Document:

EXHIBIT 4.4

                                                                       EXHIBIT B

                          REGISTRATION RIGHTS AGREEMENT

      This Registration  Rights Agreement (this "Agreement") is made and entered
into as of September  10, 2004,  among RCG  Companies  Incorporated,  a Delaware
corporation  (the  "Company"),  and the purchasers  signatory  hereto (each such
purchaser  is a  "Purchaser"  and all such  purchasers  are,  collectively,  the
"Purchasers").

      This  Agreement is made  pursuant to the  Securities  Purchase  Agreement,
dated as of the date hereof among the Company and the Purchasers  (the "Purchase
Agreement").

      The Company and the Purchasers hereby agree as follows:

      1.    Definitions

            CAPITALIZED  TERMS USED AND NOT  OTHERWISE  DEFINED  HEREIN THAT ARE
DEFINED IN THE PURCHASE  AGREEMENT  SHALL HAVE THE MEANINGS  GIVEN SUCH TERMS IN
THE PURCHASE  AGREEMENT.  As used in this  Agreement,  the following terms shall
have the following meanings:

            "Effectiveness Date" means, with respect to the initial Registration
      Statement required to be filed hereunder, the 120th calendar day following
      the date  hereof  (the 135th  calendar  day in the case of a review by the
      Commission)  and, with respect to any additional  Registration  Statements
      which may be required  pursuant to Section  3(c),  the 90th  calendar  day
      following the date on which the Company first knows, or reasonably  should
      have  known,  that such  additional  Registration  Statement  is  required
      hereunder;  provided, however, in the event the Company is notified by the
      Commission  that  one of the  above  Registration  Statements  will not be
      reviewed  or is no longer  subject to further  review  and  comments,  the
      Effectiveness  Date as to such  Registration  Statement shall be the fifth
      Trading Day following the date on which the Company is so notified if such
      date precedes the dates required above.

            "Effectiveness  Period"  shall have the meaning set forth in Section
      2(a).

            "Filing  Date"  means,  with  respect  to the  initial  Registration
      Statement  required  hereunder,  the 45th  calendar day following the date
      hereof and, with respect to any additional  Registration  Statements which
      may be required  pursuant to Section 3(c), the 15th day following the date
      on which the Company  first knows,  or  reasonably  should have known that
      such additional Registration Statement is required hereunder.

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            "Holder" or "Holders"  means the holder or holders,  as the case may
      be, from time to time of Registrable Securities.

            "Indemnified Party" shall have the meaning set forth in Section 5(c)
      hereof.

            "Indemnifying  Party"  shall have the  meaning  set forth in Section
      5(c) hereof.

            "Losses" shall have the meaning set forth in Section 5(a).

            "Proceeding"  means  an  action,   claim,  suit,   investigation  or
      proceeding  (including,  without  limitation,  an investigation or partial
      proceeding, such as a deposition), whether commenced or threatened.

            "Prospectus"  means  the  prospectus   included  in  a  Registration
      Statement (including,  without limitation,  a prospectus that includes any
      information  previously  omitted  from a  prospectus  filed  as part of an
      effective  registration  statement in reliance upon Rule 430A  promulgated
      under the Securities  Act), as amended or  supplemented  by any prospectus
      supplement,  with  respect to the terms of the  offering of any portion of
      the Registrable  Securities covered by a Registration  Statement,  and all
      other   amendments   and   supplements   to  the   Prospectus,   including
      post-effective  amendments,  and all material incorporated by reference or
      deemed to be incorporated by reference in such Prospectus.

            "Registrable  Securities" means, as of the date in question, (i) all
      of the shares of Common  Stock  issuable  upon  conversion  in full of the
      shares of Preferred  Stock,  (ii) all shares  issuable as dividends on the
      Preferred  Stock  assuming  all  dividend  payments  are made in shares of
      Common Stock and the Preferred  Stock is held for at least 3 years,  (iii)
      all Warrant Shares,  (iv) all Additional  Investment Right Shares, (v) any
      securities  issued or  issuable  upon any stock  split,  dividend or other
      distribution  recapitalization  or  similar  event  with  respect  to  the
      foregoing and (vi) any additional  shares  issuable in connection with any
      anti-dilution provisions associated with the Preferred Stock.

            "Registration  Statement" means the registration statements required
      to  be  filed  hereunder  and  any  additional   registration   statements
      contemplated  by Section 3(c),  including  (in each case) the  Prospectus,
      amendments and supplements to such  registration  statement or Prospectus,
      including pre- and post-effective  amendments,  all exhibits thereto,  and
      all material  incorporated  by reference or deemed to be  incorporated  by
      reference in such registration statement.

            "Rule 415" means Rule 415 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 purpose and effect as such Rule.

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            "Rule 424" means Rule 424 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 purpose and effect as such Rule.

      2.    Shelf Registration

            (a) On or prior to each Filing Date,  the Company  shall prepare and
file with the Commission a "Shelf" Registration Statement covering the resale of
130% of the  Registrable  Securities  on such  Filing Date for an offering to be
made on a  continuous  basis  pursuant to Rule 415. The  Registration  Statement
shall be on Form S-3 (unless the  Company is not then  eligible to register  for
resale the Registrable  Securities on Form S-3, in which case such  registration
shall be on another  appropriate form in accordance  herewith) and shall contain
(unless  otherwise   directed  by  the  Holders)   substantially  the  "Plan  of
Distribution"  attached  hereto  as  Annex  A.  Subject  to the  terms  of  this
Agreement,  the  Company  shall use its best  efforts to cause the  Registration
Statement  to be  declared  effective  under the  Securities  Act as promptly as
possible  after the filing  thereof,  but in any event  prior to the  applicable
Effectiveness  Date,  and shall use its best  efforts to keep such  Registration
Statement  continuously effective under the Securities Act until all Registrable
Securities covered by such Registration  Statement have been sold or may be sold
without volume restrictions pursuant to Rule 144(k) as determined by the counsel
to the Company  pursuant to a written  opinion letter to such effect,  addressed
and  acceptable to the Company's  transfer  agent and the affected  Holders (the
"Effectiveness  Period").  The Company shall immediately  notify the Holders via
facsimile of the effectiveness of the Registration  Statement within one Trading
Day  that  the  Company  receives  notification  of the  effectiveness  from the
Commission.  Failure  to so  notify  the  Holder  within 1  Trading  Day of such
notification shall be deemed an Event under Section 2(b).

            (b) If: (i) a Registration Statement is not filed on or prior to its
Filing Date (if the Company files a Registration Statement without affording the
Holders the opportunity to review and comment on the same as required by Section
3(a), the Company shall not be deemed to have satisfied clause (i)), or (ii) the
Company  fails  to file  with the  Commission  a  request  for  acceleration  in
accordance  with Rule 461  promulgated  under the  Securities  Act,  within five
Trading  Days of the date that the  Company is  notified  (orally or in writing,
whichever is earlier) by the Commission  that a Registration  Statement will not
be  "reviewed,"  or not  subject  to  further  review,  or  (iii)  prior  to its
Effectiveness  Date,  the Company  fails to file a  pre-effective  amendment and
otherwise  respond in writing to comments  made by the  Commission in respect of
such Registration Statement within 20 Trading Days after the receipt of comments
by or notice from the Commission  that such amendment is required in order for a
Registration  Statement  to  be  declared  effective,  or  (iv)  a  Registration
Statement filed or required to be filed  hereunder is not declared  effective by
the Commission by its Effectiveness Date, or (v) after the Effectiveness Date, a
Registration Statement ceases for any reason to remain continuously effective as
to all Registrable  Securities for which it is required to be effective,  or the
Holders  are not  permitted  to utilize  the  Prospectus  therein to resell such

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Registrable Securities for 10 consecutive days or an aggregate of 15 days during
any 12-month  period (which need not be  consecutive  days) (any such failure or
breach being  referred to as an "Event",  and for purposes of clause (i) or (iv)
the date on which such Event occurs,  or for purposes of clause (ii) the date on
which such five Trading Day period is exceeded,  or for purposes of clause (iii)
the date which such 10 Trading Day period is exceeded, or for purposes of clause
(v) the date on which such 10 or 15 day period, as applicable, is exceeded being
referred to as "Event  Date"),  then in addition to any other rights the Holders
may have  hereunder or under  applicable law on each such Event Date and on each
monthly  anniversary of each such Event Date (if the applicable  Event shall not
have been cured by such date) until the applicable  Event is cured,  the Company
shall pay to each Holder an amount in cash,  as partial  liquidated  damages and
not as a penalty,  equal to 1.0% of Stated Value of the Securities  then held by
the Holder. If the Company fails to pay any partial  liquidated damages pursuant
to this  Section in full within seven days after the date  payable,  the Company
will pay  interest  thereon at a rate of 18% per annum (or such  lesser  maximum
amount that is permitted to be paid by applicable  law) to the Holder,  accruing
daily from the date such partial  liquidated damages are due until such amounts,
plus all such interest thereon, are paid in full. The partial liquidated damages
pursuant to the terms hereof shall apply on a pro-rata  basis for any portion of
a month prior to the cure of an Event.

      3.    Registration Procedures

            In connection with the Company's registration obligations hereunder,
the Company shall:

            (a) Not less  than five  Trading  Days  prior to the  filing of each
Registration  Statement or any related Prospectus or any amendment or supplement
thereto  (including  any  document  that would be  incorporated  or deemed to be
incorporated  therein by  reference),  the  Company  shall,  (i) furnish to each
Holder copies of all such documents proposed to be filed, which documents (other
than those  incorporated  or deemed to be  incorporated  by  reference)  will be
subject  to the  review  of such  Holders,  and  (ii)  cause  its  officers  and
directors,  counsel and independent  certified public  accountants to respond to
such inquiries as shall be necessary,  in the  reasonable  opinion of respective
counsel  to  conduct  a  reasonable  investigation  within  the  meaning  of the
Securities  Act. The Company  shall not file the  Registration  Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders of
a majority of the  Registrable  Securities  shall  reasonably  and in good faith
object,  provided, the Company is notified of such objection in writing no later
than 3 Trading  Days after the  Holders  have been so  furnished  copies of such
documents.   Each   Holder   agrees  to  furnish  to  the  Company  a  completed
Questionnaire  in the form  attached  to this  Agreement  as Annex B (a "Selling
Holder  Questionnaire")  not less than two Trading Days prior to the Filing Date
or by the end of the fourth  Trading Day following the date on which such Holder
receives draft materials in accordance with this Section.

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            (b)(i)  Prepare  and  file  with  the  Commission  such  amendments,
including  post-effective  amendments,  to  a  Registration  Statement  and  the
Prospectus  used  in  connection  therewith  as  may  be  necessary  to  keep  a
Registration  Statement  continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such  additional  Registration  Statements in order to register for resale under
the Securities  Act all of the  Registrable  Securities;  (ii) cause the related
Prospectus to be amended or supplemented by any required  Prospectus  supplement
(subject to the terms of this  Agreement),  and as so supplemented or amended to
be filed pursuant to Rule 424; (iii) respond as promptly as reasonably  possible
to any comments  received  from the  Commission  with respect to a  Registration
Statement  or any  amendment  thereto  and as promptly  as  reasonably  possible
provide the Holders true and complete copies of all  correspondence  from and to
the  Commission  relating to a  Registration  Statement;  and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with  respect to the  disposition  of all  Registrable  Securities  covered by a
Registration  Statement during the applicable  period in accordance  (subject to
the terms of this  Agreement)  with the intended  methods of  disposition by the
Holders  thereof set forth in such  Registration  Statement  as so amended or in
such Prospectus as so supplemented.

