Holdings Inc. and SunTrips Inc. 10.2 Stock Purchase Agreement dated October 31, 2003 10.3 Common Stock Purchase Warrant Agreement dated October 31, 2003 99.1 Press release dated November 3, 2003. The information in this press release is furnished not filed. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. RCG Companies Incorporated /s/ MICHAEL PRUITT - ---------------------------- Michael Pruitt Date: November 17, 2003 By: Chief Executive Officer 3 EXHIBIT INDEX 10.1 Asset Purchase Agreement dated October 31, 2003, by and among FS Tours, Inc., FS SunTours, Inc., VE Holdings, Inc., and SunTrips, Inc. 10.2 Stock Purchase Agreement dated October 31, 2003 10.3 Common Stock Purchase Warrant Agreement dated October 31, 2003 99.1 Press release by RCG Companies Incorporated dated October 31, 2003. 4 EX-10.1 3 v00574_ex10-1.txt EXHIBIT 10.1 EXECUTION VERSION ================================================================================ AMENDED AND RESTATED ASSET PURCHASE AGREEMENT BY AND AMONG VE HOLDINGS, INC., SUNTRIPS, INC., FS TOURS, INC. and FS SUNTOURS, INC. Dated as of October 31, 2003 ================================================================================ ARTICLE I DEFINITIONS AND TERMS......................................................................1 Section 1.1 Certain Definitions...................................................................1 Section 1.2 Other Definitional Provisions.........................................................8 ARTICLE II PURCHASE AND SALE OF ACQUIRED ASSETS.......................................................8 Section 2.1 Purchase and Sale.....................................................................8 Section 2.2 Acquired Assets and Excluded Assets...................................................8 Section 2.3 Assumption of Liabilities............................................................11 Section 2.4 Purchase Price.......................................................................11 Section 2.5 Purchase Price Adjustment............................................................11 Section 2.6 Allocation of the Purchase Price.....................................................12 Section 2.7 Transfer Taxes.......................................................................13 ARTICLE III CLOSING...................................................................................13 Section 3.1 Closing..............................................................................13 Section 3.2 Deliveries by Sellers................................................................13 Section 3.3 Deliveries by Purchasers.............................................................14 Section 3.4 Risk of Loss.........................................................................14 Section 3.5 Simultaneous Transactions............................................................14 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS.................................................14 Section 4.1 Authority, Binding Effect............................................................14 Section 4.2 Title to Property....................................................................16 Section 4.3 No Violation.........................................................................16 Section 4.4 Litigation; Proceedings.............................................................16 Section 4.5 Organization and Qualification.......................................................16 Section 4.6 Financial Statements; Undisclosed Liabilities.......................................16 Section 4.7 Receivables..........................................................................17 Section 4.8 Consents and Approvals...............................................................17 Section 4.9 Permits/Compliance with Laws.........................................................17 Section 4.10 Employee Benefit Plans; ERISA.......................................................18 Section 4.11 Contracts............................................................................18 Section 4.12 Condition and Sufficiency of Acquired Assets.........................................19 Section 4.13 Environmental Matters................................................................19
i Section 4.14 Real Property........................................................................19 Section 4.15 Labor Matters........................................................................20 Section 4.16 Insurance............................................................................20 Section 4.17 Intellectual Property................................................................20 Section 4.18 Taxes................................................................................21 Section 4.19 Customer Relationships...............................................................21 Section 4.20 Customer Deposits and Pre-Paid Expenses..............................................21 Section 4.21 Full Disclosure......................................................................22 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASERS..............................................22 Section 5.1 Organization.........................................................................22 Section 5.2 Authority, Binding Effect............................................................22 Section 5.3 No Violation; Consents and Approvals................................................23 Section 5.4 Financial Sufficiency................................................................24 ARTICLE VI COVENANTS.................................................................................24 Section 6.1 Conduct of Business..................................................................24 Section 6.2 Bulk Transfer Laws...................................................................24 Section 6.3 Employees............................................................................24 Section 6.4 Further Assurances...................................................................25 Section 6.5 Confidentiality; Tax Disclosure......................................................25 Section 6.6 Notification of Certain Matters......................................................26 Section 6.7 Access to Books and Records Following the Closing....................................26 Section 6.8 Change of Name.......................................................................26 Section 6.9 MyTravel Names.......................................................................26 Section 6.10 Non-Competition; Non-Solicitation....................................................27 Section 6.11 Stub Period Financial Statements.....................................................27 Section 6.12 Credit Card Processing...............................................................27 ARTICLE VII INDEMNIFICATION OBLIGATIONS; SURVIVAL....................................................28 Section 7.1 Agreements to Indemnify..............................................................28 Section 7.2 Third Party Claims Procedures........................................................28 Section 7.3 Limitation of Liability..............................................................29 Section 7.4 Method of Payment; Treatment of Indemnity Benefits...................................30
ii Section 7.5 Exclusive Remedy.....................................................................30 Section 7.6 Survival.............................................................................30 ARTICLE VIII CONDITIONS TO CLOSING; TERMINATION........................................................31 Section 8.1 Mutual Conditions to the Obligations of the Parties..................................31 Section 8.2 Conditions to the Obligations of Purchasers..........................................31 Section 8.3 Conditions to the Obligations of Sellers.............................................32 Section 8.4 Termination..........................................................................32 Section 8.5 Effect of Termination................................................................32 Section 8.6 Closing Failure Fee..................................................................32 Section 8.7 Third Party Real Estate Consents.....................................................33 Section 8.8 No Multiple Materiality Qualifiers...................................................33 ARTICLE IX GENERAL...................................................................................33 Section 9.1 Notices..............................................................................33 Section 9.2 Amendment, Waiver....................................................................34 Section 9.3 Assignment...........................................................................34 Section 9.4 Entire Agreement.....................................................................34 Section 9.5 Fulfillment of Obligations...........................................................34 Section 9.6 Parties in Interest..................................................................35 Section 9.7 Expenses.............................................................................35 Section 9.8 Brokers..............................................................................35 Section 9.9 Governing Law........................................................................35 Section 9.10 Counterparts.........................................................................35 Section 9.11 Headings.............................................................................35 Section 9.12 Disclosure Schedules.................................................................35 Section 9.13 Specific Performance.................................................................35 Section 9.14 Publicity............................................................................35 Section 9.15 Severability.........................................................................36 Section 9.16 Rules of Construction................................................................36 Section 9.17 Representations and Warranties Exclusive.............................................36 Section 9.18 WAIVER OF JURY TRIAL.................................................................36
iii EXHIBITS Exhibit A - Pledge Agreement Exhibit B - Purchase Agreement Supplement Exhibit C - Purchase Price Note Exhibit D - Bill of Sale Exhibit E - Assumption Agreement Exhibit F - Lease Assignments Exhibit G - Transition Services Agreement Exhibit H - Intellectual Property Assignments iv AMENDED AND RESTATED ASSET PURCHASE AGREEMENT THIS AMENDED AND RESTATED ASSET PURCHASE AGREEMENT, dated as of October 31, 2003, by and among VE Holdings, Inc., a Delaware corporation ("VE Holdings") and a wholly-owned subsidiary of MyTravel USA Holdings, Inc., a Florida corporation ("MyTravel"), SunTrips, Inc., a California corporation ("SunTrips") and a wholly-owned subsidiary of MyTravel, FS Tours, Inc., a Delaware corporation ("FS Tours"), a wholly-owned direct subsidiary of Flightserv, Inc., a Delaware corporation ("Flightserv") and a wholly-owned indirect subsidiary of eResource Capital Group, Inc., a Delaware corporation ("ECG"), and FS SunTours, Inc., a Delaware corporation ("FS SunTours"), a wholly-owned direct subsidiary of Flightserv and a wholly-owned indirect subsidiary of ECG. VE Holdings and SunTrips are each referred to herein individually as "Seller" and collectively as "Sellers". FS Tours and FS SunTours are each referred to herein individually as a "Purchaser" and collectively as "Purchasers". RECITALS: WHEREAS, Sellers and FS Tours entered into that certain Asset Purchase Agreement, dated as of October 17, 2003 (the "Original Agreement") and Sellers and FS Tours desire to amend and restate the Original Agreement in its entirety in order to provide for the purchase by FS SunTours of substantially all of the assets of SunTrips; WHEREAS, Sellers are engaged in the business of serving as public charter airline operators (collectively the "Business"); and WHEREAS, (i) SunTrips wishes to sell to FS SunTours, and FS SunTours wishes to purchase from SunTrips, substantially all of the assets of SunTrips used exclusively or principally by or relating to the Business, subject to certain liabilities in connection with the Business, upon the terms and subject to the conditions of this Agreement and (ii) VE Holdings wishes to sell to FS Tours, and FS Tours wishes to purchase from VE Holdings, substantially all of the assets of VE Holdings used exclusively or principally by or relating to the Business, subject to certain liabilities in connection with the Business, upon the terms and subject to the conditions of this Agreement (collectively, the "Asset Purchase"). NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and subject to and on the terms and conditions herein set forth, the Original Agreement is hereby amended, and the parties hereto agree, as follows: ARTICLE I DEFINITIONS AND TERMS Section 1.1 Certain Definitions. As used in this Agreement (including the Schedules and hereto), the following terms have the meanings set forth or as referenced below: 1 "Acquired Assets" has the meaning set forth in Section 2.2(a). "Action" means any claim, action, suit or proceeding, arbitral action, governmental inquiry, criminal prosecution or other investigation. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. The term "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as applied to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other ownership interest, as trustee or executor, by contract, credit arrangement or otherwise. "Agreement" means this Agreement, as it may be amended or supplemented from time to time in accordance with the terms hereof. "Ancillary Documents" means the Bill of Sale, the Assumption Agreement, the Purchase Price Note, the Lease Assignment, the Transition Services Agreement, the Intellectual Property Assignments, each Other Conveyance Document, the Replacement Letters of Credit, the Purchase Agreement Supplement, the Pledge Agreement, and each instrument, agreement or other document contemplated by this Agreement as being executed and delivered by the applicable party hereto. "Asset Purchase" has the meaning set forth in the recitals. "Assumed Liabilities" has the meaning set forth in Section 2.3(a). "Assumption Agreement" has the meaning set forth in Section 3.2(b). "Benefit Plans" means any Plan that is maintained or contributed to by Sellers (or any of their Affiliates) for the benefit of Employees. "Bill of Sale" has the meaning set forth in Section 3.2(a). "Business" has the meaning set forth in the recitals. "Business Day" means any day other than a Saturday, a Sunday or a day on which banks in New York City or Atlanta, Georgia are authorized or obligated by law or executive order to close. "Business Intellectual Property" shall mean any Intellectual Property that is owned by or licensed to Sellers exclusively or principally for the benefit of the Business, other than any such Intellectual Property that is an Excluded Asset or provided pursuant to the Transition Services Agreement. "Closing" has the meaning set forth in Section 3.1. "Closing Date" has the meaning set forth in Section 3.1. 2 "Closing Statement" has the meaning set forth in Section 2.5(a). "Closing Working Capital Amount" means the difference between the Current Assets and the Current Liabilities. "Code" means the Internal Revenue Code of 1986, as amended. "Competition Laws" means all Laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization, lessening of competition or restraint of trade. "Consents" has the meaning set forth in Section 4.8 "Contract" means any written contract, agreement, indenture, note, bond, instrument, lease, conditional sales contract, mortgage, license, franchise agreement, concession agreement, insurance policy, security interest, guaranty, binding commitment or other agreement or arrangement, in each case to which a Seller is a party and relating to the Business. "Current Assets" means the Current Assets (as defined by GAAP) of Sellers as recorded in their books and records as of the Closing Date (including the Surety Bonds), but excluding all Excluded Assets. "Current Letters of Credit" means the Letters of Credit set forth on Schedule 1.1(a). "Current Liabilities" means the Current Liabilities (as defined by GAAP) of Sellers as recorded in their books and records as of the Closing Date, but excluding all Excluded Liabilities. "Damages" has the meaning set forth in Section 7.1(a). "ECG" has the meaning set forth in the preamble. "Employee" means each employee of Sellers engaged in the Business as of the Closing Date. "Environmental Claim" means any claim, action, cause of action, investigation or notice by any person or entity alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (a) the presence or Release of any Hazardous Materials at any location, whether or not owned or operated by any Seller, or (b) circumstances forming the basis of any violation of any Environmental Law. "Environmental Laws" means all Laws and regulations relating to pollution or protection of human health or the environment, including Laws relating to Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials and all Laws with regard 4 to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Materials. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Excluded Assets" has the meaning set forth in Section 2.2(b). "Excluded Contracts" has the meaning set forth in Section 2.2(b)(v). "Excluded Liabilities" has the meaning set forth in Section 2.3(b). "Financial Information" has the meaning set forth in Section 4.6(a). "Flightserv" has the meaning set forth in the preamble. "GAAP" means United States generally accepted accounting principles and practices in effect from time to time as consistently applied. "Governmental Authority" has the meaning set forth in Section 4.8. "Governmental Order" means any statute, rule, regulation, order, judgment, injunction, decree, stipulation or determination issued, promulgated or entered by or with any Governmental Authority of competent jurisdiction. "Hazardous Materials" means all materials regulated by law as capable of causing harm or injury to human health or the environment, including (a) Hazardous Substances (as hereinafter defined), (b) friable asbestos containing material, (c) polychlorinated biphenyls, (d) highly toxic materials as defined by OSHA in 29 C.F.R. ss. 1910.1200, (d) radioactive materials and (f) all substances defined as Hazardous Substances, Oils, Pollutants or Contaminants in the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. ss. 300.5, or defined as such by, or regulated as such under, any Environmental Law. "Hazardous Substances" means any hazardous substances within the meaning of Section 101(14) of CERCLA, 42 U.S.C. ss. 9601(14), or any pollutant or constituent that is regulated under any Environmental Law. "Indemnified Party" has the meaning set forth in Section 7.2. "Indemnifying Party" has the meaning set forth in Section 7.2. "Independent Accounting Firm" means (a) a certified public accounting firm in the United States of international recognition mutually acceptable to Sellers and Purchasers, which does not have a material existing relationship with either of Sellers or Purchasers, or (b) if Sellers and Purchasers are unable to agree upon such a firm, then Sellers shall select one such firm and Purchasers shall select one such firm and those two firms shall select a third firm, in which event "Independent Accounting Firm" shall mean such third firm. 4 "Intellectual Property" means any or all of the following: (i) all patents and applications therefor and reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof; (ii) inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know-how, technology, technical data and customer lists; (iii) copyrights, copyright registrations and applications therefor; (iv) trade names, trade dress, logos, trademarks and service marks, and registrations and applications therefor and the goodwill associated therewith; (v) databases; (viii) computer software, including all source code therefor and (ix) domain names and all rights therein throughout the world. "Intellectual Property Assignments" has the meaning set forth in Section 3.2(e). "Knowledge of Sellers", "Sellers' Knowledge" and phrases of similar import mean the actual knowledge after reasonable inquiry of any current officer of either Seller. "Laws" means any federal, state, local or foreign law, statute, ordinance, rule, regulation, order, judgment or decree, administrative order or decree, administrative or judicial decision, and any other executive or legislative proclamation. "Lease Assignments" has the meaning set forth in Section 3.2(a). "Leased Realty" has the meaning set forth in Section 4.14(b). "Leases" has the meaning set forth in Section 4.14(b). "Liens" means any lien, security interest, mortgage, pledge, charge or similar encumbrance. "Litigation" has the meaning set forth in Section 4.4. "Material Adverse Effect" means any change or effect that is materially adverse to the financial condition, assets, liabilities or results of operations of the Business, with regard to either Seller individually or taken as a whole, except for any such changes or effects resulting directly or indirectly from (a) the transactions contemplated by this Agreement, (b) the announcement or other disclosure of the transactions contemplated by this Agreement, (c) industry-wide regulatory changes, or (d) an event or circumstance or series of events or circumstances affecting (i) the industry in which the Business operates in any country in which the Business operates or (ii) the United States economy generally or the economy generally of any other country in which the Business operates. "Material Contracts" has the meaning set forth in Section 4.11(a). "MyTravel" means MyTravel USA Holdings, Inc., a Florida corporation. "MyTravel Canada" means MyTravel Canada Holidays Inc., a Canadian corporation. "MyTravel Names" means the trademark "MyTravel" and all other trademarks containing the word "MyTravel" or any derivatives thereof. 