            (c) If during the  Effectiveness  Period,  the number of Registrable
Securities  at any time exceeds 85% of the number of shares of Common Stock then
registered in a Registration  Statement,  then the Company shall file as soon as
reasonably  practicable but in any case prior to the applicable  Filing Date, an
additional Registration Statement covering the resale by the Holders of not less
than 130% of the number of such Registrable Securities.

            (d) Notify the Holders of  Registrable  Securities to be sold (which
notice shall, pursuant to clauses (ii) through (vi) hereof, be accompanied by an
instruction  to suspend the use of the  Prospectus  until the requisite  changes
have been made) as promptly as reasonably  possible  (and, in the case of (i)(A)
below,  not less than five Trading Days prior to such filing) and (if  requested
by any such Person) confirm such notice in writing no later than one Trading Day
following  the day (i)(A) when a  Prospectus  or any  Prospectus  supplement  or
post-effective  amendment to a  Registration  Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration  Statement and whenever the Commission  comments in writing on
such Registration  Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders);  and (C) with
respect to a Registration  Statement or any post-effective  amendment,  when the
same has become  effective;  (ii) of any request by the  Commission or any other
Federal or state  governmental  authority  for  amendments or  supplements  to a
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission or any other federal or state governmental  authority
of any stop order  suspending  the  effectiveness  of a  Registration  Statement
covering  any or all of the  Registrable  Securities  or the  initiation  of any
Proceedings  for  that  purpose;  (iv)  of the  receipt  by the  Company  of any
notification  with respect to the suspension of the  qualification  or exemption
from  qualification  of  any of  the  Registrable  Securities  for  sale  in any
jurisdiction,  or the  initiation  or  threatening  of any  Proceeding  for such
purpose;  (v) of the  occurrence  of any event or passage of time that makes the
financial  statements  included  in  a  Registration  Statement  ineligible  for

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inclusion  therein  or  any  statement  made  in  a  Registration  Statement  or
Prospectus or any document  incorporated or deemed to be incorporated therein by
reference  untrue in any material  respect or that  requires any  revisions to a
Registration Statement,  Prospectus or other documents so that, in the case of a
Registration  Statement  or the  Prospectus,  as the  case  may be,  it will not
contain any untrue  statement  of a material  fact or omit to state any material
fact required to be stated therein or necessary to make the statements  therein,
in light of the  circumstances  under which they were made, not misleading;  and
(vi) the  occurrence  or existence  of any pending  corporate  development  with
respect to the Company that the Company  believes  may be material and that,  in
the  determination  of the  Company,  makes it not in the best  interest  of the
Company  to  allow  continued  availability  of the  Registration  Statement  or
Prospectus;  provided  that  any  and  all  of  such  information  shall  remain
confidential  to each Holder until such  information  otherwise  becomes public,
unless  disclosure  by  a  Holder  is  required  by  law;   provided,   further,
notwithstanding  each Holder's agreement to keep such information  confidential,
the Holders  make no  acknowledgement  that any such  information  is  material,
non-public information.

            (e) Use its best  efforts to avoid the  issuance  of, or, if issued,
obtain  the  withdrawal  of (i) any  order  suspending  the  effectiveness  of a
Registration  Statement,  or  (ii)  any  suspension  of  the  qualification  (or
exemption from  qualification) of any of the Registrable  Securities for sale in
any jurisdiction, at the earliest practicable moment.

            (f) Furnish to each Holder,  without charge,  at least one conformed
copy of each such Registration  Statement and each amendment thereto,  including
financial statements and schedules,  all documents  incorporated or deemed to be
incorporated  therein by reference to the extent  requested by such Person,  and
all exhibits to the extent requested by such Person  (including those previously
furnished  or  incorporated  by  reference)  promptly  after the  filing of such
documents with the Commission.

            (g) Promptly deliver to each Holder,  without charge, as many copies
of the Prospectus or  Prospectuses  (including each form of prospectus) and each
amendment  or  supplement  thereto as such  Persons  may  reasonably  request in
connection with resales by the Holder of Registrable Securities.  Subject to the
terms  of  this  Agreement,  the  Company  hereby  consents  to the  use of such
Prospectus  and each  amendment  or  supplement  thereto by each of the  selling
Holders in connection with the offering and sale of the  Registrable  Securities
covered by such Prospectus and any amendment or supplement thereto, except after
the giving on any notice pursuant to Section 3(d).

            (h) Prior to any resale of Registrable  Securities by a Holder,  use
its commercially reasonable efforts to register or qualify or cooperate with the
selling  Holders  in  connection  with the  registration  or  qualification  (or
exemption from the Registration or qualification) of such Registrable Securities
for the  resale  by the  Holder  under the  securities  or Blue Sky laws of such
jurisdictions  within the United  States as any Holder  reasonably  requests  in
writing,  to keep each  registration or qualification  (or exemption  therefrom)
effective  during the  Effectiveness  Period and to do any and all other acts or
things reasonably  necessary to enable the disposition in such  jurisdictions of

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the Registrable  Securities  covered by each Registration  Statement;  provided,
that the Company  shall not be required to qualify  generally  to do business in
any jurisdiction  where it is not then so qualified,  subject the Company to any
material tax in any such jurisdiction  where it is not then so subject or file a
general consent to service of process in any such jurisdiction.

            (i) If  requested  by the  Holders,  cooperate  with the  Holders to
facilitate  the timely  preparation  and delivery of  certificates  representing
Registrable   Securities  to  be  delivered  to  a  transferee   pursuant  to  a
Registration  Statement,  which  certificates  shall  be  free,  to  the  extent
permitted by the Purchase Agreement,  of all restrictive  legends, and to enable
such Registrable  Securities to be in such  denominations and registered in such
names as any such Holders may request.

            (j) Upon the occurrence of any event contemplated by this Section 3,
as promptly as reasonably  possible under the circumstances  taking into account
the Company's good faith  assessment of any adverse  consequences to the Company
and its  stockholders  of the  premature  disclosure  of such  event,  prepare a
supplement or amendment, including a post-effective amendment, to a Registration
Statement or a supplement to the related Prospectus or any document incorporated
or deemed to be incorporated  therein by reference,  and file any other required
document so that, as thereafter delivered,  neither a Registration Statement nor
such Prospectus  will contain an untrue  statement of a material fact or omit to
state a material  fact  required to be stated  therein or  necessary to make the
statements  therein,  in light of the circumstances  under which they were made,
not misleading.  If the Company  notifies the Holders in accordance with clauses
(ii)  through  (v) of Section  3(d) above to suspend  the use of any  Prospectus
until the requisite  changes to such Prospectus have been made, then the Holders
shall suspend use of such  Prospectus.  The Company will use its best efforts to
ensure  that  the  use of  the  Prospectus  may be  resumed  as  promptly  as is
practicable.  The Company  shall be  entitled  to exercise  its right under this
Section  3(j) to  suspend  the  availability  of a  Registration  Statement  and
Prospectus,  subject to the payment of partial  liquidated  damages  pursuant to
Section 2(b),  for a period not to exceed 60 days (which need not be consecutive
days) in any 12 month period.

            (k)  Comply  with  all  applicable  rules  and  regulations  of  the
Commission.

            (l) The Company may require  each  selling  Holder to furnish to the
Company a  certified  statement  as to the  number  of  shares  of Common  Stock
beneficially owned by such Holder and, if required by the Commission, the person
thereof  that has voting and  dispositive  control  over the Shares.  During any
periods  that the  Company  is unable  to meet its  obligations  hereunder  with
respect to the  registration  of the Registrable  Securities  solely because any
Holder  fails to furnish  such  information  within  three  Trading  Days of the
Company's  request,  any liquidated damages that are accruing at such time as to
such Holder only shall be tolled and any Event that may  otherwise  occur solely
because of such delay  shall be  suspended  as to such Holder  only,  until such
information is delivered to the Company.

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      4.    Registration  Expenses.  All  fees  and  expenses  incident  to  the
performance  of or compliance  with this Agreement by the Company shall be borne
by the Company  whether or not any  Registrable  Securities are sold pursuant to
the Registration  Statement.  The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including,  without  limitation,  fees and expenses (A) with respect to filings
required  to be made with the Trading  Market on which the Common  Stock is then
listed for trading,  and (B) in compliance with applicable  state  securities or
Blue Sky laws reasonably agreed to by the Company in writing (including, without
limitation, fees and disbursements of counsel for the Company in connection with
Blue  Sky  qualifications  or  exemptions  of  the  Registrable  Securities  and
determination  of the eligibility of the  Registrable  Securities for investment
under the laws of such jurisdictions as requested by the Holders), (ii) printing
expenses (including,  without limitation,  expenses of printing certificates for
Registrable   Securities  and  of  printing  prospectuses  if  the  printing  of
prospectuses  is  reasonably  requested  by the  holders  of a  majority  of the
Registrable Securities included in a Registration  Statement),  (iii) messenger,
telephone and delivery expenses,  (iv) fees and disbursements of counsel for the
Company, (v) Securities Act liability insurance,  if the Company so desires such
insurance,  and (vi) fees and  expenses  of all other  Persons  retained  by the
Company in connection with the consummation of the transactions  contemplated by
this  Agreement.  In addition,  the Company shall be responsible  for all of its
internal   expenses   incurred  in  connection  with  the  consummation  of  the
transactions contemplated by this Agreement (including,  without limitation, all
salaries  and  expenses  of its  officers  and  employees  performing  legal  or
accounting  duties),  the expense of any annual  audit and the fees and expenses
incurred in  connection  with the listing of the  Registrable  Securities on any
securities  exchange  as  required  hereunder.  In no event shall the Company be
responsible  for any  broker or  similar  commissions  or,  except to the extent
provided for in the Transaction Documents,  any legal fees or other costs of the
Holders.

      5.    Indemnification

            (a)   Indemnification   by   the   Company.   The   Company   shall,
notwithstanding  any termination of this Agreement,  indemnify and hold harmless
each Holder, the officers, directors, agents and employees of each of them, each
Person who  controls  any such  Holder  (within the meaning of Section 15 of the
Securities  Act or Section 20 of the Exchange Act) and the officers,  directors,
agents and  employees of each such  controlling  Person,  to the fullest  extent
permitted  by  applicable  law,  from and against  any and all  losses,  claims,
damages,   liabilities,   costs  (including,   without  limitation,   reasonable
attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out
of or  relating to any untrue or alleged  untrue  statement  of a material  fact
contained in a Registration Statement,  any Prospectus or any form of prospectus
or in any amendment or supplement thereto or in any preliminary  prospectus,  or
arising  out of or relating  to any  omission or alleged  omission of a material
fact required to be stated therein or necessary to make the  statements  therein
(in the case of any Prospectus or form of prospectus or supplement  thereto,  in
light of the circumstances under which they were made) not misleading, except to
the extent, but only to the extent, that (i) such untrue statements or omissions
are based solely upon information  regarding such Holder furnished in writing to

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the Company by such Holder expressly for use therein, or to the extent that such
information  relates  to  such  Holder  or  such  Holder's  proposed  method  of
distribution of Registrable  Securities and was reviewed and expressly  approved
in writing by such Holder  expressly for use in a Registration  Statement,  such
Prospectus or such form of Prospectus or in any amendment or supplement  thereto
(it being  understood  that the  Holder  has  approved  Annex A hereto  for this
purpose) or (ii) in the case of an occurrence of an event of the type  specified
in Section  3(d)(ii)-(vi),  the use by such Holder of an  outdated or  defective
Prospectus  after the  Company  has  notified  such  Holder in writing  that the
Prospectus  is outdated or defective  and prior to the receipt by such Holder of
the Advice  contemplated  in Section 6(e).  The Company shall notify the Holders
promptly of the institution,  threat or assertion of any Proceeding arising from
or in connection with the  transactions  contemplated by this Agreement of which
the Company is aware.

            (b) Indemnification by Holders. Each Holder shall, severally and not
jointly,  indemnify  and hold  harmless the Company,  its  directors,  officers,
agents and employees,  each Person who controls the Company  (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors,  officers,  agents or employees of such controlling  Persons,  to the
fullest  extent  permitted by applicable  law,  from and against all Losses,  as
incurred,  to the extent  arising out of or based solely upon: (x) such Holder's
failure to comply with the prospectus  delivery  requirements  of the Securities
Act or (y) any untrue or alleged  untrue  statement of a material fact contained
in any Registration Statement, any Prospectus,  or any form of prospectus, or in
any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or  relating  to any  omission  or alleged  omission  of a material  fact
required to be stated  therein or necessary to make the  statements  therein not
misleading (i) to the extent, but only to the extent, that such untrue statement
or omission is  contained  in any  information  so  furnished in writing by such
Holder to the Company specifically for inclusion in such Registration  Statement
or such  Prospectus  or (ii) to the extent  that (1) such untrue  statements  or
omissions are based solely upon  information  regarding such Holder furnished in
writing to the  Company by such  Holder  expressly  for use  therein,  or to the
extent that such  information  relates to such Holder or such Holder's  proposed
method of distribution of Registrable  Securities and was reviewed and expressly
approved  in  writing  by such  Holder  expressly  for  use in the  Registration
Statement (it being  understood  that the Holder has approved Annex A hereto for
this purpose), such Prospectus or such form of Prospectus or in any amendment or
supplement  thereto or (2) in the case of an  occurrence of an event of the type
specified  in Section  3(d)(ii)-(vi),  the use by such  Holder of an outdated or
defective  Prospectus after the Company has notified such Holder in writing that
the  Prospectus is outdated or defective and prior to the receipt by such Holder
of the Advice  contemplated  in Section 6(e). In no event shall the liability of
any selling Holder  hereunder be greater in amount than the dollar amount of the
net proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.

            (c) Conduct of Indemnification  Proceedings. If any Proceeding shall
be brought or asserted  against any Person  entitled to indemnity  hereunder (an
"Indemnified  Party"),  such Indemnified  Party shall promptly notify the Person
from whom  indemnity is sought (the  "Indemnifying  Party") in writing,  and the

                                       9
<PAGE>

Indemnifying Party shall have the right to assume the defense thereof, including
the employment of counsel  reasonably  satisfactory to the Indemnified Party and
the  payment  of all fees and  expenses  incurred  in  connection  with  defense
thereof; provided, that the failure of any Indemnified Party to give such notice
shall not relieve  the  Indemnifying  Party of its  obligations  or  liabilities
pursuant  to this  Agreement,  except  (and only) to the extent that it shall be
finally determined by a court of competent  jurisdiction (which determination is
not subject to appeal or further review) that such failure shall have prejudiced
the Indemnifying Party.

      An Indemnified  Party shall have the right to employ  separate  counsel in
any such Proceeding and to participate in the defense thereof,  but the fees and
expenses of such counsel  shall be at the expense of such  Indemnified  Party or
Parties  unless:  (1) the  Indemnifying  Party has agreed in writing to pay such
fees and  expenses;  (2) the  Indemnifying  Party shall have failed  promptly to
assume  the  defense  of  such  Proceeding  and  to  employ  counsel  reasonably
satisfactory to such Indemnified Party in any such Proceeding;  or (3) the named
parties to any such Proceeding  (including any impleaded  parties)  include both
such Indemnified  Party and the Indemnifying  Party, and such Indemnified  Party
shall  have been  advised by counsel  in  writing  that a material  conflict  of
interest  is  likely  to  exist  if the  same  counsel  were to  represent  such
Indemnified Party and the Indemnifying Party (in which case, if such Indemnified
Party  notifies  the  Indemnifying  Party in  writing  that it  elects to employ
separate  counsel at the expense of the  Indemnifying  Party,  the  Indemnifying
Party shall not have the right to assume the defense  thereof and the reasonable
fees  and  expenses  of one  separate  counsel  shall be at the  expense  of the
Indemnifying  Party).  The  Indemnifying  Party  shall  not be  liable  for  any
settlement  of any such  Proceeding  effected  without its written  consent.  No
Indemnifying  Party shall,  without the prior written consent of the Indemnified
Party,  effect any settlement of any pending  Proceeding in respect of which any
Indemnified Party is a party,  unless such settlement  includes an unconditional
release of such  Indemnified  Party from all  liability  on claims  that are the
subject matter of such Proceeding.

      Subject to the terms of this  Agreement,  all reasonable fees and expenses
of the Indemnified  Party (including  reasonable fees and expenses to the extent
incurred in connection with investigating or preparing to defend such Proceeding
in a manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within fifteen Trading Days of written notice thereof to the
Indemnifying  Party;  provided,   that  the  Indemnified  Party  shall  promptly
reimburse  the  Indemnifying  Party for that  portion of such fees and  expenses
applicable to such actions for which such  Indemnified  Party is not entitled to
indemnification  hereunder,  determined  based upon the  relative  faults of the
parties.

            (d) Contribution.  If a claim for indemnification under Section 5(a)
or 5(b) is unavailable  to an  Indemnified  Party (by reason of public policy or
otherwise),   then  each  Indemnifying  Party,  in  lieu  of  indemnifying  such
Indemnified  Party,  shall  contribute  to the  amount  paid or  payable by such
Indemnified  Party  as a  result  of  such  Losses,  in  such  proportion  as is
appropriate  to  reflect  the  relative  fault  of the  Indemnifying  Party  and

                                       10
<PAGE>

Indemnified  Party in connection with the actions,  statements or omissions that
resulted in such Losses as well as any other relevant equitable  considerations.
The relative fault of such  Indemnifying  Party and  Indemnified  Party shall be
determined by reference to, among other things,  whether any action in question,
including any untrue or alleged untrue  statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information  supplied by, such Indemnifying  Party or Indemnified Party, and the
parties'  relative intent,  knowledge,  access to information and opportunity to
correct or prevent  such  action,  statement  or  omission.  The amount  paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable  fees or  expenses  incurred  by such  party in  connection  with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the  indemnification  provided for in this Section was  available to
such party in accordance with its terms.

      The  parties  hereto  agree  that it would  not be just and  equitable  if
contribution  pursuant  to  this  Section  5(d)  were  determined  by  pro  rata
allocation or by any other method of allocation  that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds  actually  received  by such  Holder  from the sale of the  Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has  otherwise  been  required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.

      The indemnity and contribution agreements contained in this Section are in
addition  to any  liability  that  the  Indemnifying  Parties  may  have  to the
Indemnified Parties.

      6.    Miscellaneous

            (a)  Remedies.  In the  event of a  breach  by the  Company  or by a
Holder,  of any of their  obligations  under this Agreement,  each Holder or the
Company,  as the case may be, in  addition to being  entitled  to  exercise  all
rights granted by law and under this Agreement,  including  recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary  damages would not provide  adequate
compensation  for any losses  incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific  performance  in respect of such breach,  it shall waive the
defense that a remedy at law would be adequate.

            (b) No Piggyback on  Registrations.  Except as set forth on Schedule
6(b) attached hereto, neither the Company nor any of its security holders (other
than the Holders in such capacity pursuant hereto) may include securities of the
Company in the Registration Statement other than the Registrable Securities. The
Company  shall  not file any other  registration  statements  until the  initial
Registration   Statement   required  hereunder  is  declared  effective  by  the
Commission,  provided that this Section 6(b) shall not prohibit the Company from
filing amendments to registration statements already filed.

                                       11
<PAGE>

            (c) Compliance. Each Holder covenants and agrees that it will comply
with the prospectus delivery requirements of the Securities Act as applicable to
it  in  connection  with  sales  of  Registrable   Securities  pursuant  to  the
Registration Statement.

            (d) Discontinued Disposition.  Each Holder agrees by its acquisition
of such  Registrable  Securities that, upon receipt of a notice from the Company
of the  occurrence  of any event of the kind  described  in Section  3(d),  such
Holder will forthwith  discontinue  disposition of such  Registrable  Securities
under a Registration  Statement until such Holder's receipt of the copies of the
supplemented  Prospectus and/or amended Registration  Statement,  or until it is
advised in writing (the  "Advice") by the Company that the use of the applicable
Prospectus  may be resumed,  and, in either  case,  has  received  copies of any
additional  or  supplemental  filings  that are  incorporated  or  deemed  to be
incorporated  by reference in such  Prospectus or  Registration  Statement.  The
Company will use its best efforts to ensure that the use of the  Prospectus  may
be resumed as promptly as it  practicable.  The Company agrees and  acknowledges
that any  periods  during  which  the  Holder is  required  to  discontinue  the
disposition  of the  Registrable  Securities  hereunder  shall be subject to the
provisions of Section 2(b).

            (e)   Piggy-Back   Registrations.   If  at  any  time   during   the
Effectiveness Period there is not an effective  Registration  Statement covering
all of the Registrable Securities and the Company shall determine to prepare and
file with the  Commission a registration  statement  relating to an offering for
its own account or the account of others under the  Securities Act of any of its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents  relating to equity  securities to
be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with the stock option or other employee
benefit  plans,  then the Company shall send to each Holder a written  notice of
such  determination  and, if within ten days after the date of such notice,  any
such Holder  shall so request in  writing,  the  Company  shall  include in such
registration  statement  all or any  part of such  Registrable  Securities  such
holder  requests to be  registered;  provided,  that,  the Company  shall not be
required to register any  Registrable  Securities  pursuant to this Section 6(e)
that are  eligible  for resale  pursuant  to Rule 144(k)  promulgated  under the
Securities  Act  or  that  are  the  subject  of a then  effective  Registration
Statement.

            (f)  Amendments  and  Waivers.  The  provisions  of this  Agreement,
including  the  provisions  of this  sentence,  may not be amended,  modified or
supplemented,  and waivers or consents to departures from the provisions  hereof
may not be given,  unless the same shall be in writing and signed by the Company
and each Holder of the then outstanding Registrable Securities.  Notwithstanding
the  foregoing,  a waiver or consent to depart from the  provisions  hereof with
respect to a matter that relates  exclusively  to the rights of Holders and that
does not directly or indirectly  affect the rights of other Holders may be given
by Holders of all of the Registrable  Securities to which such waiver or consent
relates;  provided,  however,  that the  provisions  of this sentence may not be
amended,  modified,  or supplemented except in accordance with the provisions of
the immediately preceding sentence.

                                       12
<PAGE>

            (g)  Notices.  Any  and  all  notices  or  other  communications  or
deliveries  required or permitted to be provided hereunder shall be delivered as
set forth in the Purchase Agreement.

            (h)  Successors  and  Assigns.  This  Agreement  shall  inure to the
benefit of and be binding upon the successors  and permitted  assigns of each of
the parties and shall inure to the benefit of each  Holder.  The Company may not
assign its rights or obligations  hereunder without the prior written consent of
all of the Holders of the then-outstanding  Registrable Securities.  Each Holder
may assign their respective rights hereunder in the manner and to the Persons as
permitted under the Purchase Agreement.

            (i) No Inconsistent  Agreements.  Neither the Company nor any of its
subsidiaries has entered, as of the date hereof, nor shall the Company or any of
its  subsidiaries,  on or  after  the  date of this  Agreement,  enter  into any
agreement  with  respect  to its  securities,  that  would  have the  effect  of
impairing  the rights  granted to the  Holders in this  Agreement  or  otherwise
conflicts  with the  provisions  hereof.  Except as set forth on Schedule  6(b),
neither the Company nor any of its subsidiaries has previously  entered into any
agreement granting any registration rights with respect to any of its securities
to any Person that have not been satisfied in full.