5 "Notice of Disagreement" has the meaning set forth in Section 2.5(b). "Other Conveyance Documents" has the meaning set forth in Section 3.2(f). "Permits" has the meaning set forth in Section 4.9. "Permitted Liens" means (i) mechanics', carriers', workmen's or repairmens' Liens arising or incurred in the ordinary course of business with respect to liabilities that are not yet due or delinquent, (ii) Liens arising by operation of law for Taxes, assessments and other governmental charges which are not due and payable or which may hereafter be paid without penalty or which are being contested in good faith by appropriate proceedings, (iii) Liens set forth on Schedule 1.1(b), and (iv) other imperfections of title or encumbrances, if any, which imperfections of title or other encumbrances, individually or in the aggregate, would not reasonably be expected to materially detract from the value of the property or asset to which it relates or materially impair the ability to use the property or asset to which it relates in substantially the same manner as it was used prior to the Closing Date. "Person" means an individual, a corporation, a partnership, an association, a trust or other entity or organization. "Plans" means any "employee benefit plan" within the meaning of Section 3(3) of ERISA. "Pledge Agreement" means the Stock Pledge Agreement, dated as of the Closing Date, between ECG and Sellers, in the form attached hereto as Exhibit A. "Post-Closing Letters of Credit" means those Letters of Credit set forth on Schedule 1.1(c). "Purchase Agreement Supplement" means the Purchase Agreement Supplement, dated as of the Closing Date, between MyTravel Canada, Flightserv and Purchasers, in the form attached hereto as Exhibit B. "Purchase Price" has the meaning set forth in Section 2.4. "Purchase Price Note" means the Secured Promissory Note of Purchasers and Flightserv, due December 1, 2010, issued to the Sellers, jointly and severally, in the aggregate principal amount of Ten Million Dollars ($10,000,000) (as may be adjusted from time to time pursuant to Sections 2.5(d) and 7.4(a)), in the form attached hereto as Exhibit C. "Purchaser" has the meaning set forth in the preamble. "Purchaser Group" has the meaning set forth in Section 7.1(a). "Recipients" has the meaning set forth in Section 6.5(b). "Registered Intellectual Property" has the meaning set forth in Section 4.17(a). 6 "Release" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment (including ambient air, surface water, groundwater and surface or subsurface strata), or into or out of any property, including the movement of Hazardous Materials through or in the air, soil, surface water, groundwater or property. "Replacement Letters of Credit" means the Letters of Credit obtained by Purchasers in replacement of the Current Letters of Credit other than the Post-Closing Letters of Credit, issued to the same entities, in the same amounts and securing the same obligations as such Current Letters of Credit, each in form and substance, and from a bank or other financial institution, reasonably satisfactory to Sellers and the Purchasers; provided, however that the Letter of Credit obtained by Purchasers in replacement of the $3,000,000 Letter of Credit issued for the benefit of Ryan International Airlines Inc. by Barclays Bank shall be in the amount of One Million Five Hundred Thousand Dollars ($1,500,000). "Schedule" means any disclosure schedule being delivered by Sellers concurrently with the execution of this Agreement. "Seller" has the meaning set forth in the preamble. "Seller Group" has the meaning set forth in Section 7.1(b). "SunTrips" has the meaning set forth in the preamble. "Surety Bonds" means (i) the $200,000 Cash Surety issued by National City Bank in favor of the Department of Transportation for the benefit of VE Holdings and (ii) the $200,000 Cash Surety issued by National City Bank in favor of the Department of Transportation for the benefit of SunTrips. "Tax Return" means any return, report, information return or other document (including any related or supporting information) with respect to Taxes, including any schedule or attachment thereto. "Taxes" means all taxes, charges, fees, duties, levies, penalties or other assessments imposed by any federal, state, local or foreign Governmental Authority, including, but not limited to, income, gross receipts, excise, property, sales, gain, use, license, capital stock, transfer, franchise, payroll, withholding, social security, value added or other taxes, including any interest, penalties or additions attributable thereto. "Third Party Claim" has the meaning set forth in Section 7.2. "Transfer Taxes" means sales, use, transfer, real property transfer, recording, documentary, stamp, registration, stock transfer, and other similar taxes and fees (including any penalties and interest). "Transferred Employee" has the meaning set forth in Section 6.3(a). "Transition Services Agreement" has the meaning set forth in Section 3.2(d). 7 "VE Holdings" has the meaning set forth in the preamble. Section 1.2 Other Definitional Provisions. (a) When a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference shall be to an Article, Section, Exhibit or Schedule of this Agreement unless otherwise indicated. (b) The words "hereof," "herein," "hereto," "hereunder" and "hereinafter" and words of similar import, when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. (c) The terms defined in the singular have a comparable meaning when used in the plural, and vice versa. (d) The term "dollars" and character "$" mean United States dollars. (e) The word "including" means including, without limitation, and the words "include" and "includes" have corresponding meanings. ARTICLE II PURCHASE AND SALE OF ACQUIRED ASSETS Section 2.1 Purchase and Sale. Upon the terms and subject to the conditions of this Agreement, (i) SunTrips agrees to sell, assign, transfer, convey and deliver, or cause to be sold, assigned, transferred, conveyed and delivered, to FS SunTours and FS SunTours agrees to purchase, on the Closing Date, all of the Acquired Assets owned or controlled by SunTrips and (ii) VE Holdings agrees to sell, assign, transfer, convey and deliver, or cause to be sold, assigned, transferred, conveyed and delivered, to FS Tours and FS Tours agrees to purchase, on the Closing Date, all of the Acquired Assets owned or controlled by VE Holdings; provided that, in any event, Purchasers shall collectively purchase hereunder all of the Acquired Assets, notwithstanding any specific division thereof set forth in this Section 2.1. Section 2.2 Acquired Assets and Excluded Assets. (a) The term "Acquired Assets" shall mean all the business, properties, assets and rights of Sellers relating exclusively or principally to the Business of whatever kind and nature, tangible or intangible, other than the Excluded Assets, including, in each case as relating exclusively or principally to the Business: (i) all right, title and interest in, to and under any Leased Realty; (ii) except to the extent any of the following are Excluded Assets, all inventory, computer equipment and hardware, equipment, supplies and other goods, all office furniture and fixtures, leasehold improvements, machinery, owned vehicles, and other tangible personal property; 8 (iii) all right, title and interest of Sellers in, to and under all Contracts to which they are a party, including those listed on Schedule 4.11(a), but excluding any Excluded Contracts; (iv) except to the extent any of the following are Excluded Assets, all accounts receivable of the Business (net of any reserves for bad debt), and notes payable to Sellers in relation to the Business and all claims, contract rights and judgments relating thereto, including all of Sellers' rights to any proofs of claim filed against account debtors and any negotiable instruments, letters of credit or any other writing that evidences a right of Sellers to the payment or performance of a monetary obligation; (v) any securities, whether certificated or uncertificated, held by Sellers; (vi) all right, title and interest of Sellers to and under all Permits, to the extent such Permits are transferable; (vii) all prepaid assets, including all prepaid rentals and all prepaid expenses, bonds (including the Surety Bonds), escrow accounts and deposits of Sellers; (viii) the originals and all copies of all books of account, sales and promotional materials, general, financial, accounting and personnel records, files, manuals, invoices, customers and suppliers lists and other data owned or used by Sellers, but excluding the corporate minute books, stock records and organizational documents of Sellers; (ix) all right, title and interest of Sellers in, to and under all Business Intellectual Property (including the trademarks, tradenames and names "SunTrips" and "Vacation Express"), except to the extent any Business Intellectual Property is an Excluded Asset; (x) all of Sellers' right, title and interest in and to telephone numbers, answering service numbers, e-mail addresses, and other communication codes, numbers or devices (including the software components for all internet websites other than the "MyTravel" website); (xi) all of Sellers' right, title and interest in and to all passenger escrow accounts maintained with a bank or other financial institution; (xii) all causes of action, other than those related to or otherwise arising in connection with, the Excluded Assets or Excluded Liabilities; (xiii) all goodwill relating exclusively or principally to the Business; and 9 (xiv) any other assets used exclusively or principally in the Business on the Closing Date that are not specifically listed above. (b) The term "Excluded Assets" shall mean: (i) the minute books, corporate seal, stock records and organizational documents of Sellers; (ii) copies of such books of account, general, financial, accounting and personnel records, files, manuals, invoices, customer and suppliers lists and other data as Sellers may be required by applicable Laws to retain or as may be necessary to assist Sellers in preparation of Sellers' Tax Returns; (iii) all of Sellers' cash on hand, cash equivalents or cash held in any financial institution, other than any escrowed cash or security deposits; (iv) any demand, money market, time, savings, passbook, or similar account maintained with a bank or other financial institution; (v) all right, title and interest in, to and under any Benefit Plans listed (or required to be listed) in Section 4.10; (vi) those Contracts that are listed on Schedule 2.2(b) (the "Excluded Contracts"); (vii) all of Sellers' right, title and interest in and to Tax credits and other Tax benefits, Tax refunds, prepaid Taxes, insurance premium refunds, and insurance and other claims or rights to recoveries and similar benefits of and relating to the Business prior to the Closing Date; (viii) all of Sellers' right, title and interest in and to this Agreement; (ix) any notes, drafts, accounts or other obligations for the payment of money, made or owed to any Seller by any current or former employees or Affiliates of any Seller; (x) all accounts receivable of the Business or Sellers due and owing from any Affiliate of Sellers (other than as owed from one Seller to another); (xi) all of Sellers' right, title and interest in and to the trademark, tradename or name "MyTravel" anywhere in the world; (xii) all of Sellers' right, title and interest in and to the reservation system commonly referred to as "Logibro" and all other software applications licensed from third parties and used in the operation of the Sellers' websites; and (xiii) all of Sellers' right, title and interest to the computer hardware and other equipment on which the SunTrips website is hosted and/or maintained. 10 Section 2.3 Assumption of Liabilities. (a) Upon the terms and subject to the conditions of this Agreement, at the Closing, (i) FS SunTours shall assume and agree to pay, perform and discharge solely those obligations and liabilities of Sellers set forth on Schedule 2.3(a) relating to the SunTrips and (ii) FS Tours shall assume and agree to pay, perform and discharge solely those obligations and liabilities of Sellers set forth on Schedule 2.3(a) relating to VE Holdings; provided that, in any event, Purchasers shall, collectively, assume and agree to pay, perform and discharge all of the obligations and liabilities of Sellers set forth on Schedule 2.3(a), notwithstanding any specific division thereof set forth in this Section 2.3. The foregoing obligations, liabilities and commitments, and no others, shall be hereinafter referred to as the "Assumed Liabilities." (b) Purchasers shall not assume or become liable to pay, perform or discharge any other obligations or liabilities of Sellers (collectively, the "Excluded Liabilities"). (c) Purchasers shall acquire the Acquired Assets free and clear of all Liens, except for the Assumed Liabilities and Permitted Liens. Section 2.4 Purchase Price. Subject to the terms and conditions of this Agreement, in consideration of the sale, assignment, transfer and delivery of the Acquired Assets to the Purchasers, Purchasers agree, jointly and severally, to pay to Sellers, jointly and severally, an aggregate amount equal to Ten Million Dollars ($10,000,000) (as adjusted pursuant to Section 2.5, the "Purchase Price"), which shall be represented by the Purchase Price Note. Section 2.5 Purchase Price Adjustment. (a) Closing Statement. As promptly as practicable, but no later than twenty (20) Business Days after the Closing Date, Purchasers shall prepare and deliver to Sellers a statement (the "Closing Statement") setting forth the Closing Working Capital Amount, together with detail regarding the method of calculation thereof. The calculations set forth on the Closing Statement will be prepared on the basis and using the same accounting policies, principles, methodologies and estimates used in preparing the Financial Information. At all reasonable times during the ten (10) Business Days immediately following Sellers' receipt of the Closing Statement, Sellers and their representatives will be permitted to review at Purchasers' offices Purchasers' working papers (including work papers of accountants and other advisors) relating to the Closing Statement, as well as all of the books and records relating to the operations and finances of Sellers with respect to the period up to and including the Closing Date, and Purchasers shall make reasonably available at their offices the individuals responsible for the preparation of the Closing Statement in order to respond to the reasonable inquiries of Sellers related thereto. (b) Notice of Disagreement. Sellers shall notify Purchasers in writing (the "Notice of Disagreement") within ten (10) Business Days after receiving the Closing Statement if Sellers disagree with any aspect of the Closing Statement or any of Purchasers' calculations with regard to the Closing Working Capital Amount, which Notice of 11 Disagreement shall set forth in reasonable detail the basis for such dispute and Sellers' good faith calculations of the Closing Working Capital Amount. If Sellers do not deliver a Notice of Disagreement to Purchasers within such ten (10) Business Day period, then the Closing Statement shall be deemed to have been accepted by Sellers, shall become final and binding upon the parties and shall be the final Closing Statement. (c) Dispute Resolution. During the ten (10) Business Days immediately following the delivery of a Notice of Disagreement, Sellers and Purchasers shall seek in good faith to resolve any differences that they may have with respect to any matter specified in the Notice of Disagreement. If at the end of such ten (10) Business Day period Sellers and Purchasers have been unable to agree upon a final Closing Statement, then Sellers and Purchasers shall submit to the Independent Accounting Firm for review and resolution any and all matters that remain in dispute with respect to the Notice of Disagreement. Purchasers and Sellers shall cause the Independent Accounting Firm to use commercially practicable efforts to make a final determination (which determination shall be binding on the parties hereto) on the disputes so submitted as well as such modifications, if any, to the Closing Balance Sheet and the Closing Working Capital Amount within ten (10) Business Days from such submission, and such final determination shall be the final Closing Statement. The cost of the Independent Accounting Firm's review and determination shall be paid by the party whose determination of the aggregate amount of the Closing Working Capital Amount differed by the greater amount from the aggregate amount of the final Closing Working Capital Amount. During the ten (10) Business Day review by the Independent Accounting Firm, Purchasers and Sellers will each make available to the Independent Accounting Firm interviews with such individuals and such information, books and records as may be reasonably required by the Independent Accounting Firm to make its final determination. (d) Adjustment. If the final Closing Working Capital Amount is negative, Sellers and MyTravel Canada shall be obligated, jointly and severally, within five (5) Business Days following the determination of the final Closing Working Capital Amount, to pay to Purchasers an aggregate amount in cash equal to the amount by which the difference between the absolute value of such final Closing Working Capital Amount and zero (0) exceeds Two Million Dollars ($2,000,000). If the final Closing Working Capital Amount is positive, Purchasers may elect that either (i) Purchasers shall be obligated, jointly and severally, to pay to Sellers within such five (5) Business Days an amount in cash equal to equal to the difference between such final Working Capital Amount and zero (0) or (ii) the amount outstanding at such time under the Purchase Price Note shall be increased by an amount equal to the difference between such final Closing Working Capital Amount and zero (0). Section 2.6 Allocation of the Purchase Price. The Purchase Price and the amount of the Assumed Liabilities shall be allocated among the Acquired Assets in a manner consistent with values as set forth on Schedule 2.6. Each party hereto agrees that: (i) any such allocation shall be consistent with the requirements of section 1060 of the Code; (ii) it shall file Form 8594 with its Federal income Tax Return consistent with such allocation for the tax year in which the Closing occurs; and (iii) except as otherwise required by applicable Law, it will not take a position on any income, transfer or gains or other Tax 12 Return, before any Governmental Authority charged with the collection of any such Tax or in any judicial proceeding, that is in any manner inconsistent with the terms of any such allocation without the consent of the other party hereto. Section 2.7 Transfer Taxes. Each of Sellers, on the one hand, and Purchasers, on the other hand, shall pay fifty percent (50%) of all applicable Transfer Taxes imposed in connection with this Agreement and the transactions contemplated by this Agreement. The appropriate party shall file all necessary documentation and Tax Returns with respect to such Transfer Taxes; provided, however, that Purchasers and Sellers shall cooperate to prepare and file with the appropriate Governmental Authority, as and to the extent necessary, all appropriate Tax exemption certificates or similar instruments as may be necessary to avoid the imposition of any Transfer Taxes. ARTICLE III CLOSING Section 3.1 Closing. Subject to the satisfaction or waiver of the conditions set forth in Article VIII, the closing of the Asset Purchase (the "Closing") shall take place on October 31, 2003, at 10:00 a.m. (New York time), or such other date and time as the parties hereto may agree, either in person at the offices of Morgan Lewis & Bockius LLP, 101 Park Avenue, New York, New York 10178, at such other location as the parties hereto may agree, or by overnight delivery and facsimile. The date on which the Closing occurs is called the "Closing Date". Section 3.2 Deliveries by Sellers. At the Closing, Sellers shall deliver or cause to be delivered to Purchasers (unless delivered previously) the following: (a) a bill of sale (the "Bill of Sale") for the Acquired Assets, in the form attached hereto as Exhibit D, executed by Sellers; (b) an assumption agreement (the "Assumption Agreement") for the Assumed Liabilities, in the form attached hereto as Exhibit E, executed by Sellers; (c) assignments and assumptions of lease (the "Lease Assignments") with respect to the Leased Realty, each in the respective form attached hereto as Exhibit F, executed by the appropriate Sellers; provided, however, that in the event that any landlord under any of the Leases objects to giving the Certification (as defined in the Lease Assignments), each Purchaser hereby waives the requirement to obtain such Certification and Sellers are hereby authorized to unilaterally modify the Lease Assignments to remove solely those provisions relating to the Certification, and the Lease Assignments, as so modified, shall be deemed satisfactory in form and substance for all purposes of this Agreement; (d) a transition services agreement (the "Transition Services Agreement"), in the form attached hereto as Exhibit G, with respect to transitional services to be provided to Purchasers by MyTravel Canada, executed by MyTravel Canada; 13 (e) certain trademark assignments and domain name assignments (collectively, the "Intellectual Property Assignments"), in each case in the forms attached hereto as Exhibit H, executed by the applicable Sellers; (f) the Purchase Agreement Supplement, executed by MyTravel Canada, and the Pledge Agreement, executed by Sellers; and (g) all such other agreements, assignments, endorsements and instruments of transfer (collectively, the "Other Conveyance Documents") as are reasonably necessary or appropriate to carry out the intent of this Agreement, each executed by Sellers. Section 3.3 Deliveries by Purchasers. At the Closing, Purchasers shall deliver or cause to be delivered to Sellers (unless delivered previously) the following: (a) the Purchase Price Note, duly executed by Purchasers and Flightserv; (b) the Bill of Sale, Assumption Agreement, Lease Assignments, Transition Services Agreement, Intellectual Property Assignments, Purchase Agreement Supplement and Pledge Agreement, each executed by Purchasers, Flightserv and/or ECG, to the extent each of the foregoing is party thereto; (c) the Replacement Letters of Credit, executed by all of the parties thereto (other than the Replacement Letter of Credit to be issued to Pace Airlines, Inc., which shall be delivered no later than November 14, 2003); and (d) all such Other Conveyance Documents as are reasonably necessary or appropriate to carry out the intent of this Agreement, each executed by the Purchasers. Section 3.4 Risk of Loss. On or prior to the Closing Date, any loss of or damage to the Acquired Assets from fire, casualty or other occurrences shall be entirely the responsibility of Sellers. Risk of loss to the Acquired Assets following the Closing Date shall be entirely the responsibility of Purchasers. Section 3.5 Simultaneous Transactions. All of the transactions contemplated by this Agreement shall be deemed to occur simultaneously, and no such transaction shall be deemed to have been consummated until all such transactions have been consummated. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS Sellers hereby represent and warrant, jointly and severally, and, solely for purposes of Section 4.1(c) each of MyTravel and MyTravel Canada represents and warrants, to Purchasers, as of the date hereof, as follows: Section 4.1 Authority, Binding Effect. (a) Each Seller has all requisite corporate power, capacity and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated 14 hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of each Seller, and no other corporate action on the part of such Seller or its stockholders is required to authorize the execution, delivery and performance hereof, and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by each Seller and constitutes the valid and binding obligation of such Seller enforceable against such Seller in accordance with its terms, except that such enforcement may be subject to any bankruptcy, insolvency, reorganization, moratorium or other laws now or hereafter in effect relating to or limiting creditors' rights generally and the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceedings therefor may be brought. (b) Each Seller has all requisite corporate power, capacity and authority to execute and deliver each Ancillary Document to which it is a party, to perform its obligations thereunder and to consummate the transactions contemplated thereby. The execution, delivery and performance of the Ancillary Documents and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of each Seller, and no other corporate action on the part of such Seller or its respective stockholders or partners is required to authorize the execution, delivery and performance of any Ancillary Document applicable to such Seller, and the consummation of the transactions contemplated thereby. At Closing, each Ancillary Document will have been duly executed and delivered by each Seller party thereto and will constitute the valid and binding obligation of such Seller enforceable against such Seller in accordance with its terms, except that such enforcement may be subject to any bankruptcy, insolvency, reorganization, moratorium or other laws now or hereafter in effect relating to or limiting creditors' rights generally and the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceedings therefor may be brought. (c) Each of MyTravel and MyTravel Canada has all requisite corporate power, capacity and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, in each case solely with regard to the provisions set forth under such entity's name on the signature page hereto. The execution, delivery and performance of the provisions set forth under MyTravel's or MyTravel Canada's name, as the case may be, on the signature page hereto this Agreement and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of each of MyTravel and MyTravel Canada, and no other corporate action on the part of MyTravel or MyTravel Canada or their stockholders is required to authorize the execution, delivery and performance thereof, and the consummation of the transactions contemplated thereby. This Agreement has been duly executed and delivered by each of MyTravel and MyTravel Canada and constitutes the valid and binding obligation of each of such entity enforceable against it in accordance with its terms, except that such enforcement may be subject to any bankruptcy, insolvency, 15 reorganization, moratorium or other laws now or hereafter in effect relating to or limiting creditors' rights generally and the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceedings therefor may be brought. Section 4.2 Title to Property. Each Seller has good title to, or a valid leasehold interest in, the Acquired Assets owned or leased by it, free and clear of all Liens (other than the Assumed Liabilities, Permitted Liens or Liens created by the acts of Purchasers). Section 4.3 No Violation. The execution and delivery of this Agreement by each Seller and each Ancillary Document by each Seller party thereto and the consummation by such Seller of the transactions contemplated hereby and thereby will not, except as set forth on Schedule 4.3, (i) conflict with or violate the certificate of incorporation or bylaws of such Seller in each case as currently in effect, (ii) conflict with or violate any Laws applicable to such Seller or by which any of the Acquired Assets are bound or are subject, or (iii) result in any breach of, or constitute a default (or an event that with notice or lapse of time, or both, would constitute a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or require payments under, or result in the creation of a Lien on any of the Acquired Assets under, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which such Seller is a party or by which any of the Acquired Assets are bound or subject. Section 4.4 Litigation; Proceedings. Except as set forth in Schedule 4.4, there is no Action pending or, to the Knowledge of Sellers, threatened, against, by or affecting any Seller, the Business or the Acquired Assets ("Litigation") nor is there any Governmental Order outstanding which (i) adversely affects or could adversely affect the Acquired Assets or the Business or (ii) seeks to enjoin or prohibit any of the transactions contemplated by this Agreement. Section 4.5 Organization and Qualification. Each Seller is a corporation validly existing and in good standing under the laws of the state of its incorporation and has all requisite power and authority to own, lease and operate all of its properties and assets and to conduct its business as it is now being conducted. Except as set forth in Schedule 4.5(a), each Seller is duly qualified or licensed and in good standing to do business as a foreign corporation in each jurisdiction in which the nature of its business, or the ownership, leasing or operation of its properties or assets, makes such qualification necessary, except where such failure to be so qualified or licensed could not result in a Material Adverse Effect. Section 4.6 Financial Statements; Undisclosed Liabilities. (a) Sellers have delivered to the Purchasers the unaudited balance sheets for the Business dated September 30, 2002 and September 30, 2003 and the unaudited operating income statements for the Business for the twelve (12) month periods ended September 30, 2002 and September 30, 2003 (collectively, the "Financial Information"). Except as set forth on Schedule 4.6(a), the Financial Information has been prepared in conformity with GAAP applied on a basis consistent with Sellers' past practice (except for changes, if any, required by GAAP and disclosed therein, and except for the absence of notes and normal recurring adjustments). The Financial Information presents fairly and 16 accurately in all material respects the financial position of the Sellers in the manner required by GAAP, for the applicable time periods covered thereby. (b) Except as set forth in Schedule 4.6(b), there has been no change in the business of the Business since September 30, 2003 that has resulted, or could be reasonably expected to result, in a Material Adverse Effect. As of the date hereof, none of the Sellers has any actual knowledge of the occurrence of any event or circumstance that a reasonable person would believe would adversely affect the financial projections, dated August 2003, provided by Sellers to Purchasers, a copy of which has been attached to Schedule 4.6(b). (c) The Business does not have any liabilities of the type required to be reflected as liabilities on a balance sheet prepared in accordance with GAAP, whether accrued, absolute, contingent or otherwise, except such liabilities that (i) are reflected or disclosed in the Financial Information, or (ii) were incurred after September 30, 2003 in the ordinary course of business by the Sellers consistent with past practice. Except as otherwise disclosed herein (including on the Schedules hereto), the Business will not have at Closing any other liabilities that are material to the Business; provided, that this representation and warranty shall not apply, and there shall be no breach of this representation and warranty, to the extent that any such liability is (i) unknown and upon reasonable investigation could not have been known or (ii) disclosed. (d) The Financial Information is based upon information contained in the books and records of the Sellers, which such books and records have been kept in accordance with GAAP. Section 4.7 Receivables. Except as set forth in Schedule 4.7, all accounts receivable and notes receivable of the Business (i) are valid obligations of the obligors, (ii) have arisen from bona fide transactions in the ordinary course of business consistent with past practice, (iii) are, to Sellers' Knowledge, collectible in the ordinary course of business and have been adequately reserved for in the Financial Information. Section 4.8 Consents and Approvals. The execution and delivery of this Agreement and each Ancillary Document by each Seller party thereto does not, and the performance by such Seller of this Agreement and each Ancillary Document to which such Seller is party and the consummation of the transactions contemplated hereby and thereby will not, require such Seller to obtain (i) any consent, approval, waiver, authorization or permit of, or to make any filing or registration with or notification to ("Consents"), any court, agency or commission, or other governmental entity, authority or instrumentality, whether domestic or foreign (each, a "Governmental Authority"), or (ii) any Consent of any third party under any Contract, except where the failure to obtain such Consent would not have a Material Adverse Effect and except for the Consents set forth in Schedule 4.8. Section 4.9 Permits/Compliance with Laws. Sellers possess all material franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate their properties and assets and to carry on the Business as it is now being conducted (collectively, the "Permits"), and there is no Action 17 pending or, to the Knowledge of Sellers, threatened regarding suspension or cancellation of any such Permits. Except as set forth in Schedule 4.9, Sellers are in compliance in all material respects with such Permits and in compliance with all material Laws applicable to them or by or to which any of the Acquired Assets are bound or subject. Except as set forth in Schedule 4.9, none of the Permits will lapse, terminate or expire as a result of the performance of this Agreement by Sellers or the consummation of the transactions contemplated hereby. Section 4.10 Employee Benefit Plans; ERISA. Schedule 4.10 lists each Benefit Plan. Except as set forth on Schedule 4.10, or to the extent that any breach of the representations set forth in this sentence would not have a Material Adverse Effect: (i) each Benefit Plan has been administered and operated in all respects in accordance with its terms and in accordance with the applicable provisions of the Code and ERISA; (ii) no Benefit Plan is subject to Title IV of ERISA or subject to section 412 of the Code or section 302 of ERISA; (iii) neither any Seller nor to the Knowledge of Sellers, any other "disqualified person" or "party in interest" (as defined in section 4975(e)(2) of the Code and section 3(14) of ERISA, respectively) has engaged in any transaction in connection with any Benefit Plan that could reasonably be expected to result in the imposition of a penalty pursuant to section 502 of ERISA or an excise tax pursuant to section 4975 of the Code; (iv) no Benefit Plan provides for post-employment or retiree welfare benefits, except to the extent required by Part 6 of Title I of ERISA or section 4980B of the Code; and (v) no Action has been made, commenced or, to the Knowledge of Sellers, threatened with respect to any Benefit Plan (other than routine claims for benefits payable in the ordinary course and appeals of denied claims). Section 4.11 Contracts. (a) Set forth on Schedule 4.11(a) is a complete list of all of the following Contracts (the "Material Contracts"): (i) noncompetition or other agreements restricting the ability of Sellers to engage in any line of business in any location, (ii) each Contract involving payments made by a Seller that are expected to exceed Fifty Thousand Dollars ($50,000) and (iii) each Contract involving payments made to a Seller that are expected to exceed Fifty Thousand Dollars ($50,000). (b) Each Material Contract is a valid and binding obligation of Seller party thereto and is enforceable by such Seller in accordance with its terms against each other party thereto. Such Seller is not (with or without the lapse of time or the giving of notice, or both) in breach or default thereunder. To the Knowledge of Sellers, none of the other parties to any Material Contract is (with or without the lapse of time or the giving of notice, or both) in breach or default thereunder or has given notification of cancellation thereunder. No defenses, offsets or counterclaims to any Material Contract have been asserted by any party thereto other than Sellers, and Sellers have not waived any rights under any Material Contract. (c) Except as set forth specifically on Schedule 4.11(c), Sellers are not party to, and none of the Acquired Assets is subject to, any agreement, understanding or other arrangement with respect to any: 18 (i) Contracts under which Sellers are a lessor or sublessor of, or makes available for use by any third party, (a) any real property owned or leased by Sellers exclusively or principally in connection with the Business, or any portion of premises otherwise occupied by Sellers, or (b) any material personal property owned or leased by Sellers exclusively or principally in connection with the Business; (ii) Contracts under which Sellers have borrowed or loaned any money or issued any note, bond, indenture or other evidence of indebtedness or directly or indirectly guaranteed any indebtedness, liability or obligation of any third party (other than any loan made to any employee for relocation, travel or other employment-related purposes, in each case, in the ordinary course of business consistent with past practice), or any other note, bond, indenture or other evidence of indebtedness; (iii) Contracts under which any other person has directly or indirectly guaranteed any indebtedness, liability or obligation of Sellers, or letter of credit issued to guarantee any obligation of Sellers, or any vendor or customer of Sellers; or (iv) Contracts with any Governmental Authority except those entered into in the ordinary course of business consistent with past practice which do not involve aggregate payments thereunder by Sellers in excess of Fifty Thousand Dollars ($50,000). Section 4.12 Condition and Sufficiency of Acquired Assets. The buildings, plants, structures, and equipment included in the Acquired Assets are in good operating condition and repair (ordinary wear and tear excepted) and are adequate for the uses to which they are being employed. Except (i) for the Excluded Assets, (ii) matters to be covered by the Transition Services Agreement and (iii) as set forth on Schedule 4.12, the Acquired Assets are sufficient for the continued conduct of the Business after the Closing in substantially the same manner as conducted prior to the Closing. Section 4.13 Environmental Matters. Except as set forth in Schedule 4.13(a), there is no Environmental Claim pending or, to the Knowledge of Sellers, threatened against Sellers. To the Knowledge of Sellers, there have been no Releases of Hazardous Materials on, beneath or adjacent to any property currently or formerly owned, operated, or leased by Sellers in quantities sufficient to form the basis for an Environmental Claim. Section 4.14 Real Property. (a) There is no real property to which any Seller has legal or equitable title. (b) Schedule 4.14(b) sets forth a true and complete list of all real property in which Sellers have a valid and subsisting leasehold or other interest (the "Leased Realty"). Seller which is the lessee of each particular piece of Leased Realty possesses a valid and subsisting leasehold or other interest in such Leased Realty pursuant to the leases or other instruments set forth in Schedule 4.14(b) (the "Leases"). Each Lease is in full force and effect and Sellers have not 19 received any outstanding notice of default from the landlord under any such Lease. There has not occurred any event of default under any Lease or any event which, with or without lapse of time, shall constitute an event of default thereunder. Section 4.15 Labor Matters. (a) Schedule 4.15(a) sets forth a complete list of all Employees. (b) Except as set forth in Schedule 4.15(b), Sellers are not a party to (i) any collective bargaining agreement or similar agreement with any labor organization or employee association, or (ii) any other written employment contract. (c) Except as set forth in Schedule 4.15(c), no grievance or arbitration proceeding arising out of or under any collective bargaining agreement is pending, and no such grievance or proceeding is threatened. (d) Except as set forth in Schedule 4.15(d), since January 1, 2001, there has not been, nor is there pending or threatened, (i) any labor dispute between Sellers and any labor organization, or any strike, slowdown, jurisdictional dispute, work stoppage or other similar organized labor activity involving any employee of Sellers or affecting Sellers or (ii) any union organizing, or election activity involving, any employee of Sellers. (e) There exists no pending or to the Knowledge of Sellers, threatened lawsuit, administrative proceeding or investigation between Sellers and any current or former director, officer or employee of Sellers, including any claim for wrongful termination, breach of express or implied contract of employment or for violation of equal employment opportunity laws. (f) Except as set forth in Schedule 4.15(f), there exists no pending or, to the Knowledge of Sellers, threatened lawsuit, administrative proceeding or investigation of Sellers or any employee thereof regarding allegations of hostile work environment, sexual discrimination or racial discrimination. (g) All bonuses due and payable to any Employee as of the Closing Date have been paid. Section 4.16 Insurance. Set forth in Schedule 4.16 is a complete and accurate list of all primary, excess and umbrella policies, bonds and other forms of insurance currently owned or held by or on behalf of or providing insurance coverage to the Business. All policies set forth in Schedule 4.16 are in full force and effect and shall remain in full force and effect through the Closing Date and no pending notice of default, cancellation or termination has been received by Sellers with respect to any such policy. 20 Section 4.17 Intellectual Property. (a) Schedule 4.17(a) sets forth all of the following United States and foreign Business Intellectual Property: (i) patents and patent applications (including provisional applications); (ii) trademark registrations and trademark applications; (iii) registered copyrights and applications for copyright registration; and (iv) domain names (the items set forth in the forgoing clauses (i) through (iv), collectively, the "Registered Intellectual Property"). All necessary registration, maintenance and renewal fees in connection with such Registered Intellectual Property that have come due have been paid and all necessary maintenance and renewal documents in connection with such Registered Intellectual Property that have come due have been filed with the relevant patent, copyright, trademark or domain name authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Registered Intellectual Property. (b) Schedule 4.17(b) sets forth any proceedings or actions before any court, tribunal challenging the validity or Sellers' ownership of any of the Registered Intellectual Property. (c) Except as set forth on Schedule 4.17(c), Sellers have not granted to any Person any rights in the Business Intellectual Property. (d) To the Knowledge of Sellers, the operation of the Business, taken individually or as a whole, as such Business currently is conducted, does not infringe or misappropriate the Intellectual Property of any other Person. Sellers have not received any notice from any Person that the provision of their respective services, infringes or misappropriates the Intellectual Property of any Person. Except as set forth on Schedule 4.17(d), to the Knowledge of Sellers, no Person is infringing or misappropriating any of the Business Intellectual Property. Section 4.18 Taxes. All Tax Returns required to have been filed by Sellers with respect to the Business have been filed, and each such Tax Return reflects the liability for Taxes in all material respects. All Taxes shown on such Tax Returns as owing have been (or will be) paid. There are no Liens on any of the Acquired Assets that arose in connection with any failure (or alleged failure) to pay any Tax, other than Permitted Liens. Sellers have withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any third party in connection with the operation of the Business. Section 4.19 Customer Relationships. To the Knowledge of Sellers, there exists no condition, state of facts or circumstances involving any customers, suppliers, distributors or vendors of the Sellers (including airlines), that has resulted in, or could be reasonably expected to result in, a Material Adverse Effect. Section 4.20 Customer Deposits and Pre-Paid Expenses. The customer deposits and prepaid expenses of Sellers are reasonable in amount, were obtained in the Sellers' ordinary course of business and, to the Knowledge of Sellers, can be used by Purchasers in the conduct of the Business after the Closing Date in substantially the same manner as conducted prior to the Closing Date. 21 Section 4.21 Full Disclosure. None of the information contained in this Agreement (including the Schedules and Exhibits hereto) or in any Ancillary Document to be furnished by any Seller (i) contains an untrue statement of a material fact as of the date when made or (ii) omits to state any material fact necessary to be stated in order to make any other statements herein or therein not misleading in light of the circumstances under which they were made. Copies of all documents referred to in any Schedule hereto have been delivered to Purchasers and are true, correct and complete copies thereof, including all minutes, exhibits, schedules, appendices, supplements or modifications thereto and all written waivers thereunder. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASERS Purchasers hereby represent and warrant, jointly and severally, as of the date hereof, to each Seller as follows: Section 5.1 Organization. Each Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate all of its properties and assets and to conduct its business as it is now being conducted. Section 5.2 Authority, Binding Effect. (a) Each Purchaser has all requisite corporate power, capacity and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of each Purchaser, and no other corporate action on the part of such Purchaser or its stockholders is required to authorize the execution, delivery and performance hereof, and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by each Purchaser and constitutes the valid and binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, except that such enforcement may be subject to any bankruptcy, insolvency, reorganization, moratorium or other laws now or hereafter in effect relating to or limiting creditors' rights generally and the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceedings therefor may be brought. (b) Each Purchaser has all requisite corporate, power, capacity and authority to execute and deliver each Ancillary Document to which it is party, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of such Ancillary Documents and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of each Purchaser, and no other corporate action on the part of such Purchaser or its stockholders is required to authorize the execution, delivery and performance hereof, and the consummation of the transactions contemplated hereby. At Closing, such Ancillary Documents will have 22 been duly executed and delivered by each Purchaser and will constitute the valid and binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, except that such enforcement may be subject to any bankruptcy, insolvency, reorganization, moratorium or other laws now or hereafter in effect relating to or limiting creditors' rights generally and the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceedings therefor may be brought. Section 5.3 No Violation; Consents and Approvals. (a) The execution and delivery of this Agreement by each Purchaser do not, and the performance of this Agreement by such Purchaser and the consummation of the transactions contemplated hereby will not, (i) conflict with or violate the certificate of incorporation or bylaws, in each case as currently in effect, of such Purchaser, (ii) conflict with or violate in any material respect any Laws applicable to such Purchaser or by or to which any of its properties or assets is bound or subject, or (iii) result in any material breach of, or constitute a material default (or an event that with notice or lapse of time or both would constitute a material default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or require payment under, or result in the creation of a Lien on any of the properties or assets of such Purchaser under, any material note, bond, mortgage, indenture, contract, agreement, arrangement, commitment, lease, license, permit, franchise or other instrument or obligation to which such Purchaser is a party or by or to which such Purchaser or any of its properties or assets is bound or subject. (b) The execution and delivery of each Ancillary Document to which it is party by each Purchaser do not, and the performance of such Ancillary Documents by such Purchaser and the consummation of the transactions contemplated hereby will not, (i) conflict with or violate the certificate of incorporation or bylaws, in each case as currently in effect, of such Purchaser, (ii) conflict with or violate in any material respect any Laws applicable to such Purchaser or by or to which any of its properties or assets is bound or subject, or (iii) result in any material breach of, or constitute a material default (or an event that with notice or lapse of time or both would constitute a material default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or require payment under, or result in the creation of a Lien on any of the properties or assets of such Purchaser under, any material note, bond, mortgage, indenture, contract, agreement, arrangement, commitment, lease, license, permit, franchise or other instrument or obligation to which such Purchaser is a party or by or to which such Purchaser or any of its properties or assets is bound or subject. (c) The execution and delivery of this Agreement or any Ancillary Document by Purchasers do not, and the performance by Purchasers of this Agreement or any Ancillary Document and the consummation of the transactions contemplated hereby and thereby will not, require any Purchaser to obtain any Consents from any Governmental Authority, or any third party. 23 Section 5.4 Financial Sufficiency. On and after the Closing Date, each Purchaser shall have such working capital as it deems reasonably necessary in its sole business judgement to operate the Business as a going concern and in accordance with generally acknowledged sound business practices. Nothing in this Section 5.4 shall prohibit any Purchaser from terminating any contractual relationship, not renewing any Contract or other agreement, or negotiating modifications or otherwise satisfying any Assumed Liability for an amount less than the entire amount of such Assumed Liability. ARTICLE VI COVENANTS Section 6.1 Conduct of Business. Except as expressly permitted by this Agreement or with the prior written consent of Purchasers, during the period from the date hereof until the Closing Date, Sellers shall conduct the Business only in the ordinary course consistent with past practice (including maintaining current advertising practices, maintaining salary levels as in effect on the date hereof and refraining from hiring additional executive-level personnel) and Sellers shall use commercially reasonable efforts to preserve intact its present business organization, keep available the services of its present officers, employees and independent contractors, maintain the Acquired Assets in good condition and preserve its current working conditions and relationships with customers, suppliers, creditors and business partners. Section 6.2 Bulk Transfer Laws. Each Purchaser hereby waives compliance by Sellers with the provisions of any "bulk transfer law" of any jurisdiction in connection with the sale of the Acquired Assets to Purchasers; provided that such Purchaser shall be entitled to indemnification in connection therewith pursuant to Section 7.1(a). Section 6.3 Employees. (a) Purchasers shall, in the aggregate, offer employment, effective as of the Closing Date, to each Employee other than those listed on Schedule 6.3(a) (whether salaried or hourly, and whether full-time or part-time), whether or not actively employed on the date hereof (e.g., including Employees on vacation and leave of absence, including maternity, family, sick or short-term disability leave). Each Employee who accepts an offer of employment from a Purchaser is hereinafter referred to as a "Transferred Employee". (b) It is hereby acknowledged and agreed that the Sellers shall have no liability of any type or nature in relation to any Transferred Employee or any Employee who does not accept an offer of employment from a Purchaser made pursuant to Section 6.3(a), other than any such liabilities arising prior to the Closing Date and which are not subject to indemnification by Purchasers as set forth in the following sentence. Purchasers hereby agree, jointly and severally, to indemnify and hold harmless Sellers from any payments with respect to claims for severance, bonus, accrued vacation, or other employee benefit obligations imposed upon, incurred or suffered by Sellers arising out of or relating to (i) any Employee who does not does not accept an offer of employment from a Purchaser made pursuant to Section 6.3(a) (including any claims thereby for severance payments, bonus 24 payments, accrued vacation payments or benefits payments) and (ii) any of Purchasers' actions with regard to any Transferred Employee (including termination of employment thereof). (c) Each Purchaser hereby acknowledges and understands that Sellers have issued notice under the applicable California Worker Adjustment and Retraining Notification requirements (Assembly Bill 2957, Chapter 4, Part 4, Sections 1400-1408, California Labor Code) on October 1, 2003 applicable to a sixty (60) day period from such date. Each Purchaser hereby acknowledges and agrees that the issuance of the notice referred to in the foregoing sentence and the legal requirements resulting therefrom do not constitute a Material Adverse Effect. Section 6.4 Further Assurances. From and after the Closing Date, each party hereto shall take all actions (including Sellers (i) granting Purchasers access to such books and records of Sellers for the period prior to the Closing Date as are necessary to allow Purchasers to comply with applicable securities laws and accounting issues and (ii) providing assistance to, and cooperation with, Purchasers in order to effect the full and legal transfer to Purchasers of all of the Sellers' notes payable and the Surety Bonds) and execute all documents and instruments as may be reasonably necessary or appropriate in order to carry out the purposes of this Agreement. Section 6.5 Confidentiality; Tax Disclosure. (a) The Confidentiality Agreement, dated as of September 2, 2003, between Travel Services International, Inc. and ECG is hereby terminated and replaced by the provisions of Section 6.5(b). (b) From and after the Closing, Sellers shall, and shall use reasonable efforts to cause its Affiliates and their respective officers, directors, employees and advisors (collectively, the "Recipients") to, keep confidential any information relating to the Business, except for any such information that (i) is available to the public on the Closing Date, (ii) thereafter becomes available to the public other than as a result of a disclosure by Sellers or any of their Recipients, or (iii) is or becomes available to Sellers or any of their Recipients on a non-confidential basis from a source that to Sellers' or such Recipient's knowledge is not prohibited from disclosing such information to Sellers or such Recipient by a legal, contractual or fiduciary obligation to any other Person; provided, that nothing contained in this Section 6.5(b) shall prohibit Sellers from disclosing any information in connection with any Action by or against Sellers or any of their Affiliates. Should a Seller or any such Recipient be required to disclose any such information in response to a Governmental Order or as otherwise required by Law or administrative process, it shall inform the Purchasers in writing of such request or obligation as soon as possible after Sellers are informed of it and, if possible, before any information is disclosed, so that a protective order or other appropriate remedy may be obtained by the Purchasers. If a Seller or such Recipient is obligated to make such disclosure, it shall only make such disclosure to the extent to which it is so obligated, but not further or otherwise. 25 (c) Anything herein to the contrary notwithstanding, each party hereto (and each employee, representative, or other agent of any party hereto) may disclose to any and all persons, without limitation of any kind, the Federal income tax treatment and Federal income tax structure of any and all transaction(s) contemplated herein and all materials of any kind (including opinions or other tax analyses) that are or have been provided to any party (or to any employee, representative, or other agent of any party) relating to such tax treatment or tax structure, provided, however, that this authorization of disclosure shall not apply to restrictions reasonably necessary to comply with securities laws. This authorization of disclosure is retroactively effective immediately upon commencement of the first discussions regarding the transactions contemplated herein, and the parties aver and affirm that this tax disclosure authorization has been given on a date which is no later than thirty (30) days from the first day that any party hereto (or any employee, representative, or other agent of any party hereto) first made or provided a statement as to the potential tax consequences that may result from the transactions contemplated hereby. Section 6.6 Notification of Certain Matters. Sellers shall give prompt notice to Purchasers, and Purchasers shall give prompt notice to Sellers, of the occurrence, or non-occurrence, of any event the occurrence or non-occurrence of which would be reasonably likely to cause any Seller or any Purchaser, as the case may be, to fail to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 6.6 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. Section 6.7 Access to Books and Records Following the Closing. Following the Closing, Purchasers shall permit Sellers and their authorized representatives, during normal business hours and upon reasonable notice, to have reasonable access to, and examine and make copies of, all books and records which relate to transactions or events occurring prior to the Closing or transactions or events occurring subsequent to the Closing which are related to or arise out of transactions or events occurring prior to the Closing. Section 6.8 Change of Name. Within thirty (30) days following the Closing Date, each Seller shall (i) file an amendment to its articles of incorporation in order to change its name as may be requested by Purchasers to a name dissimilar to "Vacation Express", "SunTrips" or any other similar name (ii) assign or otherwise transfer to FS Tours to the extent legally possible and commercially practicable the filings relating to VE Holdings' conduct of business under the name "Vacation Express". Each Seller shall do or cause to be done all other acts, including without limitation the payment of any fees required in connection with such change of name, to cause such amendments to become effective in its state of incorporation or formation and all other states in which such Seller is qualified to transact business. After the Closing Date, neither Seller nor any of its Affiliates shall transact business as, or use in the conduct of its businesses or otherwise, the names "Vacation Express" or "SunTrips" or any other similar name. Section 6.9 MyTravel Names. After the Closing, Purchasers will not, directly or indirectly use or do business under, or allow any of its respective Affiliates or subsidiaries to use or do business under, any trademark, service mark, brand name or trade, corporate or business name consisting of, derived from, including or incorporating any of the MyTravel Names or any other 26 trademark, service mark, brand name or trade, corporate or business name confusingly similar to any of the MyTravel Names. No later than forty-five (45) days after the Closing, Purchasers shall have removed or obliterated all trademarks, service marks, brand names or trade, corporate or business names consisting of, derived from, including or incorporating any of the MyTravel Names that are contained in or on any of the Acquired Assets, other than printed brochures existing as of the Closing Date. Section 6.10 Non-Competition; Non-Solicitation. (a) For the longer of (A) a period of three (3) years commencing on the Closing Date and (B) the term of the Purchase Agreement Supplement, none of Sellers, MyTravel, MyTravel Canada or any of their subsidiaries or Affiliates shall directly or indirectly (i) engage in competition with Purchasers using the same gateways used by Sellers as of the Closing Date or (ii) have an ownership interest in, any person, firm, corporation, association or other enterprise that is directly or indirectly engaged in conducting public charter operations using the same gateways used by Sellers as of the Closing Date (the "Restricted Activity"); provided, however, that nothing contained in this Section 6.10 shall prohibit Sellers, MyTravel, MyTravel Canada or any of their subsidiaries or Affiliates from owning, in the aggregate, (x) three percent (3%) or less of any class of capital stock or other equity interest of any company engaged in any Restricted Activity that has securities listed on a national or regional securities exchange or traded in the over-the-counter market or (y) one percent (1%) or less of any class of capital stock or other equity interest of any other business enterprise engaged in any Restricted Activity. In connection with the foregoing, (i) each Purchaser hereby represents that the limitations set forth herein are reasonable and are properly required for the adequate protection of the Business and (ii) each of Sellers, MyTravel and MyTravel Canada hereby acknowledges and agrees to the foregoing. (b) For the longer of (A) a period of three (3) years commencing on the Closing Date and (B) the term of the Purchase Agreement Supplement, none of Sellers, MyTravel, MyTravel Canada or any of their subsidiaries or Affiliates shall directly or indirectly induce or attempt to induce any Transferred Employee or other employee of a Purchaser to leave the employ of such Purchaser, or in any way interfere with the relationship between such Purchaser and any Transferred Employee or other employee thereof. Section 6.11 Stub Period Financial Statements. After the Closing, Sellers shall deliver to Purchasers financial statements of Sellers for the period commencing on October 1, 2003 and ending October 31, 2003, as prepared by Sellers in accordance with GAAP and delivered at such time, containing such information, and presented in such format as is in accordance with Sellers ordinary course business practice prior to the Closing Date with regard to delivery of monthly financial statements. Section 6.12 Credit Card Processing. During the period between the date hereof and the Closing Date, Sellers shall be responsible for conducting, and/or ensuring the conduct of, all credit card processing relating to the Business. 27 ARTICLE VII INDEMNIFICATION OBLIGATIONS; SURVIVAL Section 7.1 Agreements to Indemnify. (a) Subject to the terms and conditions of this Article VII, from and after the Closing, each of Sellers and MyTravel Canada, jointly and severally, shall indemnify, defend and hold harmless each Purchaser, its Affiliates, and each of their respective successors and permitted assigns, directors, officers, employees, representatives, agents, Affiliates and associates (collectively, the "Purchaser Group") from and against any and all losses, liabilities of any kind or nature, expenses (including reasonable attorneys' fees), claims and damages (collectively, "Damages") imposed upon or incurred or suffered by the Purchaser Group, or any one of them, arising out of, relating to or in connection with (i) any breach of any representation, warranty, covenant or agreement of either Seller contained in or made pursuant to this Agreement or any Ancillary Document, (ii) any Excluded Liability, (iii) the Litigation set forth on Schedule 4.4, (iv) any claim made against a Purchaser by any creditor of, or claimant against, Sellers as a result of the waiver granted by such Purchaser in Section 6.2, and (v) all costs pertaining to the DC-10 aircraft referred to in the Charter Agreement, dated as of December 12, 1997, between Ryan International Airlines and Sunquest Holdings, U.S.A., Inc., in the case of each of clauses (i) through (v) above, whether asserted by one party hereto against another or by a third party. (b) Subject to the terms and conditions of this Article VII, from and after the Closing, Purchasers, jointly and severally, shall indemnify, defend and hold harmless Sellers, their Affiliates, and each of their respective successors and permitted assigns, and each of their respective directors, officers, employees, representatives, agents, Affiliates and associates (collectively, the "Seller Group") from and against any and all Damages imposed upon or incurred or suffered by Seller Group, or any one of them, arising out of, relating to or in connection with (i) any breach of any representation, warranty, covenant or agreement of any Purchaser contained in or made pursuant to this Agreement or any Ancillary Document, (ii) any Assumed Liability and (iii) the employee benefit obligations described in Section 6.3(b), in the case of each of clauses (i) through (iii) above, whether asserted by one party hereto against another or by a third party. Section 7.2 Third Party Claims Procedures. If any Person other than a party hereto shall assert a claim (each, a "Third Party Claim") against or with respect to a party entitled to indemnification pursuant to this Agreement (the "Indemnified Party"), then such Indemnified Party shall notify the party from whom indemnification is sought (the "Indemnifying Party") in writing of the Third Party Claim within a reasonable time after receipt by such Indemnified Party of written notice of such Third Party Claim; provided, however, that the failure to give such notice shall not relieve the Indemnifying Party of its obligations hereunder except to the extent that the Indemnifying Party is prejudiced by such failure to give notice. The notice (i) shall state (with reasonable specificity) the basis on which indemnification is being asserted, (ii) shall set forth the amount of Damages for which indemnification is being asserted and (iii) in the case of third party claims, shall be accompanied by copies of all relevant pleadings, demands and other papers served on the Indemnified Party. Each Indemnifying Party shall, at its own expense, have the 28 right to defend, contest or otherwise protect against any Third Party Claim, and each Indemnifying Party shall receive from the Indemnified Party all necessary and reasonable cooperation in said defense including, but not limited to, the services of employees of the Indemnified Party who are familiar with the transactions out of which any such Third Party Claim may have arisen. The Indemnifying Party shall have the right to control the defense of any such Third Party Claim unless it is relieved of its liability hereunder by the Indemnified Party. The Indemnifying Party shall have the right, at its option, and, unless so relieved, to compromise or defend, at its own expense by its own counsel, any such Third Party Claim involving monetary damages but may not compromise or settle any matter involving equitable or injunctive recourse against the Indemnified Party without such party's written consent. In the event that the Indemnifying Party shall undertake to compromise or defend any such Third Party Claim, it shall promptly notify the Indemnified Party of its intention to do so, and in any event shall not settle or compromise any such Third Party Claim unless in so settling or compromising the Indemnified Party is unconditionally released from liability therefor. In the event that an Indemnifying Party, after written notice from an Indemnified Party, fails to take timely action to defend a Third Party Claim, the Indemnified Party shall have the right to defend the same by counsel of its own choosing, but at the cost and expense of the Indemnifying Party. In the event that the Indemnified Party defends a Third Party Claim, it shall not compromise any such Third Party Claim without the written consent of the Indemnifying Party, such consent not to be unreasonably withheld or delayed. Section 7.3 Limitation of Liability. (a) Anything in this Agreement to the contrary notwithstanding, in no event will the aggregate amount of the Indemnifying Party's obligations pursuant to Section 7.1 hereof exceed an amount equal to Ten Million Dollars ($10,000,000). (b) The obligations set forth in Section 7.1 will be effective as to any Indemnifying Party only after the aggregate amount for which such Indemnifying Party is liable under such Section exceeds One Hundred Thousand Dollars ($100,000) and then only in the amount of such excess. (c) Sections 7.3(a) and 7.3(b) shall not be applicable to (i) the obligations to indemnify under Section 7.1(a)(ii), 7.1(a)(iii), 7.1(a)(iv), 7.1(a)(v), 7.1(b)(ii), and Section 7.1(b)(iii) and (ii) any obligation to indemnify for breaches of Sections 4.2, 4.4, 4.10, 4.13, 4.18 and Section 6.10. (d) Notwithstanding anything herein to the contrary, payments by the Indemnifying Party pursuant to Section 7.1 shall be limited to the amount of Damages, if any, that remains after deducting therefrom any insurance proceeds and any indemnity, contribution or other similar payment actually recovered by the Indemnified Parties from any third party with respect thereto; provided, however, that nothing in this Section 7.3(d) shall require that an Indemnified Party seek recovery under any insurance policy. (e) Anything in this Section 7.3 to the contrary notwithstanding, in no event shall Sellers, MyTravel Canada or Purchasers be liable for punitive, consequential, special, indirect, 29 incidental or exemplary damages, whether for lost profits, lost revenues, injury to property, injury to reputation, loss of data, loss of use or otherwise. Section 7.4 Method of Payment; Treatment of Indemnity