            (j) Execution and  Counterparts.  This  Agreement may be executed in
any number of counterparts, each of which when so executed shall be deemed to be
an original and, all of which taken together  shall  constitute one and the same
Agreement.   In  the  event  that  any   signature  is  delivered  by  facsimile
transmission,  such  signature  shall create a valid  binding  obligation of the
party  executing  (or on whose behalf such  signature is executed) the same with
the same  force and  effect as if such  facsimile  signature  were the  original
thereof.

            (k)  Governing  Law.  All  questions  concerning  the  construction,
validity,  enforcement and  interpretation of this Agreement shall be determined
with the provisions of the Purchase Agreement.

            (l) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.

            (m) Severability. If any term, provision, covenant or restriction of
this  Agreement  is held by a court of  competent  jurisdiction  to be  invalid,
illegal,  void  or  unenforceable,  the  remainder  of  the  terms,  provisions,
covenants  and  restrictions  set forth  herein  shall  remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto  shall use their  commercially  reasonable  efforts to find and employ an
alternative  means to achieve the same or substantially  the same result as that
contemplated  by such term,  provision,  covenant or  restriction.  It is hereby
stipulated  and declared to be the intention of the parties that they would have
executed the remaining terms,  provisions,  covenants and  restrictions  without
including any of such that may be hereafter declared invalid,  illegal,  void or
unenforceable.

                                       13
<PAGE>

            (n) Headings.  The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

            (o)  Independent  Nature of Holders'  Obligations  and  Rights.  The
obligations  of each  Holder  hereunder  are  several  and not  joint  with  the
obligations of any other Holder hereunder, and no Holder shall be responsible in
any way for the  performance of the  obligations of any other Holder  hereunder.
Nothing contained herein or in any other agreement or document  delivered at any
closing, and no action taken by any Holder pursuant hereto or thereto,  shall be
deemed to  constitute  the Holders as a  partnership,  an  association,  a joint
venture or any other kind of entity,  or create a  presumption  that the Holders
are in any way  acting  in  concert  with  respect  to such  obligations  or the
transactions  contemplated by this  Agreement.  Each Holder shall be entitled to
protect and enforce its rights,  including without limitation the rights arising
out of this Agreement,  and it shall not be necessary for any other Holder to be
joined as an additional party in any proceeding for such purpose.

                              ********************

                                       14
<PAGE>

      IN WITNESS  WHEREOF,  the parties have executed this  Registration  Rights
Agreement as of the date first written above.

                                               RCG COMPANIES INCORPORATED

                                               By:______________________________
                                                  Name:
                                                  Title:

                       [SIGNATURE PAGE OF HOLDERS FOLLOWS]

                                       15
<PAGE>

                     [PURCHASER'S SIGNATURE PAGE TO RCG RRA]

Name of Investing Entity:__________________________
Signature of Authorized Signatory of Investing Entity:__________________________
Name of Authorized Signatory:___________________________
Title of Authorized Signatory:__________________________

                           [SIGNATURE PAGES CONTINUE]

                                       16
<PAGE>

                                     ANNEX A

                              Plan of Distribution

      Each Selling Stockholder (the "Selling  Stockholders") of the common stock
("Common  Stock")  of the  Company  and any of  their  pledgees,  assignees  and
successors-in-interest  may, from time to time,  sell any or all of their shares
of Common  Stock on the Trading  Market or any other stock  exchange,  market or
trading  facility  on which the shares  are  traded or in private  transactions.
These sales may be at fixed or negotiated prices. A Selling  Stockholder may use
any one or more of the following methods when selling shares:

      o     ordinary  brokerage  transactions  and  transactions  in  which  the
            broker-dealer solicits purchasers;

      o     block  trades in which the  broker-dealer  will  attempt to sell the
            shares as agent but may  position  and resell a portion of the block
            as principal to facilitate the transaction;

      o     purchases  by  a  broker-dealer  as  principal  and  resale  by  the
            broker-dealer for its account;

      o     an  exchange  distribution  in  accordance  with  the  rules  of the
            applicable exchange;

      o     privately negotiated transactions;

      o     settlement  of  short  sales  entered  into  after  the date of this
            prospectus;

      o     broker-dealers  may agree with the  Selling  Stockholders  to sell a
            specified number of such shares at a stipulated price per share;

      o     a combination of any such methods of sale;

      o     through  the  writing or  settlement  of  options  or other  hedging
            transactions, whether through an options exchange or otherwise; or

      o     any other method permitted pursuant to applicable law.

      The Selling  Stockholders  may also sell  shares  under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available,  rather
than under this prospectus.

      Broker-dealers  engaged by the Selling  Stockholders may arrange for other
brokers-dealers to participate in sales.  Broker-dealers may receive commissions
or discounts from the Selling  Stockholders  (or, if any  broker-dealer  acts as
agent  for the  purchaser  of  shares,  from the  purchaser)  in  amounts  to be
negotiated.  Each  Selling  Stockholder  does not expect these  commissions  and
discounts  relating  to its sales of shares to exceed what is  customary  in the
types of transactions involved.

                                       17
<PAGE>

      In connection with the sale of our common stock or interests therein,  the
Selling  Stockholders may enter into hedging transactions with broker-dealers or
other  financial  institutions,  which may in turn  engage in short sales of the
common stock in the course of hedging the  positions  they  assume.  The Selling
Stockholders  may also sell shares of our common  stock short and deliver  these
securities  to close out their  short  positions,  or loan or pledge  the common
stock to  broker-dealers  that in turn may sell these  securities.  The  Selling
Stockholders   may  also  enter   into   option  or  other   transactions   with
broker-dealers  or other  financial  institutions or the creation of one or more
derivative  securities which require the delivery to such broker-dealer or other
financial  institution of shares offered by this  prospectus,  which shares such
broker-dealer  or  other  financial  institution  may  resell  pursuant  to this
prospectus (as supplemented or amended to reflect such transaction).

      The  Selling  Stockholders  and any  broker-dealers  or  agents  that  are
involved  in selling  the shares may be deemed to be  "underwriters"  within the
meaning of the Securities Act in connection with such sales. In such event,  any
commissions  received  by such  broker-dealers  or agents  and any profit on the
resale  of the  shares  purchased  by  them  may be  deemed  to be  underwriting
commissions or discounts under the Securities Act. Each Selling  Stockholder has
informed  the  Company  that it does not have any  agreement  or  understanding,
directly or indirectly, with any person to distribute the Common Stock.

      The Company is required to pay certain fees and  expenses  incurred by the
Company  incident to the  registration of the shares.  The Company has agreed to
indemnify the Selling Stockholders against certain losses,  claims,  damages and
liabilities, including liabilities under the Securities Act.

      Because Selling Stockholders may be deemed to be "underwriters" within the
meaning of the Securities  Act, they will be subject to the prospectus  delivery
requirements of the Securities Act. In addition,  any securities covered by this
prospectus  which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather  than  under  this  prospectus.  Each  Selling
Stockholder  has  advised  us that they have not  entered  into any  agreements,
understandings or arrangements  with any underwriter or broker-dealer  regarding
the sale of the resale shares.  There is no underwriter or  coordinating  broker
acting in connection  with the proposed sale of the resale shares by the Selling
Stockholders.

      We  agreed  to use  our  commercially  reasonable  efforts  to  keep  this
prospectus  effective  until the earlier of (i) the date on which the shares may
be resold by the Selling Stockholders without registration and without regard to
any volume  limitations by reason of Rule 144(k) under the Securities Act or any
other rule of similar  effect or (ii) all of the shares have been sold  pursuant
to the  prospectus  or Rule 144 under the  Securities  Act or any other  rule of
similar  effect.  The resale  shares  will be sold only  through  registered  or
licensed  brokers or dealers if required under applicable state securities laws.
In addition,  in certain  states,  the resale shares may not be sold unless they
have  been  registered  or  qualified  for  sale in the  applicable  state or an
exemption from the registration or qualification requirement is available and is
complied with.

                                       18
<PAGE>

         Under  applicable  rules and  regulations  under the Exchange  Act, any
person engaged in the  distribution of the resale shares may not  simultaneously
engage in market making activities with respect to our common stock for a period
of two business days prior to the commencement of the distribution. In addition,
the  Selling  Stockholders  will be  subject  to  applicable  provisions  of the
Exchange Act and the rules and regulations  thereunder,  including Regulation M,
which may limit the timing of purchases  and sales of shares of our common stock
by the Selling  Stockholders  or any other  person.  We will make copies of this
prospectus  available to the Selling  Stockholders and have informed them of the
need to deliver a copy of this  prospectus to each  purchaser at or prior to the
time of the sale.

                                       19
<PAGE>

                                     ANNEX B

                           RCG COMPANIES INCORPORATED

                 SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE

      The undersigned beneficial owner of common stock $0.04 par value per share
(the "Common Stock"), of RCG Companies Incorporated, a Delaware corporation (the
"Company"),  (the  "Registrable  Securities")  understands  that the Company has
filed or  intends  to file with the  Securities  and  Exchange  Commission  (the
"Commission")   a  registration   statement  on  Form  S-3  (the   "Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Securities  Act"), of the Registrable  Securities,  in
accordance  with the terms of the  Registration  Rights  Agreement,  dated as of
August ___, 2004 (the "Registration  Rights  Agreement"),  among the Company and
the Purchasers  named therein.  A copy of the  Registration  Rights Agreement is
available  from the Company  upon  request at the address set forth  below.  All
capitalized  terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement.

      Certain   legal   consequences   arise  from  being  named  as  a  selling
securityholder  in  the  Registration  Statement  and  the  related  prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel  regarding the consequences of being
named  or not  being  named  as a  selling  securityholder  in the  Registration
Statement and the related prospectus.

                                     NOTICE

      The  undersigned  beneficial  owner  (the  "Selling   Securityholder")  of
Registrable Securities hereby elects to include the Registrable Securities owned
by it and listed below in Item 3 (unless otherwise  specified under such Item 3)
in the Registration Statement.

                                       20
<PAGE>

The  undersigned  hereby  provides the following  information to the Company and
represents and warrants that such information is accurate:

                                  QUESTIONNAIRE

1.    NAME.

      (a)   Full Legal Name of Selling Securityholder
            ____________________________________________________________________

      (b)   Full Legal Name of Registered  Holder (if not the same as (a) above)
            through  which  Registrable  Securities  Listed  in Item 3 below are
            held:
            ____________________________________________________________________

      (c)   Full Legal Name of Natural  Control  Person  (which  means a natural
            person who directly you indirectly alone or with others has power to
            vote or dispose of the securities covered by the questionnaire):
            ____________________________________________________________________

2.    ADDRESS FOR NOTICES TO SELLING SECURITYHOLDER:

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
Telephone:______________________________________________________________________
Fax:____________________________________________________________________________
Contact Person:_________________________________________________________________

3.    BENEFICIAL OWNERSHIP OF REGISTRABLE SECURITIES:

      (a)   Type and Principal  Amount of  Registrable  Securities  beneficially
            owned:
            ____________________________________________________________________

            ____________________________________________________________________

            ____________________________________________________________________

                                       21

<PAGE>

4.    BROKER-DEALER STATUS:

      (a)   Are you a broker-dealer?

                               Yes [_]         No [_]

      Note: If yes,  the  Commission's  staff has  indicated  that you should be
            identified as an underwriter in the Registration Statement.

      (b)   Are you an affiliate of a broker-dealer?

                               Yes [_]         No [_]

      (c)   If you are an affiliate of a broker-dealer,  do you certify that you
            bought  the  Registrable   Securities  in  the  ordinary  course  of
            business,  and  at  the  time  of the  purchase  of the  Registrable
            Securities to be resold,  you had no  agreements or  understandings,
            directly  or   indirectly,   with  any  person  to  distribute   the
            Registrable Securities?