Benefits. (a) Each payment made by Sellers and/or MyTravel Canada to or for the benefit of a Purchaser pursuant to any indemnification obligations under this Agreement shall be made, at Sellers' election, either (i) in cash or (ii) by decreasing the amount outstanding at such time under the Purchase Price Note by the amount of such payment; provided, however, that notwithstanding the foregoing, all such payments with respect to indemnification pursuant to Sections 7.1(a)(iii), 7.1(a)(iv) and 7.1(a)(v) and indemnification for breaches of Sections 4.2, 4.4, 4.10, 4.13 and 4.18 shall be made in cash. (b) Each payment made by a Purchaser to or for the benefit of Sellers pursuant to any indemnification obligations under this Agreement shall be made by increasing the amount outstanding at such time under the Purchase Price Note by the amount of such payment. (c) All payments made by Sellers or MyTravel Canada to or for the benefit of a Purchaser or by Purchasers to or for the benefit of a Seller pursuant to any indemnification obligations under this Agreement shall be treated as adjustments to the Purchase Price for Tax purposes, unless otherwise required by applicable Law. Section 7.5 Exclusive Remedy. The parties hereto acknowledge and agree that, except (i) with regard to fraud or intentional misrepresentation and (ii) the remedies of specific performance or injunctive or other equitable relief, the sole and exclusive remedy of the Indemnified Parties, from and after the Closing with respect to Damages and any and all claims for any breach or liability under this Agreement, the Ancillary Documents or any other agreement, instrument or certificate executed or entered into in connection herewith or otherwise relating to the subject matter of this Agreement, the Ancillary Documents or the transactions contemplated hereby or thereby shall be solely in accordance with, and limited by, the indemnification provisions set forth in this Article VII. In furtherance of the foregoing, the parties hereto hereby waive on their own behalf and on behalf of each other applicable Indemnified Party, to the fullest extent permitted under applicable Law, any and all rights, claims and causes of action it or they may have against the other parties hereto, arising under or based upon any Law. Section 7.6 Survival. The representations, warranties, covenants and agreements made by any party and contained in or made pursuant to this Agreement or any Ancillary Document shall survive the Closing; provided, however that such representations and warranties shall expire on the date which is eighteen (18) months after the Closing Date; provided, further, that notwithstanding the foregoing, (i) Section 6.10 shall survive in accordance with the terms thereof, (ii) the representations and warranties contained in Section 4.13 shall survive the Closing and expire on the date which is eight (8) years after the Closing Date, (iii) the representations and warranties contained in Section 4.4 shall survive the Closing and expire on the date which is three (3) years after the Closing Date and (iii) the representations and warranties contained in Section 30 4.18 shall survive to the end of the statutes of limitations applicable thereto; provided, further, that any representation or warranty which is fraudulently given shall not be subject to any limitation contained in this Section 7.6. Notwithstanding the foregoing, if written notice is properly given pursuant to this Article VII with respect to any alleged breach of a representation, warranty, covenant or agreement to which such party is entitled to be indemnified hereunder prior to the expiration of such representation, warranty, covenant or agreement shall survive, with respect to the subject matter of such written notice only, until the applicable claim is finally resolved in accordance with the provisions of this Article VII. ARTICLE VIII CONDITIONS TO CLOSING; TERMINATION Section 8.1 Mutual Conditions to the Obligations of the Parties. The respective obligations of each party hereto to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver at or prior to the Closing of the condition that no temporary restraining order, preliminary or permanent injunction or other judgment, order or decree issued by a court of competent jurisdiction which prevents the consummation of the transactions contemplated hereby shall have been issued and remain in effect, and no statute, rule or regulation shall have been enacted, promulgated or enforced by any Governmental Authority which makes the consummation of the transactions contemplated hereby illegal; provided, that the parties hereto shall use their reasonable best efforts to have any temporary or preliminary order or injunction lifted. Section 8.2 Conditions to the Obligations of Purchasers. The obligation of Purchasers to consummate the transactions contemplated by this Agreement is subject to the satisfaction at or prior to the Closing of the following conditions (unless waived, to the extent permitted by applicable Law, by Purchasers): (a) Representations and Warranties. The representations and warranties of Sellers contained in Article IV shall be true and correct in all material respects as of the Closing Date. (b) Performance. Sellers shall have performed and complied in all material respects with all agreements, conditions, covenants and obligations required by this Agreement to be performed or complied with by Sellers on or prior to the Closing Date. (c) No Change of Circumstances. There shall not have occurred, during the period between the date hereof and the Closing Date, any circumstance or event constituting a Material Adverse Effect. (d) Consents. All Consents to assignment required under the Contracts set forth on Schedule 8.2(d) shall have been obtained (other than with regard to any Leases subject to Section 8.7); provided that no change shall be required to any of such Contracts as a consequence of obtaining such Consents unless such change has been approved in advance by Purchasers or any other condition which would have a Material Adverse Effect on Purchasers or the Business as proposed to be conducted by Purchasers as of the Closing Date. 31 Section 8.3 Conditions to the Obligations of Sellers. The obligation of Sellers to consummate the transactions contemplated by this Agreement is subject to the satisfaction at or prior to the Closing of the following conditions (unless waived, to the extent permitted by applicable Law, by Sellers): (a) Representations and Warranties. The representations and warranties of Purchasers contained in Article V shall be true and correct in all material respects as of the Closing Date. (b) Performance. Purchasers shall have performed and complied in all material respects with all agreements, conditions, covenants and obligations required by this Agreement to be performed or complied with by Purchasers on or prior to the Closing Date. Section 8.4 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing: (a) by mutual written agreement of Purchasers and Sellers; or (b) at any time after November 5, 2003 by Purchasers or by Sellers, by giving written notice of such termination to the other parties, if the Closing shall not have occurred on or prior to such date (unless the failure to consummate the Closing by such date shall be due to or have resulted from any breach of the representations or warranties made by, or the failure to perform or comply with any of the agreements or covenants hereof to be performed or complied with prior to the Closing by, the party seeking to terminate this Agreement). Section 8.5 Effect of Termination. In the event of the termination of this Agreement in accordance with Section 8.4 hereof, this Agreement shall thereafter become void and have no effect and the transactions contemplated hereby shall be abandoned, and no party hereto will have any liability to the other party hereto or their respective Affiliates, directors, officers or employees, except for the obligations of the parties hereto contained in this Section 8.5 and in Section 6.5, Section 8.6 and Sections 9.1, 9.7, 9.8. 9.9, 9.13, 9.14 and 9.18, and except that nothing herein will relieve any party from liability for an intentional breach of any provision of this Agreement or limit or restrict the rights or remedies of any party hereto against the other party for any breach of this Agreement, subject only to the limitation set forth in Section 8.6. Section 8.6 Closing Failure Fee. In the event that the Closing does not occur on or prior to October 31, 2003 for any reason (other than the failure of Sellers to satisfy, or obtain a waiver of, any of the conditions to the Closing set forth in Section 8.2), Purchasers shall, within ten (10) Business Days, have the joint and several obligation to pay to Sellers a fee consisting of the transfer from Purchasers or an Affiliate thereof to MyTravel Canada of Two Hundred Fifty Thousand (250,000) restricted shares of common stock of Lifestyle Innovations, Inc. (otcbb: LFSI.OB). The fee described in this Section 8.6 shall not restrict or preclude Sellers from asserting monetary breach of contract claims pursuant to this Agreement; provided, however, that any damages asserted against Purchasers in connection with such claims shall be limited to damages, 32 if any, that remain after deducting therefrom any insurance proceeds with respect thereto. Sellers and MyTravel shall have a duty to take all commercially reasonable actions to mitigate any and all such damages. Section 8.7 Third Party Real Estate Consents. To the extent that any Lease is not assignable without the consent, waiver or approval of another Person and such consent, waiver or approval has not been obtained before or at the Closing, this Agreement shall not constitute an assignment or an attempted assignment of such Lease by the applicable Seller or an assumption or an attempted assumption of such Lease by any Purchaser. Sellers shall use their commercially reasonable efforts to obtain such consents, waivers and approvals with regard to each Lease as soon as practicable following the date hereof and Purchasers shall cooperate with and assist Sellers to this end to the extent commercially reasonable. If any such consent, waiver or approval shall not be obtained with regard to such Lease before or at the Closing, then until such consent, waiver or approval is obtained, Sellers shall cooperate with Purchasers in any reasonable arrangement (including indemnification) designed to provide the applicable Purchaser with the benefits intended to be assigned to such Purchaser with respect to the underlying Lease, including enforcement for the account of such Purchaser of any and all rights of the Seller against any other party to such Lease arising out of the breach, nonfulfillment or cancellation thereof by such other party or otherwise. Section 8.8 No Multiple Materiality Qualifiers. To the extent any representation, warranty or covenant in this Agreement is qualified by reference to materiality (including any qualification related to a Material Adverse Effect or to a particular level or extent of permissible deviation from a standard (including deviation from the absolute)), no corresponding reference to materiality or permissible deviation from a standard in these conditions precedent or in Article VII shall be of any effect. ARTICLE IX GENERAL Section 9.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by Federal Express (or other internationally recognized courier), to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): To either Seller MyTravel, or MyTravel Canada: c/o MyTravel Group plc Parkway One Parkway Business Centre 300 Princess Road Manchester, M14 7QU United Kingdom Attn: Greg McMahon, Group Company Secretary Fax: 44-161-232-6909 33 with a copy to: Morgan, Lewis & Bockius LLP 101 Park Avenue New York, New York 10178 Attn: Paul M. Vogt Fax: 212-309-6273 To either Purchaser: FS Tours, Inc. or FS SunTours, Inc. 2970 Clairmont Road, Suite 280 Atlanta, Georgia 30329 Attn: Kent Elsbree Fax: (770) 986-9792 with a copy to: Adorno & Yoss, P.A. 350 East Las Olas Boulevard Suite 1700 Fort Lauderdale, Florida 33301 Attn: Joel D. Mayersohn, Esq. Fax: (954) 766-7800 Any notice that is delivered personally or by courier in the manner provided herein shall be deemed to have been duly given to the party to whom it is directed upon receipt by such party in the case of personal delivery, or upon receipt of delivery thereof in the case of delivery by courier. Section 9.2 Amendment, Waiver. Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by Purchasers, each Seller and each other party against which such amendment is to be effective and enforced, or in the case of a waiver, by the party against whom the waiver is to be effective. No failure or delay by any party in exercising any right, power or privilege hereunder will operate as a waiver thereof nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Section 9.3 Assignment. No party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other parties hereto; provided that each of Purchasers and Sellers may assign their rights or obligations under this Agreement to an Affiliate thereof. Any assignment in contravention of this provision is void. Section 9.4 Entire Agreement. This Agreement amends and restates the Original Agreement in its entirety and supercedes the Original Agreement in all respects. This Agreement (including all Schedules and Exhibits hereto) contains the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to thereto. Section 9.5 Fulfillment of Obligations. Any obligation of any party to any other party under this Agreement, which obligation is performed, satisfied or fulfilled by an Affiliate of such party, will be deemed to have been performed, satisfied or fulfilled by such party. 34 Section 9.6 Parties in Interest. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer upon any Person other than the parties hereto or their successors or permitted assigns, any rights or remedies under or by reason of this Agreement, other than any Person entitled to indemnification under Article VII. Section 9.7 Expenses. Except as otherwise expressly provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby (including all fees and disbursements of financial advisors, counsel and accountants) shall be borne by the party incurring such expenses. Section 9.8 Brokers. The fees of any broker, finder or investment banker hired by any party hereto or any of such party's Affiliates shall be borne by such party. Section 9.9 Governing Law. This Agreement is to be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the choice of law provisions thereof. Section 9.10 Counterparts. This Agreement may be executed by facsimile and in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. Section 9.11 Headings. The heading references herein and in the table of contents hereto are for convenience purposes only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. Section 9.12 Disclosure Schedules. Disclosure of any matter in any of such Schedules shall not constitute an expression of a view that such matter is material or is required to be disclosed pursuant to this Agreement. To the extent that any representation or warranty in Article IV of this Agreement is qualified by materiality or "Material Adverse Effect", the inclusion of any matter in any Schedule in Article IV of this Agreement does not constitute a determination by any Seller that any such matter is material. Section 9.13 Specific Performance. Each party hereto acknowledges that money damages would be both incalculable and an insufficient remedy for any breach of this Agreement by such party and that any such breach would cause the other party hereto irreparable harm. Accordingly, each party hereto also agrees that, in the event of any breach or threatened breach of the provisions of this Agreement by such party, the other party hereto shall be entitled to equitable relief without the requirement of posting a bond or other security, including in the form of injunctions and orders for specific performance. Section 9.14 Publicity. Each party hereto shall not, and shall cause each of their Affiliates not to issue or make, or allow to be issued or made, any press release or public announcement concerning the transactions contemplated by this Agreement without the prior written consent of the other party hereto, except as otherwise required by applicable Law or the rules of any applicable stock exchange, but in any event only after giving the other party hereto a reasonable opportunity to comment on such release or announcement in advance, consistent with such applicable legal requirements. 35 Section 9.15 Severability. If any term or provision of this Agreement or the application thereof to any situation or circumstance shall be held to be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to situations or circumstances other than those as to which it shall have been held to be invalid or unenforceable, shall not be affected and such remaining terms of this Agreement shall be valid to the fullest extent permitted by applicable law. In addition, the parties hereto shall in good faith endeavor to reach agreement on a provision to replace the invalid provision which, as nearly as possible, will reflect the intent of the original provision. Section 9.16 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. Section 9.17 Representations and Warranties Exclusive. The representations, warranties, covenants and agreements set forth in this Agreement, the Ancillary Documents and the Financial Information constitute all of the representations, warranties, covenants and agreements of the parties hereto and their respective shareholders, directors, officers, employees, affiliates, advisors (including financial, legal and accounting advisors), agents and representatives and upon which the parties have relied. The parties expressly disclaim any implied warranties. In particular, and without limiting the generality of the foregoing, each Purchaser acknowledges and agrees that except as expressly contemplated hereby, in making its decision to purchase the Acquired Assets and assume the Assumed Liabilities, it is not relying on (a) any information set forth in any information or offering memorandum distributed in connection with the proposed sale of the Acquired Assets or the Business or the assumption of Assumed Liabilities, (b) any information or materials, oral or written, distributed or made available to such Purchaser prior to the date hereof other than matters set forth in this Agreement, including the Schedules hereto or any Ancillary Document, or (c) except as set forth in Section 4.6, any financial projection, forecast or business plan relating to the Business. With respect to any projection, forecast or business plan delivered by or on behalf of Sellers or any of their Affiliates to any Purchaser, each Purchaser acknowledges that (w) there are uncertainties inherent in attempting to make such projections, forecasts and plans, (x) it is familiar with such uncertainties, (y) except as expressly represented by Sellers herein, it is taking full responsibility for making its own evaluation of the adequacy and accuracy of all such projections, forecasts and plans so furnished to it and (z) it shall have no claim of any kind whatsoever against any Person with respect thereto, other than claims pursuant to Article VII and claims for fraud or intentional misrepresentation. Section 9.18 WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. Signature Page Follows 36 IN WITNESS WHEREOF, each party has caused this Agreement to be executed by its duly authorized representative as of the day and year first above written. SELLERS - ------- VE HOLDINGS, INC. By: -------------------------------------------------- Name: ------------------------------------------------ Title: ----------------------------------------------- SUNTRIPS, INC. By: -------------------------------------------------- Name: ------------------------------------------------ Title: ----------------------------------------------- ACCEPTED AND AGREED solely for purposes of Sections 4.1(c), 6.10 and Article IX hereof: MYTRAVEL USA HOLDINGS, INC. By: -------------------------------------------------- Name: ------------------------------------------------ Title: ----------------------------------------------- ACCEPTED AND AGREED solely for purposes of Sections 2.5 4.1(c), 6.10 and Articles VII and IX hereof: MYTRAVEL CANADA HOLIDAYS INC. By: -------------------------------------------------- Name: ------------------------------------------------ Title: ----------------------------------------------- PURCHASERS - ---------- FS TOURS, INC. By: -------------------------------------------------- Name: ------------------------------------------------ Title: ----------------------------------------------- FS SUNTOURS, INC. By: -------------------------------------------------- Name: ------------------------------------------------ Title: ----------------------------------------------- SIGNATURE PAGE TO AMENDED AND RESTATED ASSET PURCHASE AGREEMENT EX-10.2 4 v00574_ex10-2.txt EXHIBIT 10.2 SECURITIES PURCHASE AGREEMENT This Securities Purchase Agreement (this "Agreement") is dated as of October ___, 2003, among eResource Capital Group, Inc., a Delaware corporation (the "Company"), and the purchasers identified on the signature pages hereto (each a "Purchaser" and collectively the "Purchasers"); and WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act (as defined below), and Rule 506 promulgated thereunder, the Company desires to issue and sell to the Purchasers, and each Purchaser, severally and not jointly, desires to purchase from the Company in the aggregate, up to $4,000,000 of Common Stock and Warrants on the Closing Date. NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows: ARTICLE I. DEFINITIONS 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings indicated in this Section 1.1: "Action" shall have the meaning ascribed to such term in Section 3.1(j). "Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 144. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser. "Business Day" means any day except Saturday, Sunday and any day which shall be a federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. "Closing" means the closing of the purchase and sale of the Common Stock and the Warrants pursuant to Section 2.1. "Closing Date" means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers' obligations to pay the Subscription Amount and (ii) the Company's obligations to deliver the Securities have been satisfied or waived. "Closing Price" means on any particular date (a) the last reported closing bid price per share of Common Stock on such date on the Trading Market (as reported by Bloomberg L.P. at 4:15 PM (New York time), or (b) if there is no such price on such date, then the closing bid price on the Trading Market on the date nearest preceding such 1 date (as reported by Bloomberg L.P. at 4:15 PM (New York time) for the closing bid price for regular session trading on such day), or (c) if the Common Stock is not then listed or quoted on the Trading Market and if prices for the Common Stock are then reported in the "pink sheets" published by the National Quotation Bureau Incorporated (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) if the shares of Common Stock are not then publicly traded the fair market value of a share of Common Stock as determined by an appraiser selected in good faith by the Purchasers of a majority in interest of the Shares then outstanding. "Commission" means the Securities and Exchange Commission. "Common Stock" means the common stock of the Company, $0.04 par value per share, and any securities into which such common stock may hereafter be reclassified. "Common Stock Equivalents" means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock. "Company Counsel" means __________________________. "Disclosure Schedules" means the Disclosure Schedules delivered concurrently herewith. "Effective Date" means the date that the Registration Statement is first declared effective by the Commission. "Escrow Agent" shall have the meaning set forth in the Escrow Agreement. "Escrow Agreement" shall mean the Escrow Agreement in substantially the form of Exhibit B hereto executed and delivered contemporaneously with this Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "FW" means Feldman Weinstein LLP with offices located at 420 Lexington Avenue, New York, New York 10170-0002. "Intellectual Property Rights" shall have the meaning ascribed to such term in Section 3.1(o). "Liens" means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction. "Material Adverse Effect" shall have the meaning ascribed to such term in Section 3.1(b). "Material Permits" shall have the meaning ascribed to such term in Section 3.1(m). 2 "Per Share Purchase Price" equals $1.60, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement. "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. "Registration Statement" means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by the Purchasers of the Shares and the Warrant Shares. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date of this Agreement, among the Company and each Purchaser, in the form of Exhibit A hereto. "Required Approvals" shall have the meaning ascribed to such term in Section 3.1(e). "Rule 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "SEC Reports" shall have the meaning ascribed to such term in Section 3.1(h). "Securities" means the Shares, the Warrants and the Warrant Shares. "Securities Act" means the Securities Act of 1933, as amended. "Shares" means the shares of Common Stock issued or issuable to each Purchaser pursuant to this Agreement. "Subscription Amount" means, as to each Purchaser, the amounts set forth below such Purchaser's signature block on the signature page hereto, in United States dollars and in immediately available funds. "Subsidiary" shall mean the subsidiaries of the Company, if any, set forth on Schedule 3.1(a). "Trading Day" means (i) a day on which the Common Stock is traded on a Trading Market, or (ii) if the Common Stock is not listed on a Trading Market, a day on which the Common Stock is traded on the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day. 3 "Trading Market" means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market. "Transaction Documents" means this Agreement, the Escrow Agreement, the Warrants and the Registration Rights Agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder. "Warrants" means the Common Stock Purchase Warrants, in the form of Exhibit C, issuable to the Purchasers at the Closing, which warrants shall be exercisable on or after the 6-month anniversary of their date of issuance for an exercise term of 3 years and have an exercise price equal to $____1. "Warrant Shares" means the shares of Common Stock issuable upon exercise of the Warrants. ARTICLE II. PURCHASE AND SALE 2.1 Closing. On the Closing Date, each Purchaser shall purchase from the Company, severally and not jointly with the other Purchasers, and the Company shall issue and sell to each Purchaser, (a) a number of Shares equal to such Purchaser's Subscription Amount divided by the Per Share Purchase Price and (b) the Warrants as determined pursuant to Section 2.2(a)(iii). The aggregate Subscription Amounts for Shares sold hereunder shall be up to $4,000,000. Upon satisfaction of the conditions set forth in Section 2.2, the Closing shall occur at the offices of the Escrow Agent, or such other location as the parties shall mutually agree. 2.2 Closing Conditions. (a) On the Closing Date, the Company shall deliver or cause to be delivered to the Escrow Agent with respect to each Purchaser the following: (i) this Agreement duly executed by the Company; (ii) a certificate evidencing a number of Shares equal to such Purchaser's Subscription Amount divided by the Per Share Purchase Price, registered in the name of such Purchaser; (iii) a Warrant, registered in the name of such Purchaser, pursuant to which such Purchaser shall have the right to acquire up to the number of shares of Common Stock equal to the Shares to be issued to such Purchaser at the Closing; (iv) the Registration Rights Agreement duly executed by the Company; (v) the Escrow Agreement duly executed by the Company; and - ------------------- 1 110% of the Closing Price on the Trading Day immediately prior to the date hereof. 4 (vi) a legal opinion of Company Counsel, in the form of Exhibit C attached hereto. (b) On the Closing Date, each Purchaser shall deliver or cause to be delivered to the Escrow Agent the following: (i) this Agreement duly executed by such Purchaser; (ii) such Purchaser's Subscription Amount by wire transfer to the account of the Escrow Agent; (iii) the Escrow Agreement duly executed by such Purchaser; and (iv) the Registration Rights Agreement duly executed by such Purchaser. (c) All representations and warranties of the other party contained herein shall remain true and correct as of the Closing Date. (d) As of the Closing Date, there shall have been no Material Adverse Effect with respect to the Company since the date hereof. (e) From the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg Financial Markets shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Shares at the such Closing. ARTICLE III. REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of the Company. Except as set forth under the corresponding section of the Disclosure Schedules delivered concurrently herewith, the Company hereby makes the following representations and warranties as of the date hereof and as of the Closing Date to each Purchaser: (a) Subsidiaries. All of the subsidiaries of the Company are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all the issued and outstanding shares of capital stock of each Subsidiary (other than Lifestyle Innovations, Inc.) are validly issued and are fully paid, non-assessable and free of 5 preemptive and similar rights. If the Company has no subsidiaries, then references in the Transaction Documents to the Subsidiaries will be disregarded. (b) Organization and Qualification. Each of the Company and the Subsidiaries (other than Lifestyle Innovations, Inc.) is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary (other than Lifestyle Innovations, Inc.) is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries (other than Lifestyle Innovations, Inc.) is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or financial condition of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company's ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a "Material Adverse Effect"). (c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company in connection therewith other than in connection with the Required Approvals. Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. (d) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of the Company's or any Subsidiary (other than Lifestyle Innovations, Inc.)'s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary (other than Lifestyle Innovations, Inc.) debt or otherwise) or other understanding to 6 which the Company or any Subsidiary (other than Lifestyle Innovations, Inc.) is a party or by which any property or asset of the Company or any Subsidiary (other than Lifestyle Innovations, Inc.) is bound or affected, or (iii) subject to the Required Approvals, result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary (other than Lifestyle Innovations, Inc.) is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary (other than Lifestyle Innovations, Inc.) is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect. (e) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) filings required pursuant to Section 4.6 of this Agreement, (ii) the filing with the Commission of the Registration Statement, (iii) application(s) to each applicable Trading Market for the listing of the Shares and Warrant Shares for trading thereon in the time and manner required thereby, and (iv) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the "Required Approvals"). (f) Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens. The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to this Agreement and the Warrants. (g) Capitalization. The capitalization of the Company is as described in the Company's most recent periodic report filed with the Commission. The Company has not issued any capital stock since such filing other than pursuant to the exercise of employee stock options under the Company's stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company's employee stock purchase plan and pursuant to the conversion or exercise of outstanding Common Stock Equivalents. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities or the granting of options to employees, officers and directors of the Company pursuant to any stock option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. The issue and sale of the Securities will not obligate the Company to issue shares of Common Stock 7 or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities. (h) SEC Reports; Financial Statements. The Company has filed all reports required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials, including the exhibits thereto, being collectively referred to herein as the "SEC Reports") on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, 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. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved ("GAAP"), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. (i) Material Changes. Since the date of the latest audited financial statements included within the SEC Reports, except as disclosed in the SEC Reports, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. (j) Litigation. Except as disclosed in the SEC Reports, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary 8 (other than Lifestyle Innovations, Inc.) or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an "Action") which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary (other than Lifestyle Innovations, Inc.), nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary (other than Lifestyle Innovations, Inc.) under the Exchange Act or the Securities Act. (k) Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect. (l) Compliance. Except as disclosed in the SEC Reports, neither the Company nor any Subsidiary (other than Lifestyle Innovations, Inc.) (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary (other than Lifestyle Innovations, Inc.) under), nor has the Company or any Subsidiary (other than Lifestyle Innovations, Inc.) received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business except in each case as could not have a Material Adverse Effect. (m) Regulatory Permits. The Company and the Subsidiaries (other than Lifestyle Innovations, Inc.) possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not have or reasonably be expected to result in a Material Adverse Effect ("Material Permits"), and neither the Company nor any Subsidiary (other than Lifestyle Innovations, Inc.) has received any notice of proceedings relating to the revocation or modification of any Material Permit. (n) Title to Assets. The Company and the Subsidiaries (other than Lifestyle Innovations, Inc.) have good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries (other than Lifestyle Innovations, Inc.) and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries (other than 9 Lifestyle Innovations, Inc.), in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries (other than Lifestyle Innovations, Inc.) and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries (other than Lifestyle Innovations, Inc.) are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries (other than Lifestyle Innovations, Inc.) are in compliance. (o) Patents and Trademarks. To the knowledge of the Company and each Subsidiary (other than Lifestyle Innovations, Inc.), the Company and the Subsidiaries (other than Lifestyle Innovations, Inc.) have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have could have or reasonably be expected to result in a Material Adverse Effect (collectively, the "Intellectual Property Rights"). Neither the Company nor any Subsidiary (other than Lifestyle Innovations, Inc.) has received a written notice that the Intellectual Property Rights used by the Company or any Subsidiary (other than Lifestyle Innovations, Inc.) violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable. (p) Insurance. The Company and the Subsidiaries (other than Lifestyle Innovations, Inc.) are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries (other than Lifestyle Innovations, Inc.) are engaged. Neither the Company nor any Subsidiary (other than Lifestyle Innovations, Inc.) 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 without a significant increase in cost. (q) Transactions With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than Lifestyle Innovations, Inc.) (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $60,000 other than (i) for payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) for other employee benefits, including stock option agreements under any stock option plan of the Company. 10 (r) Internal Accounting Controls. The Company and each of its Subsidiaries (other than Lifestyle Innovations, Inc.) 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 GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company, including its Subsidiaries (other than Lifestyle Innovations, Inc.), is made known to the certifying officers by others within those entities, particularly during the period in which the Company's most recently filed period report under the Exchange Act, as the case may be, is being prepared. The Company's certifying officers have evaluated the effectiveness of the Company's controls and procedures as of a date within 90 days prior to the filing date of the most recently filed periodic report under the Exchange Act (such date, the "Evaluation Date"). The Company presented in its most recently filed period report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no significant changes in the Company's internal controls (as such term is defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to the Company's knowledge, in other factors that could significantly affect the Company's internal controls. (s) Certain Fees. No brokerage or finder's fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement. (t) Private Placement. Assuming the accuracy of the Purchasers representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market. (u) Investment Company. The Company is not, and is not an Affiliate of, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (v) Registration Rights. Except as set forth on the disclosure schedule to the Registration Rights Agreement, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company. 11 (w) Listing and Maintenance Requirements. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. (x) Application of Takeover Protections. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company's Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation the Company's issuance of the Securities and the Purchasers' ownership of the Securities. (y) Disclosure. Other than the terms of the transaction contemplated by this Agreement, the Company confirms that, neither the Company nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that constitutes or might constitute material, non-public information. The Company understands and confirms that the Purchasers will rely on the foregoing representations and covenants in effecting transactions in securities of the Company. All disclosure provided to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, furnished by or on behalf of the Company are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. (z) No Integrated Offering. Assuming the accuracy of the Purchasers' representations and warranties set forth in Section 3.2, neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable shareholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated. (aa) Solvency. Based on the financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the Company's fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company's existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company's assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business 12 conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). (bb) Form S-3 Eligibility. The Company is eligible to register the resale of its Common Stock by the Purchasers under Form S-3 promulgated under the Securities Act. Each Purchaser acknowledges and agrees that the Company does not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.1. 3.2 Representations and Warranties of the Purchasers. Each Purchaser hereby, for itself and for no other Purchaser, represents and warrants as of the date hereof and as of the Closing Date to the Company as follows: (a) Organization; Authority. Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations thereunder. The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of such Purchaser. Each Transaction Document to which it is party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law. (b) Investment Intent. Such Purchaser understands that the Securities are "restricted securities" and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account for investment purposes only and not with a view to or for distributing or reselling such Securities or any part thereof, has no present intention of distributing any of such Securities and has no arrangement or understanding with any other persons regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser's right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Such Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities. 13 (c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and at the date hereof it is an "accredited investor" as defined in Rule 501(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act. (d) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment. (e) General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. (f) Access to Information. Such Purchaser acknowledges and agrees that it has access to the Company's SEC Reports and has reviewed such filings as such Purchaser has deemed necessary or desirable including the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 2003. Each Purchaser and its respective representatives have been afforded an opportunity to ask such questions of the officers, employees, agents, accountants and representatives of the Company concerning the business, operations, financial condition, assets, liabilities, and other relevant matters as such Purchaser and its representatives have deemed necessary or desirable, and each Purchaser hereby confirms that it or its agents have been given all such information as has been requested in order to evaluate the merits and risks of the prospective investment contemplated hereby and that it does not desire any additional information. Without limiting the foregoing, each Purchaser specifically acknowledges that it has had the opportunity to review the Company's SEC Reports. (g) Risk Factors. Such Purchaser understands and acknowledges that an investment in the Shares is highly speculative and includes a high degree of risk including, but not limited to, those risks specifically set forth in the Company's Annual Report on Form 10-KSB for the period ended June 30, 2003, which, by its signature below, each Purchaser acknowledges it has reviewed. The Company acknowledges and agrees that each Purchaser does not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.2. ARTICLE IV. OTHER AGREEMENTS OF THE PARTIES 4.1 Transfer Restrictions. (a) The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant 14 to an effective registration statement, to the Company, to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement and the Registration Rights Agreement. (b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1(b), of a legend on any of the Securities in the following form: THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT. The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an "accredited investor" as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and the Registration rights Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser's expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders thereunder. 15 (c) Certificates evidencing the Shares and Warrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b)), (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Shares or Warrant Shares pursuant to Rule 144, or (iii) if such Shares or Warrant Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Company's transfer agent promptly after the Effective Date if required by the Company's transfer agent to effect the removal of the legend hereunder. If all or any portion of a Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Warrant Shares, such Warrant Shares shall be issued free of all legends. The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or the Company's transfer agent of a certificate representing Shares or Warrant Shares, as the case may be, issued with a restrictive legend (such date, the "Legend Removal Date"), deliver or cause to be delivered to such Purchaser a certificate representing such Securities that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section. (d) In addition to such Purchaser's other available remedies, the Company shall pay to a Purchaser, in cash, as liquidated damages and not as a penalty, for each $1,000 of Shares or Warrant Shares (based on the Closing Price of the Common Stock on the date such Securities are submitted to the Company's transfer agent) subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after such third Trading Day after the Legend Removal Date until such certificate is delivered. Nothing herein shall limit such Purchaser's right to pursue actual damages for the Company's failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. (e) Each Purchaser, severally and not jointly with the other Purchasers, agrees that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company's reliance that the Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom. (f) Until the date that each Purchaser holds less than 20% of the Shares initially purchased hereunder by such Purchaser, the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in interest of the Shares. 4.2 Furnishing of Information. As long as any Purchaser owns Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the 16 applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144. 4.3 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction. 4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. Eastern time on the Trading Day following the Closing Date, issue a press release or file a Current Report on Form 8-K, in each case reasonably acceptable to each Purchaser disclosing the transactions contemplated hereby. The Company and each Purchaser shall consult with each other in issuing any press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (i) as required by federal securities law in connection with the registration statement contemplated by the Registration Rights Agreement and (ii) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under subclause (i) or (ii). 4.5 Shareholders Rights Plan. No claim will be made or enforced by the Company or, to the knowledge of the Company, any other Person that any Purchaser is an "Acquiring Person" under any shareholders rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers. 4.6 Non-Public Information. The Company covenants and agrees that neither it nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and 17 use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the Company. 4.7 Use of Proceeds. Except as set forth on Schedule 4.7 attached hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and not for the satisfaction of any portion of the Company's debt (other than payment of trade payables in the ordinary course of the Company's business and prior practices), to redeem any Company equity or equity-equivalent securities or to settle any outstanding litigation. 4.8 Reimbursement. If any Purchaser becomes involved in any capacity in any Proceeding by or against any Person who is a stockholder of the Company (except as a result of sales, pledges, margin sales and similar transactions by such Purchaser to or with any current stockholder), solely as a result of such Purchaser's acquisition of the Securities under this Agreement, the Company will reimburse such Purchaser for its reasonable legal and other expenses (including the cost of any investigation preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Purchasers who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling persons (if any), as the case may be, of the Purchasers and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Purchasers and any such Affiliate and any such Person. The Company also agrees that neither the Purchasers nor any such Affiliates, partners, directors, agents, employees or controlling persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company solely as a result of acquiring the Securities under this Agreement. 4.9 Indemnification of Purchasers. The Company will indemnify and hold the Purchasers and their directors, officers, shareholders, partners, employees and agents (each, a "Purchaser Party") harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys' fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to: (a) any misrepresentation, breach or inaccuracy, or any allegation by a third party that, if true, would constitute a breach or inaccuracy, of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents; or (b) any cause of action, suit or claim brought or made against such Purchaser Party and arising solely out of or solely resulting from the execution, delivery, performance or enforcement of this Agreement or any of the other Transaction Documents and without causation by any other activity, obligation, condition or liability pertaining to such Purchaser. The Company will reimburse such Purchaser for its reasonable legal and other expenses (including the cost of any investigation, preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. 4.10 Reservation of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company 18 to issue Shares pursuant to this Agreement and Warrant Shares pursuant to any exercise of the Warrants. 4.11 Listing of Common Stock. The Company hereby agrees to use commercially reasonably efforts to maintain the listing of the Common Stock on the Trading Market, and as soon as reasonably practicable following the Closing (but not later than the earlier of the Effective Date and the first anniversary of the Closing Date) to list all of the Shares and Warrant Shares on the Trading Market. The Company further agrees, if the Company applies to have the Common Stock traded on any other Trading Market, it will include in such application all of the Shares and Warrant Shares, and will take such other action as is necessary to cause the Shares and Warrant Shares to be listed on such other Trading Market as promptly as possible. The Company will take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the Trading Market. 4.12 Participation in Future Financing. From the date hereof until 12 months after the Effective Date, the Company shall not effect a financing of its Common Stock or Common Stock Equivalents (a "Subsequent Financing") unless (i) the Company delivers to each of such Purchasers a written notice at least 3 Trading Days prior to the closing of such Subsequent Financing (the "Subsequent Financing Notice") of its intention to effect such Subsequent Financing, which Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder, the Person with whom such Subsequent Financing is proposed to be effected, and attached to which shall be a term sheet or similar document relating thereto and (ii) such Purchaser shall not have notified the Company by 6:30 p.m. (New York City time) on the third (3rd) Trading Day after its receipt of the Subsequent Financing Notice of its willingness to provide (or to cause its designee to provide), subject to completion of mutually acceptable documentation, all or part of such financing to the Company on the same terms set forth in the Subsequent Financing Notice. If one or more Purchasers shall fail to so notify the Company of their willingness to participate in the Subsequent Financing, the Company may effect the remaining portion of such Subsequent Financing on the terms and to the Persons set forth in the Subsequent Financing Notice; provided that the Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of first refusal set forth above in this Section 4.12, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within 60 Trading Days after the date of the initial Subsequent Financing Notice with the Person identified in the Subsequent Financing Notice. In the event the Company receives responses to Subsequent Financing Notices from Purchasers seeking to purchase more than the financing sought by the Company in the Subsequent Financing such Purchasers shall have the right to purchase their Pro Rata Portion (as defined below) of the Common Stock or Common Stock Equivalents to be issued in such Subsequent Financing. "Pro Rata Portion" is the ratio of (x) such Purchaser's Subscription Amount and (y) the aggregate sum of all of the Subscription Amounts. Notwithstanding anything to the contrary herein, this Section 4.12 shall not apply to the following (a) the granting of options to employees, officers and directors of the Company pursuant to any stock option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, or (b) the exercise of any security issued by the Company in connection with the offer and sale of the Company's securities pursuant to this 19 Agreement, or (c) the exercise of or conversion of any convertible securities, options or warrants issued and outstanding on the date hereof, provided such securities have not been amended since the date hereof, or (d) acquisitions or strategic investments, the primary purpose of which is not to raise capital, (e) the reasonable and customary issuance of Common Stock or Common Stock Equivalents to service providers of the Company, the primary purpose of which is not to raise capital. 4.13 Subsequent Equity Sales. From the date hereof until 90 days after the Effective Date, neither the Company nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents; provided, however, the 90 day period set forth in this Section 4.13 shall be extended for the number of Trading Days during such period in which (y) trading in the Common Stock is suspended by any Trading Market, or (z) following the Effective Date, the Registration Statement is not effective or the prospectus included in the Registration Statement may not be used by the Purchasers for the resale of the Shares and Warrant Shares. Notwithstanding anything to the contrary herein, this Section 4.13 shall not apply to the following (a) the granting of options to employees, officers and directors of the Company pursuant to any stock option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, or (b) the exercise of any security issued by the Company in connection with the offer and sale of the Company's securities pursuant to this Agreement, or (c) the exercise of or conversion of any convertible securities, options or warrants issued and outstanding on the date hereof, provided such securities have not been amended since the date hereof, or (d) acquisitions or strategic investments, the primary purpose of which is not to raise capital, or (e) the reasonable and customary issuance of Common Stock or Common Stock Equivalents to service providers of the Company, the primary purpose of which is not to raise capital. 4.14 Equal Treatment of Purchasers. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. ARTICLE V. MISCELLANEOUS 5.1 Fees and Expenses. Except as otherwise set forth in this Agreement, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all stamp and other taxes and duties levied in connection with the sale of the Securities. 5.2 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. 5.3 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective 20 on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 6:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto. 5.3 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and each Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right. 5.4 Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. 5.5 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser. Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions hereof that apply to the "Purchasers". 5.6 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.8. 5.7 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the 21 enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by delivering a copy thereof via overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto (including its affiliates, agents, officers, directors and employees) hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of a Transaction Document, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys' fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding. 5.8 Survival. The representations and warranties herein shall survive the Closing and delivery of the Shares and Warrant Shares. 5.9 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof. 5.10 Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. 5.11 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities. 5.12 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any 22 action for specific performance of any such obligation the defense that a remedy at law would be adequate. 5.13 Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 5.14 Independent Nature of Purchasers' Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Document. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser was introduced to the Company HPC Capital Management, which has acted solely as agent for the Company and not for any Purchaser. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. For reasons of administrative convenience only, Purchasers and their respective counsel have chosen to communicate with the Company through FW. FW does not represent all of the Purchasers but only the placement agent, HPC Capital Management. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers. (Signature Page Follows) 23 IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. ERESOURCE CAPITAL GROUP, INC. Address for Notice: ------------------ By:_____________________________________ Name: Title: Attn: Tel: Fax: With copy to (which shall not constitute notice): [COMPANY COUNSEL] [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES FOR PURCHASERS FOLLOW] 24 IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. PALISADES MASTER FUND L.P. Address for Notice: ------------------ By: PEF ADVISORS, LLC, its authorized agent C/o PEF Advisors, LLC 200 Mansell Court East By: ____________________________________ Ste. 550 Name: Roswell GA 30076 Title: Attn: Paul T. Mannion, Jr. Subscription Amount: $ Shares: Warrant Shares: With a copy to for benefit of Placement Agent: - --------------------------------------------- Feldman Weinstein LLP 420 Lexington Avenue New York, New York 10170 Attn: Robert F. Charron Tel: (212) 869-7000 Fax: (212) 401-4741 [RCG SPA SIGNATURE PAGE CONTINUED] 25 PURCHASER'S RCG SPA SIGNATURE PAGE (CONT. . . ) CRESCENT INTERNATIONAL LTD. Address for Notice: ------------------ c/o GreenLight (Switzerland) SA 84, Avenue Louis-Casai CH 1216 Cointrin, Geneva By: ____________________________ Switzerland Name: Attention: Mel Craw / Maxi Brezzi Title: Tel.: + 41 22 791 7170 / +41 22 791 7256 Fax : +41 22 929 5394 Subscription Amount: $ Shares: Warrant Shares: [SIGNATURE PAGE CONTINUED] 26 PURCHASER'S RCG SPA SIGNATURE PAGE (CONT. . . ) ALPHA CAPITAL AG Address for Notice: ------------------ Lettstrasse 32 Furstentum 9490 By: __________________________ Vaduz, Liechtenstein Name: Fax: 011-423 232 3196 Title: Attn: Director Subscription Amount: $ Shares: Warrant Shares: [SIGNATURE PAGE CONTINUED] 27 PURCHASER'S RCG SPA SIGNATURE PAGE (CONT. . . ) BRISTOL INVESTMENT FUND, LTD. Address for Notice: ------------------ c/o Bristol DLP, LLC 6363 Sunset Boulevard, 5th Floor Hollywood, California 90028 By:_________________________ Attn: Amy Wang, Esq. Name: Fax: (323) 468-8307 Title: Subscription Amount: $ Shares: Warrant Shares: [SIGNATURE PAGE CONTINUED] 28 PURCHASER'S RCG SPA SIGNATURE PAGE (CONT. . . ) GRYPHON MASTER FUND, LP By: ___________________________ Name: Title: Subscription Amount: $ Shares: Warrant Shares: Address for Notice: - ------------------ 500 Crescent Court, Suite #270 Dallas, Texas 75201 Tel: (214) 871-6783 Fax: (214) 871-6909 Attn: Ryan Wolters [SIGNATURE PAGE CONTINUED] 29 PURCHASER'S RCG SPA SIGNATURE PAGE (CONT. . . ) CRESTVIEW CAPITAL FUND II, LP By: _____________________________ Name: Title: Subscription Amount: $ Shares: Warrant Shares: Address for Notice: - ------------------ c/o Kingsport Capital, LLC 95 Revere Drive, Suite F Northbrook, Illinois 60062 Attn: Richard Levy, Esq. Fax: (847) 559-0060 [SIGNATURE PAGE CONTINUED] 30 PURCHASER'S RCG SPA SIGNATURE PAGE (CONT. . . ) STONESTREET L.P. Address for Notice: ------------------ 260 Town Centre Blvd. Suite 201 By:_________________________ Markham, ON L3R 8H8 Canada Name: Attn: Fund Manager Title: Subscription Amount: $ Shares: Warrant Shares: 31 EX-10.3 5 v00574_ex10-3.txt EXHIBIT 10.3 NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT. COMMON STOCK PURCHASE WARRANT To Purchase __________ Shares of Common Stock of eResource Capital Group, Inc. THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") CERTIFIES that, for value received, _____________ (the "Holder"), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the six-month anniversary of the date of issuance of this Warrant (the "Initial Exercise Date") and on or prior to the third anniversary of the Initial Exercise Date (the "Termination Date") but not thereafter, to subscribe for and purchase from eResource Capital Group, Inc., a corporation incorporated in the State of Delaware (the "Company"), up to ____________ shares (the "Warrant Shares") of Common Stock, par value $0.04 per share, of the Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be $____, subject to adjustment hereunder. The Exercise Price and the number of Warrant Shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the "Purchase Agreement"), dated October ___, 2003, among the Company and the purchasers signatory thereto. 1 1. Title to Warrant. Prior to the Termination Date and subject to compliance with applicable laws and Section 7 of this Warrant, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Holder in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. The transferee shall sign an investment letter in form and substance reasonably satisfactory to the Company. 2. Authorization of Shares. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). 3. Exercise of Warrant. (a) Exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company); provided, however, within 5 Trading Days of the date said Notice of Exercise is delivered to the Company, the Holder shall have surrendered this Warrant to the Company and the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank. Certificates for shares purchased hereunder shall be delivered to the Holder within the earlier of (i) 5 Trading Days after the date on which the Notice of Exercise shall have been delivered by facsimile copy or (ii) 3 Trading Days from the delivery to the Company of the Notice of Exercise Form by facsimile copy, surrender of this Warrant and payment of the aggregate Exercise Price as set forth above ("Warrant Share Delivery Date"); provided, however, in the event the Warrant is not surrendered or the aggregate Exercise Price is not received by the Company within 5 Trading Days after the date on which the Notice of Exercise shall be delivered by facsimile copy, the Warrant Share Delivery Date shall be extended to the extent such 5 Trading Day period is exceeded. This Warrant shall be deemed to have been exercised on the later of the date the Notice of Exercise is delivered to the Company by facsimile copy and the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 5 prior to the issuance of such shares, have been paid. If the Company fails to deliver to the Holder a certificate or certificates representing the Warrant Shares pursuant to this Section 3(a) by the third Trading Day following the Warrant Share Delivery Date, then the Holder will have the right to rescind such 2 exercise. In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder a certificate or certificates representing the Warrant Shares pursuant to an exercise by the third Trading Day after the Warrant Share Delivery Date, and if after such day the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a "Buy-In"), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof. (b) If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. (c) The Company shall not effect any exercise of this Warrant, and the Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 3(a) or otherwise, to the extent that after giving effect to such issuance after exercise, the Holder (together with the Holder's affiliates), as set forth on the applicable Notice of Exercise, would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such issuance. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other 3 Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. To the extent that the limitation contained in this Section 3(c) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder) and of which a portion of this Warrant is exercisable shall be in the sole discretion of such Holder, and the submission of a Notice of Exercise shall be deemed to be such Holder's determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. For purposes of this Section 3(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company's most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company's Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of the Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The provisions of this Section 3(c) may be waived by the Holder upon, at the election of the Holder, not less than 61 days' prior notice to the Company, and the provisions of this Section 3(c) shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver). (d) If at any time after one year from the date of issuance of this Warrant there is no effective Registration Statement registering the resale of the Warrant Shares by the Holder, this Warrant may also be exercised at such time by means of a "cashless exercise" in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: (A) = the Closing Price on the Trading Day immediately preceding the date of such election; (B) = the Exercise Price of the Warrants, as adjusted; and (X) = the number of Warrant Shares issuable upon exercise of the Warrants in accordance with the terms of this Warrant. (e) Subject to the provisions of this Section 3, if after the Effective Date each Closing Price for any fifteen consecutive Trading Days (the "Measurement Price")(such period commencing only after the Effective Date) exceeds $4.80, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions 4 of the Common Stock that occur after the date of this Agreement (the "Threshold Price"), then the Company may, within two Trading Days of such period, call for cancellation of all or any portion of this Warrant for which a Notice of Exercise has not yet been delivered (such right, a "Call"). To exercise this right, the Company must deliver to the Holder an irrevocable written notice (a "Call Notice"), indicating therein the portion of unexercised portion of this Warrant to which such notice applies. If the conditions set forth below for such Call are satisfied from the period from the date of the Call Notice through and including the Call Date (as defined below), then any portion of this Warrant subject to such Call Notice for which a Notice of Exercise shall not have been received from and after the date of the Call Notice will be cancelled at 6:30 p.m. (New York City time) on the 44th Trading Day after the date the Call Notice is received by the Holder (such date, the "Call Date"). Any unexercised portion of this Warrant to which the Call Notice does not pertain will be unaffected by such Call Notice. In furtherance thereof, the Company covenants and agrees that it will honor all Notices of Exercise with respect to Warrant Shares subject to a Call Notice that are tendered from the time of delivery of the Call Notice through 6:30 p.m. (New York City time) on the Call Date. The parties agree that any Notice of Exercise delivered following a Call Notice shall first reduce to zero the number of Warrant Shares subject to such Call Notice prior to reducing the remaining Warrant Shares available for purchase under this Warrant. For example, if (x) this Warrant then permits the Holder to acquire 100 Warrant Shares, (y) a Call Notice pertains to 75 Warrant Shares, and (z) prior to 6:30 p.m. (New York City time) on the Call Date the Holder tenders a Notice of Exercise in respect of 50 Warrant Shares, then (1) on the Call Date the right under this Warrant to acquire 25 Warrant Shares will be automatically cancelled, (2) the Company, in the time and manner required under this Warrant, will have issued and delivered to the Holder 50 Warrant Shares in respect of the exercises following receipt of the Call Notice, and (3) the Holder may, until the Termination Date, exercise this Warrant for 25 Warrant Shares (subject to adjustment as herein provided and subject to subsequent Call Notices). Subject again to the provisions of this Section 3, the Company may deliver subsequent Call Notices for any portion of this Warrant for which the Holder shall not have delivered a Notice of Exercise. Notwithstanding anything to the contrary set forth in this Warrant, the Company may not deliver a Call Notice or require the cancellation of this Warrant (and any Call Notice will be void), unless, from the beginning of the 15 consecutive Trading Days used to determine whether the Common Stock has achieved the Threshold Price through the Call Date, (i) the Measurement Price equals or exceeds the Threshold Price, (ii) the Company shall have honored in accordance with the terms of this Warrant all Notices of Exercise delivered by 6:30 p.m. (New York City time) on the Call Date, (iii) the Registration Statement shall be effective as to all Warrant Shares and the prospectus thereunder available for use by the Holder for the resale all such Warrant Shares (and the Company in good faith believes that such effectiveness shall continue uninterrupted for the foreseeable future), (iv) the Common Stock shall be listed or quoted for trading on the Principal Market (and the Company believes in good faith that such listing or quotation shall continue uninterrupted for the foreseeable future) and (v) such issuance would be permitted in full without violating the limitations set forth in Section 3(c). 