                               Yes [_]         No [_]

      Note: If no,  the  Commission's  staff has  indicated  that you  should be
            identified as an underwriter in the Registration Statement.

5.    BENEFICIAL  OWNERSHIP  OF OTHER  SECURITIES  OF THE  COMPANY  OWNED BY THE
      SELLING SECURITYHOLDER.

      Exceptas  set  forth  below  in this  Item 5, the  undersigned  is not the
      beneficial or registered owner of any securities of the Company other than
      the Registrable Securities listed above in Item 3.

      (a)   Type  and  Amount  of  Other  Securities  beneficially  owned by the
            Selling Securityholder:

            ____________________________________________________________________

            ____________________________________________________________________

                                       22
<PAGE>

6.    RELATIONSHIPS WITH THE COMPANY:

      Except  as  set  forth  below,  neither  the  undersigned  nor  any of its
      affiliates,  officers, directors or principal equity holders (owners of 5%
      of more of the equity securities of the undersigned) has held any position
      or office or has had any other material  relationship with the Company (or
      its predecessors or affiliates) during the past three years.

      State any exceptions here:

      __________________________________________________________________________

      __________________________________________________________________________

      The undersigned  agrees to promptly notify the Company of any inaccuracies
or changes in the information  provided herein that may occur  subsequent to the
date hereof at any time while the Registration Statement remains effective.

      By signing  below,  the  undersigned  consents  to the  disclosure  of the
information  contained  herein  in its  answers  to  Items 1  through  6 and the
inclusion of such  information  in the  Registration  Statement  and the related
prospectus.  The undersigned  understands  that such  information will be relied
upon by the Company in  connection  with the  preparation  or  amendment  of the
Registration Statement and the related prospectus.

      IN WITNESS WHEREOF the  undersigned,  by authority duly given,  has caused
this Notice and  Questionnaire  to be executed and delivered either in person or
by its duly authorized agent.

Dated:_________________________                Beneficial Owner:________________

                                               By:______________________________
                                                  Name:
                                                  Title:

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED  NOTICE AND  QUESTIONNAIRE,  AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

                                       23EXHIBIT 4.5

                                                                       EXHIBIT A

                           RCG COMPANIES INCORPORATED

                   CERTIFICATE OF DESIGNATION OF PREFERENCES,
                             RIGHTS AND LIMITATIONS
                                       OF
                     SERIES A 6% CONVERTIBLE PREFERRED STOCK

                         PURSUANT TO SECTION 151 OF THE
                        DELAWARE GENERAL CORPORATION LAW

      The  undersigned,  Michael  Pruitt,  Chief  Executive  Officer and Melinda
Morris Zanoni, Secretary, do hereby certify that:

      1.    They are the President and Secretary, respectively, of RCG Companies
Incorporated, a Delaware corporation (the "Corporation").

      2.    The  Corporation  is  authorized  to  issue  10,000,000   shares  of
preferred stock, none of which have been issued.

      3.    The  following  resolutions  were  duly  adopted  by  the  Board  of
Directors:

      WHEREAS,  the Certificate of Incorporation of the Corporation provides for
a  class  of its  authorized  stock  known  as  preferred  stock,  comprised  of
10,000,000  shares,  $0.01 par value,  issuable from time to time in one or more
series;

      WHEREAS,  the Board of Directors of the  Corporation  is authorized to fix
the dividend rights, dividend rate, voting rights, conversion rights, rights and
terms of redemption and liquidation preferences of any wholly unissued series of
preferred  stock and the  number  of  shares  constituting  any  Series  and the
designation thereof, of any of them; and

      WHEREAS,  it is the desire of the Board of Directors  of the  Corporation,
pursuant  to its  authority  as  aforesaid,  to  fix  the  rights,  preferences,
restrictions  and other  matters  relating to a series of the  preferred  stock,
which shall consist of, except as otherwise set forth in the Purchase Agreement,
up to  6,000  shares  of the  preferred  stock  which  the  corporation  has the
authority to issue, as follows:

      NOW,  THEREFORE,  BE IT RESOLVED,  that the Board of Directors does hereby
provide for the issuance of a series of preferred  stock for cash or exchange of
other  securities,  rights or  property  and does hereby fix and  determine  the
rights,  preferences,  restrictions and other matters relating to such series of
preferred stock as follows:

                                       1
<PAGE>

                            TERMS OF PREFERRED STOCK

      Section 1. Designation,  Amount and Ranking. The series of preferred stock
shall  be  designated  as its  Series  A 6%  Convertible  Preferred  Stock  (the
"Preferred  Stock") and the number of shares so designated shall be 6,000 (which
shall not be subject to  increase  without  the consent of all of the holders of
the Preferred Stock (each, a "Holder" and  collectively,  the "Holders")).  Each
share of Preferred  Stock shall have a stated value equal to $1,000 (the "Stated
Value").  Capitalized  terms not otherwise defined herein shall have the meaning
given such terms in Section 8 hereof.

      Section 2. Dividends.

            (a) Holders shall be entitled to receive and the  Corporation  shall
      pay,  cumulative  dividends at the rate per share (as a percentage  of the
      Stated Value per share) of 6% per annum from the date of issuance, payable
      quarterly on March 1, June 1,  September 1 and December 1,  beginning with
      December  1,  2004  and on  any  Conversion  Date  pursuant  to the  terms
      hereunder  (except  that,  if such date is not a Trading  Day, the payment
      date shall be the next succeeding Trading  Day)("Dividend  Payment Date").
      The  form  of  dividend  payments  to  each  Holder  shall  be made in the
      following  order:  (i) if funds are legally  available  for the payment of
      dividends and the Equity  Conditions have not been met, in cash only, (ii)
      if funds are legally available for the payment of dividends and the Equity
      Conditions have been met, at the sole election of the Corporation, in cash
      or shares of Common Stock which shall be valued solely for such purpose at
      90% of the  average  of the 5  VWAPs  immediately  prior  to the  Dividend
      Payment Date; (iii) if funds are not legally  available for the payment of
      dividends  and the Equity  Conditions  have been met,  in shares of Common
      Stock  which  shall  be  valued  at  90%  of the  average  of the 5  VWAPs
      immediately  prior to the  Dividend  Payment  Date;  (iv) if funds are not
      legally  available for the payment of dividends and the Equity  Conditions
      relating  to  registration  have been  waived by such  Holder,  as to such
      Holder only, in unregistered  shares of Common Stock which shall be valued
      at 90% of the  average of the 5 VWAPs  immediately  prior to the  Dividend
      Payment Date;  and (v) if funds are not legally  available for the payment
      of dividends  and the Equity  Conditions  have not been met,  then, at the
      election of such Holder,  such dividends shall accrue to the next Dividend
      Payment Date or shall be accreted to the  outstanding  Stated  Value.  The
      Holders  shall  have the same  rights  and  remedies  with  respect to the
      delivery of any such shares as if such shares were being  issued  pursuant
      to Section 5. As of the Closing Date, the  Corporation is lawfully  unable
      to pay  dividends  in cash.  The  Corporation  shall  promptly  notify the
      Holders at any time the  Corporation  shall become able or unable,  as the
      case  may  be,  to  lawfully  pay  cash  dividends.  If at  any  time  the
      Corporation  has the right to pay dividends in cash or Common  Stock,  the
      Corporation  must provide the Holder with at least 15 Trading Days' notice
      of its  election to pay a regularly  scheduled  dividend in Common  Stock.
      Dividends on the  Preferred  Stock shall be  calculated  on the basis of a
      360-day year,  shall accrue daily  commencing on the Original  Issue Date,
      and  shall be deemed to accrue  from such date  whether  or not  earned or

                                       2
<PAGE>

      declared and whether or not there are  profits,  surplus or other funds of
      the Corporation legally available for the payment of dividends.  Except as
      otherwise  provided herein,  if at any time the Corporation pays dividends
      partially  in cash and  partially in shares,  then such  payment  shall be
      distributed  ratably  among the Holders based upon the number of shares of
      Preferred Stock held by each Holder.  Any dividends,  whether paid in cash
      or  shares,  that are not paid  within  three  Trading  Days  following  a
      Dividend  Payment  Date shall  continue to accrue and shall  entail a late
      fee,  which  must be paid in  cash,  at the  rate of 18% per  annum or the
      lesser rate permitted by applicable  law (such fees to accrue daily,  from
      the Dividend Payment Date through and including the date of payment).

            (b) So long as any Preferred Stock shall remain outstanding, neither
      the  Corporation  nor any  subsidiary  thereof shall  redeem,  purchase or
      otherwise acquire directly or indirectly any Junior Securities. So long as
      any Preferred Stock shall remain outstanding,  neither the Corporation nor
      any  subsidiary  thereof shall  directly or indirectly  pay or declare any
      dividend or make any  distribution  (other than a dividend or distribution
      described in Section 5 or dividends due and paid in the ordinary course on
      preferred  stock of the  Corporation at such times when the Corporation is
      in compliance with its payment and other obligations  hereunder) upon, nor
      shall any  distribution  be made in respect of, any Junior  Securities  so
      long as any dividends  currently due on the Preferred Stock remain unpaid,
      nor shall  any  monies be set aside  for or  applied  to the  purchase  or
      redemption  (through a sinking fund or otherwise) of any Junior Securities
      or shares pari passu with the Preferred Stock.

            (c) The Corporation  acknowledges and agrees that the capital of the
      Corporation  (as  such  term  is  used  in  Section  151  of  the  General
      Corporation  Law of  Delaware) in respect of the  Preferred  Stock and any
      future issuances of the Corporation's  capital stock shall be equal to the
      aggregate par value of such Preferred  Stock or capital stock, as the case
      may be, and that, on or after the date of the Purchase Agreement, it shall
      not increase the capital of the Corporation  with respect to any shares of
      the  Corporation's  capital stock issued and outstanding on such date. The
      Corporation  also  acknowledges  and  agrees  that it shall not create any
      special  reserves  under  Section  171 of the General  Corporation  Law of
      Delaware without the prior written consent of each Holder.

      Section 3.  Voting  Rights.  Except as  otherwise  provided  herein and as
otherwise  required by law,  the  Preferred  Stock shall have no voting  rights.
However,  so  long  as any  shares  of  Preferred  Stock  are  outstanding,  the
Corporation shall not, without the affirmative vote of the Holders of the shares
of the  Preferred  Stock then  outstanding,  (a) alter or change  adversely  the
powers,  preferences  or rights given to the  Preferred  Stock or alter or amend
this  Certificate  of  Designation,  (b)  authorize or create any class of stock
ranking as to dividends, redemption or distribution of assets upon a Liquidation
(as  defined  in  Section  4)  senior  to the  Preferred  Stock,  (c)  amend its
certificate  of  incorporation  or  other  charter  documents  so as  to  affect
adversely  any rights of the  Holders,  (d) increase  the  authorized  number of
shares of Preferred  Stock,  or (e) enter into any agreement with respect to the
foregoing.

                                       3
<PAGE>

      Section 4. Liquidation. Upon any liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary (a "Liquidation"), the Holders
shall be entitled to receive out of the assets of the Corporation,  whether such
assets are capital or surplus, for each share of Preferred Stock an amount equal
to the Stated Value per share plus any accrued and unpaid dividends  thereon and
any other fees or liquidated  damages owing thereon before any  distribution  or
payment shall be made to the holders of any Junior Securities, and if the assets
of the Corporation  shall be insufficient to pay in full such amounts,  then the
entire assets to be distributed  to the Holders shall be  distributed  among the
Holders ratably in accordance with the respective  amounts that would be payable
on such shares if all amounts  payable  thereon were paid in full. A Fundamental
Transaction  or  Change  of  Control  Transaction  shall  not  be  treated  as a
Liquidation.  The Corporation shall mail written notice of any such Liquidation,
not less than 45 days prior to the payment date stated  therein,  to each record
Holder.