5 4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price. 5. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. 6. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof. 7. Transfer, Division and Combination. (a) Subject to compliance with any applicable securities laws and the conditions set forth in Sections 1 and 7(e) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued. (b) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 7(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. (c) The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 7. 6 (d) The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants. (e) If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions and reasonably acceptable to the Company) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act. 8. No Rights as Shareholder until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price (or by means of a cashless exercise), the Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment. 9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. 10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. 11. Adjustments of Exercise Price and Number of Warrant Shares. (a) Stock Splits, etc. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then 7 the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which it would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the Holder shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) Anti-Dilution Provisions. During the Exercise Period, the Exercise Price shall be subject to adjustment from time to time as provided in this Section 11(b). In the event that any adjustment of the Exercise Price as required herein results in a fraction of a cent, such Exercise Price shall be rounded up or down to the nearest cent. (i) Adjustment of Exercise Price. If and whenever the Company issues or sells, or in accordance with Section 11(b)(ii) hereof is deemed to have issued or sold, any shares of Common Stock for a consideration per share of less than the then Exercise Price or for no consideration (such lower price, the "Base Share Price" and such issuances collectively, a "Dilutive Issuance"), then, the Exercise Price shall be reduced to equal the Base Share Price. Such adjustment shall be made whenever shares of Common Stock or Common Stock Equivalents are issued. (ii) Effect on Exercise Price of Certain Events. For purposes of determining the adjusted Exercise Price under Section 11(b) hereof, the following will be applicable: (A) Issuance of Rights or Options. If the Company in any manner issues or grants any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock or Common Stock Equivalents (such warrants, rights and options to purchase Common Stock or Common Stock Equivalents are hereinafter referred to as "Options") and the effective price per share for which Common Stock is issuable upon the exercise of such Options is less than the Exercise Price ("Below Base Price Options"), then the maximum total number of shares of Common Stock issuable upon the exercise of all such Below Base Price Options (assuming full exercise, conversion or exchange of Common Stock Equivalents, if applicable) will, as of the date of the issuance or grant of such Below Base Price Options, be deemed to be outstanding and to have been issued and sold by the Company for such price per share and the maximum consideration payable to the Company upon such exercise (assuming full exercise, 8 conversion or exchange of Common Stock Equivalents, if applicable) will be deemed to have been received by the Company. For purposes of the preceding sentence, the "effective price per share for which Common Stock is issuable upon the exercise of such Below Base Price Options" is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or granting of all such Below Base Price Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of all such Below Base Price Options, plus, in the case of Common Stock Equivalents issuable upon the exercise of such Below Base Price Options, the minimum aggregate amount of additional consideration payable upon the exercise, conversion or exchange thereof at the time such Common Stock Equivalents first become exercisable, convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Below Base Price Options (assuming full conversion of Common Stock Equivalents, if applicable). No further adjustment to the Exercise Price will be made upon the actual issuance of such Common Stock upon the exercise of such Below Base Price Options or upon the exercise, conversion or exchange of Common Stock Equivalents issuable upon exercise of such Below Base Price Options. (B) Issuance of Common Stock Equivalents. If the Company in any manner issues or sells any Common Stock Equivalents, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options) and the effective price per share for which Common Stock is issuable upon such exercise, conversion or exchange is less than the Exercise Price, then the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Common Stock Equivalents will, as of the date of the issuance of such Common Stock Equivalents, be deemed to be outstanding and to have been issued and sold by the Company for such price per share and the maximum consideration payable to the Company upon such exercise (assuming full exercise, conversion or exchange of Common Stock Equivalents, if applicable) will be deemed to have been received by the Company. For the purposes of the preceding sentence, the "effective price per share for which Common Stock is issuable upon such exercise, conversion or exchange" is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or sale of all such Common Stock Equivalents, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise, conversion or exchange thereof at the time such Common Stock Equivalents first become exercisable, convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Common Stock Equivalents. No further adjustment to 9 the Exercise Price will be made upon the actual issuance of such Common Stock upon exercise, conversion or exchange of such Common Stock Equivalents. (C) Change in Option Price or Conversion Rate. If there is a change at any time in (i) the amount of additional consideration payable to the Company upon the exercise of any Options; (ii) the amount of additional consideration, if any, payable to the Company upon the exercise, conversion or exchange of any Common Stock Equivalents; or (iii) the rate at which any Common Stock Equivalents are convertible into or exchangeable for Common Stock (in each such case, other than under or by reason of provisions designed to protect against dilution), the Exercise Price in effect at the time of such change will be readjusted to the Exercise Price which would have been in effect at such time had such Options or Common Stock Equivalents still outstanding provided for such changed additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. (D) Calculation of Consideration Received. If any Common Stock, Options or Common Stock Equivalents are issued, granted or sold for cash, the consideration received therefor for purposes of this Warrant will be the amount received by the Company therefor, before deduction of reasonable commissions, underwriting discounts or allowances or other reasonable expenses paid or incurred by the Company in connection with such issuance, grant or sale. In case any Common Stock, Options or Common Stock Equivalents are issued or sold for a consideration part or all of which shall be other than cash, the amount of the consideration other than cash received by the Company will be the fair market value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the fair market value (closing bid price, if traded on any market) thereof as of the date of receipt. In case any Common Stock, Options or Common Stock Equivalents are issued in connection with any merger or consolidation in which the Company is the surviving corporation, the amount of consideration therefor will be deemed to be the fair market value of such portion of the net assets and business of the non-surviving corporation as is attributable to such Common Stock, Options or Common Stock Equivalents, as the case may be. The fair market value of any consideration other than cash or securities will be determined in good faith by an investment banker or other appropriate expert of national reputation selected by the Company and reasonably acceptable to the holder hereof, with the costs of such appraisal to be borne by the Company. (E) Exceptions to Adjustment of Exercise Price. Notwithstanding the foregoing, no adjustment will be made under this Section 11(b) in respect of (1) the granting of options to employees, officers, directors or key consultants of the Company 10 pursuant to any stock option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (2) upon the exercise of or conversion of any Common Stock Equivalents or Options issued and outstanding on the Original Issue Date, provided that the securities have not been amended since the date of the Purchase Agreement except as a result of the Purchase Agreement, or (3) acquisitions or strategic investments, the primary purpose of which is not to raise capital. (iii) Minimum Adjustment of Exercise Price. No adjustment of the Exercise Price shall be made in an amount of less than 1% of the Exercise Price in effect at the time such adjustment is otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than 1% of such Exercise Price. 12. Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right thereafter to receive, at the option of the Holder, (a) upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event or (b) cash equal to the value of this Warrant as determined in accordance with the Black Scholes option pricing formula. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of Warrant Shares for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 12. For purposes of this Section 12, "common stock of the successor or acquiring corporation" shall include stock of such corporation of 11 any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 12 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 13. Voluntary Adjustment by the Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. 14. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall give notice thereof to the Holder, which notice shall state the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. 15. Notice of Corporate Action. If at any time: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or, (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to Holder (i) at least 20 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 20 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, 12 reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their Warrant Shares for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 17(d). 16. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 17. Miscellaneous. (a) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement. 13 (b) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. (c) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. (d) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. (e) Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant or purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. (f) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (g) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares. (h) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. (i) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. 14 (j) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. ******************** 15 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: October __, 2003 ERESOURCE CAPITAL GROUP, INC. By: ____________________________________ Name: Title: NOTICE OF EXERCISE To: eResource Capital Group, Inc. (1) The undersigned hereby elects to purchase ________ Warrant Shares of eResource Capital Group, Inc. pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2) Payment shall take the form of (check applicable box): [ ] in lawful money of the United States; or [ ] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 3(d), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 3(d). (3) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below: ________________________________________ The Warrant Shares shall be delivered to the following: ________________________________________ ________________________________________ ________________________________________ (4) Accredited Investor. The undersigned is an "accredited investor" as defined in Regulation D promulgated under the Securities Act of 1933, as amended. [PURCHASER] By: ______________________________ Name: Title: Dated: ________________________ ASSIGNMENT FORM (To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to _______________________________________________ whose address is _______________________________________________________________. _______________________________________________________________ Dated: ______________, _______ Holder's Signature: _____________________________ Holder's Address: _____________________________ _____________________________ Signature Guaranteed: ___________________________________________ NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. EX-99.1 6 pressrelease.txt EXHIBIT 99.1 [eResource Capital Group letterhead] RCG SUBSIDIARY COMPLETES ACQUISITION OF SUNTRIPS AND VACATION EXPRESS TWO COMPANIES EXCEEDED $200 MILLION IN ANNUAL REVENUE RCG SIMULTANEOUSLY CLOSES ON $4 MILLION IN FINANCING CHARLOTTE, N.C., Nov. 3 -- eResource Capital Group, Inc. ("RCG," Amex: RCG) today announced its wholly-owned travel services division, Flightserv, Inc. ("Flightserv"), completed the acquisition of SunTrips, Inc. ("SunTrips") and Vacation Express, two of the largest leisure travel tour operators in the United States, from My Travel USA Holdings, Inc. ("My Travel"). In conjunction with the closing, RCG completed a $4 million private placement of common stock to a group of accredited investors. RCG signed a definitive agreement to acquire SunTrips and Vacation Express on October 17, 2003 and closed the transaction on October 31, 2003. Under the terms of the asset purchase agreement, FS Tours, Inc. ("FS Tours") a wholly-owned subsidiary of Flightserv, will acquire substantially all of the assets and liabilities of Vacation Express, and FS SunTours, Inc ("FS SunTours") a wholly-owned subsidiary of Flightserv, will acquire substantially all of the assets and liabilities of SunTrips, except for certain excluded items, in exchange for $12 million, of which $10 million was in the form of a seven-year promissory note from Flightserv secured by certain RCG investment holdings, and $2 million in the form of a working capital deficit. Additionally, FS Tours and FS SunTours entered into a three-year agreement with MyTravel Canada Holidays, Inc. ("MyTravel Canada"), for certain services, including the purchasing of hotel accommodations for FS Tours and FS SunTours on an exclusive basis. MyTravel Canada will be paid approximately $4.5 million over three years under this agreement. SunTrips, based in San Jose, CA, sells air and hotel vacation packages to Mexico, Dominican Republic, Costa Rica, Hawaii and the Azores out of Oakland, CA and/or Denver, CO. Vacation Express, based in Atlanta, GA, sells air and hotel packages to Mexico and Caribbean destinations, including Aruba, Bahamas, Costa Rica, Dominican Republic, Jamaica, and St. Maarten. SunTrips and Vacation Express together generated revenues of approximately $200 million for the twelve months ended September 30, 2003. Both companies were air charter customers of Flightserv. With the closing of these acquisitions, SunTrips and Vacation Express will continue to operate from their current locations, with FS Tours and FS SunTours assuming operational control. Air and hotel vacation packages will continue to be marketed and sold under the SunTrips and Vacation Express brands. Mr. Kent Elsbree, President of Flightserv said, "This is a great opportunity and will be one of the most exciting acquisitions in the leisure industry because it brings together the best teams in the tour business and creates one of the largest operators in the United States. This transaction combines the eastern and western operations, giving us a national footprint and expanding our available market development opportunities. We plan to energize these two companies to become the premier tour operations in the United States serving the Caribbean, Mexico and Hawaii. Additionally, we are pleased to continue our relationship with My Travel Canada, who will manage our wholesale hotel purchasing program." Mr. Elsbree added, "Although these two companies have been financially challenged for various reasons, we believe that with the positive trends in the leisure travel sector, the turn in the economy, and our seasoned team at Flightserv, the timing was right to acquire these two companies. Given our prior relationship with SunTrips and Vacation Express, we are thoroughly familiar with these businesses and have developed a detail plan, which we will implement immediately, to get these once profitable companies back to profitability. Aside from reducing costs through the consolidation of certain operations and administrative functions, we believe our plan will allow us to produce meaningful results in a short period of time. " Jeffrey Willmott, RCG's Chairman, said, "I am pleased to announce to RCG Shareholders that we have closed, on behalf of our subsidiary Flightserv, the acquisition of the assets of tour operator Vacation Express, and its sister company, SunTrips, from London, U.K. based My Travel. This unique opportunity, wherein we are able to acquire Flightserv's largest customer, fully integrates their business, and with the addition of SunTrips in California, effectively establishes us one of the dominant forces in the industry. My congratulations to our team for their tireless efforts over the last few months, ensuring we arrived at this conclusion." "This transaction is strategically and financially compelling, and constitutes a key step in accelerating the growth of our travel services division. We are creating a leisure travel business that spans from coast to coast by combining Flightserv with two companies that produced over $200 million in revenue last year. This newly created business has the potential to become one of the leading tour operators in the United States, said Mike Pruitt, President & CEO of RCG. Pruitt added, "RCG is a growth-oriented company that is aggressively pursuing acquisitions. We anticipate that this transaction will accelerate the development of additional acquisition opportunities in the near future, as well as expand our operational and financial capabilities." Melinda Morris Zanoni, RCG's Executive Vice President, Acquisitions, said "The acquisition of SunTrips and Vacation Express from My Travel serves as a major step in executing RCG's business plan of acquiring companies that are positioned to experience growth and expanding the existing businesses in the RCG network of companies." More information on RCG's travel services business can be found at www.flightserv.com and more information on MyTravel Group can be found at www.mytravelgroup.com, SunTrips at www.suntrips.com, and Vacation Express at www.vacationexpress.com. ABOUT ERESOURCE CAPITAL GROUP (RCG) eResource Capital is listed on the American Stock Exchange and trades under the symbol RCG. RCG is focused on delivering to shareholders rapidly growing, relatively low risk revenues, along with steadily increasing profitability. The majority of RCG's revenues are derived from a highly specialized travel service organization, Flightserv, which delivers a unique turnkey air service. RCG also has two business focused on the technology services sector, which consist of a wholly-owned software and IT services division, Logisoft Corp. and home technology services from Lifestyle Innovations, Inc., which is a separately traded public company. RCG owns approximately 15.6 million restricted common shares of LFSI, which represents an equity ownership of approximately 76.5% of the company. More information is available on RCG at www.eresourcecapital.com. For investor information, contact investor relations at 704-366-5054 ext. 27 or info@eresourcecapital.com. ABOUT FLIGHTSERV Flightserv, Inc. ("Flightserv") is a wholly owned subsidiary of RCG. Flightserv has created a unique turnkey service and successfully marketed this service to some of the largest tour operators in the world. Flightserv provides everything tour operators need to transport vacationers to their destination. Flightserv assists tour operators, corporate travel departments, sports teams and casinos with the goal of arranging cost effective and reliable charter air transportation. Flightserv's management team has an extensive background in domestic and international air charter services. The operations department provides turnkey aircraft services such as ground support and aircraft fueling, passenger service and support, and real-time, satellite flight following. Flightserv also provides Internet-ready reservations services and aviation consulting and aims to be one of the most complete aviation management companies available in the United States. For more information, visit us at www.flightserv.com or call Cary Evans at 770-986-9791 ext. 227. Statements in this news release about anticipated or expected future revenue or growth or expressions of future goals or objectives, including statements regarding whether current plans to grow and strengthen the company's existing network will be implemented or accomplished, are forward- looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements in this release are based upon information available to the Company on the date of this release. Any forward-looking statements involve risks and uncertainties, including the risk that the Company will be unable to grow or strengthen its network due to a lack of capital or an inability to identify acquisition candidates, as well as those risks and uncertainties described in the Company's filings with the Securities and Exchange Commission, that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements. -----END PRIVACY-ENHANCED MESSAGE-----