      Section 5. Conversion.

            (a) (i)  Conversions  at Option of Holder.  Each share of  Preferred
      Stock  shall be  convertible  into that  number of shares of Common  Stock
      (subject to the limitations set forth in Section  5(a)(ii))  determined by
      dividing  the  Stated  Value of such share of  Preferred  Stock by the Set
      Price, at the option of the Holder, at any time and from time to time from
      and after the Original  Issue Date.  Holders shall effect  conversions  by
      providing  the  Corporation  with the form of conversion  notice  attached
      hereto as Annex A (a "Conversion  Notice").  Each Conversion  Notice shall
      specify  the  number of shares of  Preferred  Stock to be  converted,  the
      number of shares of  Preferred  Stock  owned  prior to the  conversion  at
      issue,  the number of shares of Preferred  Stock owned  subsequent  to the
      conversion  at  issue  and the  date on  which  such  conversion  is to be
      effected, which date may not be prior to the date the Holder delivers such
      Conversion Notice to the Corporation by facsimile (the "Conversion Date").
      If no Conversion Date is specified in a Conversion  Notice, the Conversion
      Date shall be the date that such  Conversion  Notice to the Corporation is
      deemed delivered hereunder.  The calculations and entries set forth in the
      Conversion Notice shall control in the absence of manifest or mathematical
      error.

                  (ii) Beneficial  Ownership  Limitation.  The Corporation shall
            not effect any  conversion  of the Preferred  Stock,  and the Holder
            shall not have the right to convert  any  portion  of the  Preferred
            Stock to the extent that after giving effect to such conversion, the
            Holder (together with the Holder's affiliates),  as set forth on the
            applicable  Conversion  Notice,  would beneficially own in excess of
            4.99% of the  number  of  shares  of the  Common  Stock  outstanding
            immediately after giving effect to such conversion.  For purposes of
            the  foregoing  sentence,  the  number of  shares  of  Common  Stock

                                       4
<PAGE>

            beneficially  owned by the Holder and its  affiliates  shall include
            the number of shares of Common Stock issuable upon conversion of the
            Preferred  Stock  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)  conversion  of the
            remaining, nonconverted Stated Value of Preferred Stock 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 Corporation  (including the 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  5(a)(ii),  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  5(a)(ii)
            applies,  the  determination  of  whether  the  Preferred  Stock  is
            convertible  (in  relation to other  securities  owned by the Holder
            together with any affiliates) and of which shares of Preferred Stock
            is convertible  shall be in the sole discretion of such Holder,  and
            the  submission  of a  Conversion  Notice shall be deemed to be such
            Holder's  determination of whether the shares of Preferred Stock may
            be converted (in relation to other  securities owned by such Holder)
            and which shares of the Preferred Stock is convertible, in each case
            subject  to  such  aggregate  percentage   limitations.   To  ensure
            compliance  with  this  restriction,  the  Holder  will be deemed to
            represent  to the  Corporation  each time it  delivers a  Conversion
            Notice that such Conversion Notice has not violated the restrictions
            set  forth  in this  paragraph  and the  Corporation  shall  have no
            obligation to verify or confirm the accuracy of such  determination.
            For purposes of this Section 5(a)(ii),  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 the
            most recent of the following: (A) the Corporation's most recent Form
            10-Q or Form  10-K,  as the case may be,  (B) a more  recent  public
            announcement  by the  Corporation or (C) any other written notice by
            the  Corporation or the  Corporation's  transfer agent setting forth
            the number of shares of Common Stock  outstanding.  Upon the written
            or oral  request of the Holder,  the  Corporation  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
            Corporation,  including  the Preferred  Stock,  by the Holder or its
            affiliates  since the date as of which  such  number of  outstanding
            shares of Common Stock was reported.

                  (iii) Limitation on Number of Shares Issuable. Notwithstanding
            anything herein to the contrary,  the Corporation shall not issue to
            any Holder any shares of Common  Stock,  including  pursuant  to any
            rights herein, including,  without limitation, any conversion rights
            or right to issue shares of Common Stock in payment of dividends, to
            the extent such shares, when added to the number of shares of Common

                                       5
<PAGE>

            Stock  previously  issued upon conversion of any shares of Preferred
            Stock pursuant to Section  5(a)(i) would exceed  3,875,188,  or such
            greater  or  lesser  number of  shares  of  Common  Stock  permitted
            pursuant to the corporate  governance  rules of the Principal Market
            that is at the time the principal trading exchange or market for the
            Common Stock,  based upon share  volume,  as confirmed in writing by
            counsel to the Corporation  (subject to increase or decrease only to
            account  for  stock  splits,  reverse  splits  and like  adjustments
            occurring  after the Closing  Date) (the  "Maximum  Aggregate  Share
            Amount"),  unless the Corporation first obtains shareholder approval
            permitting  such issuances in accordance  with the Principal  Market
            rules ("Shareholder Approval"). On any given date, each Holder shall
            be entitled to a portion of the Maximum Aggregate Share Amount equal
            to the product of (y) the fraction determined by dividing the number
            of shares of  Preferred  Stock  then held by such  Holder as of such
            date by the  aggregate  number of shares  held by all  Holders as of
            such date and (z) the difference between the Maximum Aggregate Share
            Amount  and the  number of shares of  Common  Stock  issued,  in the
            aggregate  among  all  Holders,   pursuant  to  any  conversions  of
            Preferred  Stock or exercises of Warrants  prior to such date. If at
            any  time  the  number  of  shares  of  Common  Stock  which  could,
            notwithstanding  the  limitation  set forth herein,  be issuable and
            sold to all Holders  during the  following 12 months  (assuming  all
            dividends  are paid in shares of Common  Stock during such period of
            determination   based  upon  the  VWAP  at  the  time  of  any  such
            determination) equals or exceeds the Maximum Aggregate Share Amount,
            then the  Corporation  shall,  subject  to any  requirements  in the
            Purchase  Agreement to act sooner,  obtain the Shareholder  Approval
            applicable to such issuance as soon as is possible, but in any event
            not later than the 90th day after the date in which the  Corporation
            determines (or is notified by any Holder) that the Maximum Aggregate
            Share Amount could be exceeded and shall  continue to seek to obtain
            Shareholder  Approval every 90 days until such Shareholder  Approval
            is obtained.

                  (iv) Forced Conversion. Notwithstanding anything herein to the
            contrary,  if after the  Effective  Date the VWAP for each of any 10
            consecutive Trading Days ("Threshold Period"),  which 10 consecutive
            Trading Day period  shall have  commenced  only after the  Effective
            Date,  exceeds 200% of the then effective Set Price (defined below),
            the  Company  may,  within 2 Trading  Days after any such  Threshold
            Period,  deliver  a notice  to all  Holders  (a  "Forced  Conversion
            Notice" and the date such notice is  received  by the  Holders,  the
            "Forced Conversion Notice Date") to cause the Holders to immediately
            convert  all or part of the then  outstanding  shares  of  Preferred
            Stock pursuant to Section 5 and the Holders shall  surrender (if all
            Preferred Stock is converted) their  respective  shares of Preferred
            Stock to the Company  for  conversion  within 5 Trading  Days of the
            Forced  Conversion Notice Date. The Company may only effect a Forced
            Conversion  Notice  if all of the  Equity  Conditions  have been met
            during the Threshold  Period  through the Forced  Conversion  Notice
            Date. Any Forced Conversion  Notices shall be applied ratably to all
            of the Holders in  proportion to each Holders  initial  purchases of
            Preferred Stock hereunder.

                                       6
<PAGE>

            (b) (i) Not later than three Trading Days after each Conversion Date
      (the "Share Delivery Date"),  the Corporation  shall deliver to the Holder
      (A) a certificate or certificates  which,  after the Effective Date, shall
      be free of restrictive legends and trading  restrictions (other than those
      required by Section 4.1 of the Purchase Agreement) representing the number
      of shares of Common Stock being  acquired upon the conversion of shares of
      Preferred  Stock, and (B) a bank check in the amount of accrued and unpaid
      dividends  (if the  Corporation  has elected or is required to pay accrued
      dividends  in cash and is  permitted  to make  such  payment).  After  the
      Effective Date, the Corporation shall, upon request of the Holder, deliver
      any  certificate  or   certificates   required  to  be  delivered  by  the
      Corporation under this Section electronically through the Depository Trust
      Corporation or another established clearing corporation performing similar
      functions.  If in the case of any  Conversion  Notice such  certificate or
      certificates are not delivered to or as directed by the applicable  Holder
      by the third Trading Day after the  Conversion  Date,  the Holder shall be
      entitled to elect by written  notice to the  Corporation at any time on or
      before its receipt of such  certificate  or  certificates  thereafter,  to
      rescind such conversion,  in which event the Corporation shall immediately
      return  the  certificates  representing  the  shares  of  Preferred  Stock
      tendered for conversion.

                  (ii) The  Corporation's  obligations  to issue and deliver the
            Conversion  Shares upon  conversion of Preferred Stock in accordance
            with the terms hereof are absolute and  unconditional,  irrespective
            of any action or  inaction  by the Holder to enforce  the same,  any
            waiver or consent with respect to any provision hereof, the recovery
            of any  judgment  against  any Person or any  action to enforce  the
            same,  or  any  setoff,  counterclaim,   recoupment,  limitation  or
            termination,  or any breach or  alleged  breach by the Holder or any
            other Person of any  obligation to the  Corporation or any violation
            or alleged  violation of law by the Holder or any other person,  and
            irrespective of any other  circumstance  which might otherwise limit
            such  obligation of the Corporation to the Holder in connection with
            the issuance of such Conversion  Shares. In the event a Holder shall
            elect to  convert  any or all of the Stated  Value of its  Preferred
            Stock, the Company may not refuse conversion based on any claim that
            such Holder or any one  associated or affiliated  with the Holder of
            has been engaged in any violation of law, agreement or for any other
            reason,  unless, an injunction from a court, on notice,  restraining
            and or enjoining  conversion of all or part of this Debenture  shall
            have been sought and  obtained  and the Company  posts a surety bond

                                       7
<PAGE>

            for the  benefit  of the  Holder in the amount of 150% of the Stated
            Value  of  Preferred  Stock  outstanding,  which is  subject  to the
            injunction,  which bond shall remain in effect until the  completion
            of  arbitration/litigation  of the dispute and the proceeds of which
            shall be payable to such  Holder to the extent it obtains  judgment.
            In the absence of an  injunction  precluding  the same,  the Company
            shall  issue  Conversion  Shares  or, if  applicable,  cash,  upon a
            properly noticed conversion.  If the Corporation fails to deliver to
            the Holder  such  certificate  or  certificates  pursuant to Section
            5(b)(i) by the Share  Delivery Date  applicable to such  conversion,
            the  Corporation  shall pay to such Holder,  in cash,  as liquidated
            damages  and not as a penalty,  for each  $5,000 of Stated  Value of
            Preferred Stock being converted,  $50 per Trading Day (increasing to
            $100 per Trading Day after 3 Trading Days and increasing to $200 per
            Trading Day 6 Trading Days after such  damages  begin to accrue) for
            each  Trading  Day  after  the  Share   Delivery   Date  until  such
            certificates  are  delivered.  Nothing herein shall limit a Holder's
            right to pursue  actual  damages  for the  Corporation's  failure to
            deliver  certificates  representing  shares  of  Common  Stock  upon
            conversion  within the period specified herein and such Holder shall
            have the right to pursue all remedies available to it hereunder,  at
            law or in equity including, without limitation, a decree of specific
            performance and/or injunctive relief.

                  (iii) If the  Corporation  fails to deliver to the Holder such
            certificate or  certificates  pursuant to Section 5(b)(i) by a Share
            Delivery  Date,  and if after  such Share  Delivery  Date the Holder
            purchases (in an open market  transaction or otherwise) Common Stock
            to  deliver  in  satisfaction  of a  sale  by  such  Holder  of  the
            Conversion  Shares which the Holder was entitled to receive upon the
            conversion  relating to such Share Delivery Date (a "Buy-In"),  then
            the Corporation  shall pay in cash to the Holder the amount by which
            (x)  the  Holder's  total  purchase   price   (including   brokerage
            commissions,  if any) for the Common Stock so purchased  exceeds (y)
            the product of (1) the  aggregate  number of shares of Common  Stock
            that such Holder was  entitled  to receive  from the  conversion  at
            issue  multiplied  by (2) the price at which the sell  order  giving
            rise to such purchase  obligation was executed.  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 conversion of
            shares of Preferred  Stock with respect to which the aggregate  sale
            price  giving rise to such  purchase  obligation  is $10,000,  under
            clause (A) of the  immediately  preceding  sentence the  Corporation
            shall be required to pay the Holder $1,000. The Holder shall provide
            the Corporation written notice indicating the amounts payable to the
            Holder  in  respect  of  the  Buy-In,   together   with   applicable

                                       8
<PAGE>

            confirmations  and  other  evidence  reasonably   requested  by  the
            Corporation.  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 Corporation's  failure
            to timely deliver  certificates  representing shares of Common Stock
            upon  conversion  of the  shares  of  Preferred  Stock  as  required
            pursuant to the terms hereof.

            (c) (i) The  conversion  price shall equal $0.94 (the "Set  Price"),
      subject to adjustment below.

                  (ii) if the Corporation, at any time while the Preferred Stock
            is  outstanding:  (A) shall pay a stock dividend or otherwise make a
            distribution or  distributions  on shares of its Common Stock or any
            other equity or equity  equivalent  securities  payable in shares of
            Common Stock, (B) subdivide  outstanding shares of Common Stock into
            a larger number of shares,  (C) combine (including by way of reverse
            stock  split)  outstanding  shares  of Common  Stock  into a smaller
            number of shares, or (D) issue by  reclassification of shares of the
            Common Stock any shares of capital  stock of the  Corporation,  then
            the Set  Price  shall be  multiplied  by a  fraction  of  which  the
            numerator shall be the number of shares of Common Stock  Outstanding
            before such event and of which the  denominator  shall be the number
            of  shares  of  Common  Stock  Outstanding  after  such  event.  Any
            adjustment  made  pursuant to this Section  shall  become  effective
            immediately   after  the  record  date  for  the   determination  of
            stockholders  entitled to receive such dividend or distribution  and
            shall become effective  immediately  after the effective date in the
            case of a subdivision, combination or reclassification.

                  (iii) if the  Corporation,  at any time  while  the  Preferred
            Stock is outstanding, shall issue rights, options or warrants to all
            holders  of Common  Stock  (and not to  Holders)  entitling  them to
            subscribe  for or  purchase  shares of  Common  Stock at a price per
            share less than the VWAP at the record date  mentioned  below,  then
            the Set  Price  shall be  multiplied  by a  fraction,  of which  the
            denominator  shall be the  number  of  shares  of the  Common  Stock
            Outstanding  on the date of issuance of such rights or warrants plus
            the  number  of  additional  shares  of  Common  Stock  offered  for
            subscription  or purchase,  and of which the numerator  shall be the
            number of  shares of the  Common  Stock  Outstanding  on the date of
            issuance of such rights or warrants  plus the number of shares which
            the  aggregate  offering  price of the  total  number  of  shares so
            offered  (assuming  receipt  by  the  Corporation  in  full  of  all
            consideration  payable  upon  exercise  of such  rights,  options or
            warrants) would purchase at such VWAP. Such adjustment shall be made
            whenever  such  rights or  warrants  are  issued,  and shall  become
            effective immediately after the record date for the determination of
            stockholders entitled to receive such rights, options or warrants.

                                       9
<PAGE>

                  (iv) if the Corporation or any subsidiary  thereof at any time
            while any of the Preferred Stock is outstanding,  shall sell,  grant
            any  option or  warrant  to  purchase  or sell or grant any right to
            reprice its securities,  or otherwise dispose of or issue any Common
            Stock or any equity or equity equivalent  securities  (including any
            equity,  debt or other  instrument that is at any time over the life
            thereof   convertible   into  or  exchangeable   for  Common  Stock)
            (collectively,  "Common Stock Equivalents")  entitling any Person to
            acquire shares of Common Stock, at an effective price per share less
            than the Set Price (a "Dilutive  Issuance"),  as adjusted  hereunder
            (if the holder of the Common  Stock or Common  Stock  Equivalent  so
            issued shall at any time,  whether by  operation  of purchase  price
            adjustments,  reset  provisions,  floating  conversion,  exercise or
            exchange prices or otherwise, or due to warrants,  options or rights
            per share  which are issued in  connection  with such  issuance,  be
            entitled  to  receive  shares of  Common  Stock at a price per share
            which is less than the Set Price,  such issuance  shall be deemed to
            have occurred for less than the Set Price), then the Set Price shall
            be reduced to equal the effective  conversion,  exchange or purchase
            price for such Common Stock or Common Stock  Equivalents  (including
            any reset  provisions  thereof) at issue.  Such adjustment  shall be
            made  whenever  such Common  Stock or Common Stock  Equivalents  are
            issued. The Corporation shall notify the Holder in writing, no later
            than the second  Trading Day  following  the  issuance of any Common
            Stock or Common Stock Equivalent subject to this section, indicating
            therein the applicable issuance price, or of applicable reset price,
            exchange  price,  conversion  price and  other  pricing  terms.  For
            purposes of this subsection,  a Dilutive Issuance shall be deemed to
            have  occurred  when  binding  agreements  have  been  closed by the
            Corporation and any purchaser therein.

                  (v) if the Corporation,  at any time while the Preferred Stock
            is outstanding, shall distribute to all holders of Common Stock (and
            not to Holders) evidences of its indebtedness or assets or rights or
            warrants to subscribe  for or purchase  any security  other than the
            Common Stock (which shall be subject to Section  5(c)(iii),  then in
            each such case the Set Price shall be adjusted  by  multiplying  the
            Set Price in effect  immediately  prior to the record date fixed for
            determination of stockholders  entitled to receive such distribution
            by a fraction of which the denominator  shall be the VWAP determined
            as of the record date  mentioned  above,  and of which the numerator
            shall be such VWAP on such  record date less the then per share fair
            market  value at such  record  date of the portion of such assets or
            evidence  of   indebtedness   so   distributed   applicable  to  one
            outstanding  share of the Common Stock as determined by the Board of
            Directors  in good faith.  In either case the  adjustments  shall be
            described  in a statement  provided to the Holders of the portion of
            assets  or  evidences  of   indebtedness   so  distributed  or  such
            subscription  rights  applicable to one share of Common Stock.  Such
            adjustment shall be made whenever any such  distribution is made and
            shall become effective  immediately  after the record date mentioned
            above.

                                       10
<PAGE>

                  (vi) All calculations under this Section 5(c) shall be made to
            the nearest cent or the nearest  1/100th of a share, as the case may
            be. The number of shares of Common  Stock  outstanding  at any given
            time shall not include shares owned or held by or for the account of
            the  Corporation,  and the  disposition  of any such shares shall be
            considered  an issue or sale of Common  Stock.  For purposes of this
            Section  5(c),  the  number of shares of Common  Stock  deemed to be
            outstanding  (the  "Common  Stock  Outstanding")  as of a given date
            shall be the sum of the number of shares of Common Stock  (excluding
            treasury shares, if any) issued and outstanding.

                  (vii)  Notwithstanding  anything to the  contrary  herein,  no
            adjustment  shall be made  hereunder  in  connection  with an Exempt
            Issuance.

                  (viii)  Whenever  the Set Price is  adjusted  pursuant to this
            Section the Corporation shall promptly,  but in no event more than 2
            Trading Days after the occurrence of such  adjustment,  mail to each
            Holder,  a notice setting forth the Set Price after such  adjustment
            and setting  forth a brief  statement  of the facts  requiring  such
            adjustment.

      Section 6. [INTENTIONALLY OMMITED]

      Section 7. Redemption Upon Triggering Events.

            (a) Upon the occurrence of a Triggering Event, each Holder shall (in
      addition to all other  rights it may have  hereunder  or under  applicable
      law) have the right,  exercisable  at the sole option of such  Holder,  to
      require the  Corporation to redeem all of the Preferred Stock then held by
      such  Holder for a  redemption  price,  in cash,  equal to the  Triggering
      Redemption  Amount.  The  Triggering  Redemption  Amount  shall be due and
      payable  within 5  Trading  Days of the date on which the  notice  for the
      payment  therefor  is provided  by a Holder  (the  "Triggering  Redemption
      Payment Date"). If the Corporation fails to pay the Triggering  Redemption
      Amount  hereunder in full pursuant to this Section on the date such amount
      is due in accordance with this Section,  the Corporation will pay interest
      thereon at a rate of 18% per annum (or such  lesser  amount  permitted  by
      applicable  law),  accruing  daily  from  such date  until the  Triggering
      Redemption  Amount,  plus all such interest thereon,  is paid in full. For
      purposes of this Section,  a share of Preferred Stock is outstanding until
      such date as the Holder  shall have  received  the  Triggering  Redemption
      Amount plus all accrued  but unpaid  dividends  and all accrued but unpaid
      liquidated damages in cash.

                                       11
<PAGE>

            (b) "Triggering Event" means any one or more of the following events
      (whatever the reason and whether it shall be voluntary or  involuntary  or
      effected by operation of law or pursuant to any judgment,  decree or order
      of any court, or any order,  rule or regulation of any  administrative  or
      governmental body):

                  (i) the failure of a Conversion Shares Registration  Statement
            to be declared  effective by the Commission on or prior to the 180th
            day after the Original Issue Date;

                  (ii) if, during the Effectiveness Period, the effectiveness of
            the Conversion Shares  Registration  Statement lapses for any reason
            for more than an  aggregate  of 60 calendar  days (which need not be
            consecutive  days) during any 12 month  period,  or the Holder shall
            not  be  permitted  to  resell  Registrable   Securities  under  the
            Conversion Shares  Registration  Statement other than as a result of
            any action or inaction of a Holder for more than an  aggregate of 60
            calendar  days (which need not be  consecutive  days)  during any 12
            month period;

                  (iii)  the  Corporation  shall  fail to  deliver  certificates
            representing  Conversion Shares issuable upon a conversion hereunder
            that comply with the provisions hereof prior to the 10th Trading Day
            after such shares are  required to be  delivered  hereunder,  or the
            Corporation shall provide written notice to any Holder, including by
            way of public  announcement,  at any time,  of its  intention not to
            comply with requests for conversion of any shares of Preferred Stock
            in accordance with the terms hereof;

                  (iv) one of the Events (as defined in the Registration  Rights
            Agreement)  described in subsections  (i) or (ii) of Section 2(b) of
            the  Registration  Rights Agreement shall not have been cured to the
            satisfaction  of the Holders prior to the expiration of 15 days from
            the Event Date (as  defined in the  Registration  Rights  Agreement)
            relating  thereto (other than an Event resulting from a failure of a
            Conversion Shares Registration Statement to be declared effective by
            the Commission on or prior to the 180th day after the Original Issue
            Date, which shall be covered by Section 7(b)(i));

                  (v) the  Corporation  shall fail for any reason to pay in full
            the amount of cash due  pursuant to a Buy-In  within 5 Trading  Days
            after notice  therefor is  delivered  hereunder or shall fail to pay
            all amounts owed on account of an Event within five days of the date
            due;

                  (vi) the Corporation shall fail to have available a sufficient
            number of authorized and unreserved  shares of Common Stock to issue
            to such Holder upon a conversion  hereunder  unless the  Corporation
            has complied with Section 4.10(b) of the Purchase Agreement;

                                       12
<PAGE>

                  (vii) the  Corporation  shall fail to  observe or perform  any
            other  material  covenant,  agreement or warranty  contained  in, or
            otherwise commit any breach of the Transaction  Documents,  and such
            material  failure or breach shall not, if subject to the possibility
            of a cure by the Corporation,  have been remedied within 30 calendar
            days  after  the date on which  written  notice of such  failure  or
            breach shall have been given;

                  (ix) the  Company  shall be a party to any  Change of  Control
            Transaction or the  Corporation  shall redeem more than a de minimis
            number of Junior Securities;

                  (x) there shall have occurred a Bankruptcy Event;

                  (xi) any breach of the  agreements  delivered  to the  initial
            Holders at the Closing pursuant to Section 2.2(a)(v) of the Purchase
            Agreement; or

                  (xi) the  Common  Stock  shall fail to be listed or quoted for
            trading  on a Trading  Market  for more than 5  consecutive  Trading
            Days.

      Section 8. Definitions. For the purposes hereof, the following terms shall
have the following meanings:

            "Bankruptcy  Event"  means  any of the  following  events:  (a)  the
      Corporation or any Significant Subsidiary (as such term is defined in Rule
      1.02(s) of Regulation  S-X) thereof  commences a case or other  proceeding
      under any  bankruptcy,  reorganization,  arrangement,  adjustment of debt,
      relief of debtors,  dissolution,  insolvency or liquidation or similar law
      of any  jurisdiction  relating  to  the  Corporation  or  any  Significant
      Subsidiary thereof;  (b) there is commenced against the Corporation or any
      Significant  Subsidiary  thereof any such case or  proceeding  that is not
      dismissed  within 60 days after  commencement;  (c) the Corporation or any
      Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any
      order of relief or other order  approving  any such case or  proceeding is
      entered; (d) the Corporation or any Significant Subsidiary thereof suffers
      any  appointment  of any  custodian or the like for it or any  substantial
      part of its property that is not  discharged or stayed within 60 days; (e)
      the  Corporation  or any  Significant  Subsidiary  thereof makes a general
      assignment  for the  benefit  of  creditors;  (f) the  Corporation  or any
      Significant  Subsidiary  thereof calls a meeting of its  creditors  with a
      view to arranging a composition, adjustment or restructuring of its debts;
      or (g) the Corporation or any Significant  Subsidiary  thereof, by any act
      or failure to act,  expressly  indicates  its consent  to,  approval of or
      acquiescence  in any of the  foregoing  or takes  any  corporate  or other
      action for the purpose of effecting any of the foregoing.

            "Change of Control  Transaction" means the occurrence after the date
      hereof of any of (a) an acquisition after the date hereof by an individual
      or legal entity or "group" (as described in Rule  13d-5(b)(1)  promulgated
      under the Exchange  Act) of effective  control  (whether  through legal or

                                       13
<PAGE>

      beneficial  ownership of capital stock of the Corporation,  by contract or
      otherwise)  of  in  excess  of  50%  of  the  voting   securities  of  the
      Corporation,  or (b) a replacement at one time or within a one year period
      of more  than  one-half  of the  members  of the  Corporation's  board  of
      directors which is not approved by a majority of those individuals who are
      members  of the  board  of  directors  on the  date  hereof  (or by  those
      individuals  who are serving as members of the board of  directors  on any
      date whose nomination to the board of directors was approved by a majority
      of the  members  of the board of  directors  who are  members  on the date
      hereof),  or (c) the execution by the Corporation of an agreement to which
      the  Corporation is a party or by which it is bound,  providing for any of
      the events set forth above in (a) or (b).

            "Closing"  means  closing of the purchase and sale of the  Preferred
      Stock.

            "Commission" means the Securities and Exchange Commission.

            "Common Stock" means the Corporation's common stock, par value $0.04
      per  share,  and stock of any other  class  into  which  such  shares  may
      hereafter have been reclassified or changed.

            "Common  Stock  Outstanding"  shall  have the  meaning  set forth in
      Section 5(c)(vi).

            "Conversion Amount" means the sum of the Stated Value at issue.

            "Conversion  Date"  shall  have the  meaning  set  forth in  Section
      5(b)(i).

            "Conversion Shares" means, collectively,  the shares of Common Stock
      into which the shares of Preferred  Stock are  convertible  in  accordance
      with the terms hereof.

            "Conversion  Shares  Registration  Statement"  means a  registration
      statement that meets the requirements of the Registration Rights Agreement
      and registers the resale of all Conversion Shares by the Holder, who shall
      be named as a "selling  stockholder"  thereunder,  all as  provided in the
      Registration Rights Agreement.

            "Dividend  Payment Date" shall have the meaning set forth in Section
      2(a).

            "Effective   Date"  means  the  date  that  the  Conversion   Shares
      Registration Statement is declared effective by the Commission.

            "Equity  Conditions"  Unless  waived by a Holder as to a  particular
      event  (which  waiver shall apply only to such  Holder),  as of such event
      date, the following  conditions have been met: (i) the  Corporation  shall
      have duly honored or cured all conversions scheduled to occur or occurring
      prior  to  such  date,  (ii)  there  is  an  effective  Conversion  Shares
      Registration  Statement  pursuant to which the Holders  are  permitted  to
      utilize the prospectus  thereunder to resell all of the Conversion  Shares

                                       14
<PAGE>

      issued to the Holders and all of the Conversion  Shares as are issuable to
      the  Holders  upon  conversion  in  full  of the  Preferred  Stock  or the
      Conversion  Shares are  available  for resale  under Rule  144(k) (and the
      Corporation believes, in good faith, that such effectiveness will continue
      uninterrupted  for the  foreseeable  future),  (iii) the  Common  Stock is
      listed for trading on the Trading Market (and the Corporation believes, in
      good faith,  that trading of the Common  Stock on the Trading  Market will
      continue  uninterrupted for the foreseeable  future),  (iv) all liquidated
      damages and other  amounts  owing  including  dividends  in respect of the
      Preferred  Stock  shall  have  been  paid or will,  concurrently  with the
      issuance  of the  Conversion  Shares,  be paid in  cash;  (v)  there  is a
      sufficient  number of  authorized  but unissued and  otherwise  unreserved
      shares of Common  Stock for the issuance of all the  Conversion  Shares as
      are issuable to the Holder upon conversion in full of the Preferred Stock;
      (vi) no Triggering Event has occurred and is continuing;  (vii) all of the
      Conversion  Shares  issuable to the Holder upon  conversion in full of the
      Preferred  Stock will not  violate the  limitations  set forth in Sections
      5(a)(ii) or 5(a)(iii);  and (viii) no public  announcement of a pending or
      proposed  Fundamental  Transaction  or Change of Control  Transaction  has
      occurred that has not been consummated.

            "Exchange  Act"  means  the  Securities  Exchange  Act of  1934,  as
      amended.

            "Forced  Conversion  Notice"  shall  have the  meaning  set forth in
      Section 5(a)(iv).

            "Forced  Conversion Notice Date" shall have the meaning set forth in
      Section 5(a)(iv).

            "Fundamental Transaction" means the occurrence after the date hereof
      of any of (a) the Corporation  effects any merger or  consolidation of the
      Corporation with or into another Person,  in which it is not the surviving
      entity, or the Corporation's then existing shareholders will own less than
      51% of the surviving entity,  (b) the Corporation  effects any sale of all
      or  substantially  all  of  its  assets  in one  or a  series  of  related
      transactions,  (c) any tender  offer or  exchange  offer  (whether  by the
      Corporation or another  Person) is completed  pursuant to which holders of
      Common Stock are  permitted  to tender or exchange  their shares for other
      securities,  cash or  property,  the result of which to the  Corporation's
      shareholders  at such time own less than 51% of the shares of Common Stock
      of the Corporation, or (d) the Corporation effects any reclassification of
      the Common Stock or any compulsory  share  exchange  pursuant to which the
      Common  Stock  is  effectively  converted  into  or  exchanged  for  other
      securities, cash or property.

            "Holder" shall have the meaning given such term in Section 1 hereof.

            "Junior  Securities"  means the Common Stock and all other equity or
      equity   equivalent   securities  of  the  Corporation  other  than  those
      securities  that are (a)  outstanding  on the Original  Issue Date and (b)
      which are  explicitly  senior in rights or  liquidation  preference to the
      Preferred Stock.

                                       15
<PAGE>

            "Original  Issue Date" shall mean the date of the first  issuance of
      any shares of the Preferred Stock regardless of the number of transfers of
      any particular  shares of Preferred  Stock and regardless of the number of
      certificates which may be issued to evidence such Preferred Stock.

            "Person"  means a corporation,  an  association,  a partnership,  an
      organization,  a  business,  an  individual,  a  government  or  political
      subdivision thereof or a governmental agency.

            "Purchase Agreement" means the Securities Purchase Agreement,  dated
      as of the Original Issue Date, to which the  Corporation  and the original
      Holders are parties,  as amended,  modified or  supplemented  from time to
      time in accordance with its terms.

            "Registration   Rights  Agreement"  means  the  Registration  Rights
      Agreement,  dated as of the Original Issue Date, to which the  Corporation
      and the original Holders are parties, as amended, modified or supplemented
      from time to time in accordance with its terms.

            "Securities Act" means the Securities Act of 1933, as amended.

            "Set Price" shall have the meaning set forth in Section 5(c)(i).

            "Trading  Day" shall mean any day during  which the  Trading  Market
      shall be open for business.

            "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"  shall mean the Purchase  Agreement and all
      agreements   entered  into  in   connection   therewith,   including   the
      Registration Rights Agreement and the Warrants.

            "Triggering Event" shall have the meaning set forth in Section 7(b).

            "Triggering  Redemption  Amount" for each share of  Preferred  Stock
      means the sum of (i) the  greater of (A) 120% of the Stated  Value and (B)
      the product of (a) the VWAP on the Trading Day  immediately  preceding the
      date of the Triggering  Event and (b) the Stated Value divided by the then
      Set Price,  (ii) all  accrued but unpaid  dividends  thereon and (iii) all
      liquidated damages and other amounts due in respect of the Preferred Stock

                                       16
<PAGE>

            "VWAP" means, for any date, the price determined by the first of the
      following clauses that applies:  (a) if the Common Stock is then listed or
      quoted on a Principal  Market,  the daily volume weighted average price of
      the  Common  Stock for such date (or the  nearest  preceding  date) on the
      Principal  Market on which the  Common  Stock is then  listed or quoted as
      reported by  Bloomberg  Financial  L.P.  (based on a Trading Day from 9:30
      a.m.  Eastern Time to 4:02 p.m.  Eastern Time); (b) if the Common Stock is
      not then  listed or quoted on a  Principal  Market  and if prices  for the
      Common  Stock  are then  quoted  on the OTC  Bulletin  Board,  the  volume
      weighted  average  price of the Common Stock for such date (or the nearest
      preceding date) on the OTC Bulletin Board;  (c) if the Common Stock is not
      then  listed  or quoted on the OTC  Bulletin  Board 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 (c) in all other
      cases,  the fair market value of a share of Common Stock as  determined by
      an  independent  appraiser  selected in good faith by the  Purchasers  and
      reasonably acceptable to the Company.

      Section 9. Fundamental Transactions.  If a Fundamental Transaction occurs,
then upon any  subsequent  conversion of shares of Preferred  Stock,  the Holder
shall have the right to receive,  for each Conversion Share that would have been
issuable upon such conversion absent such Fundamental Transaction, the same kind
and amount of  securities,  cash or property  as it would have been  entitled to
receive upon the  occurrence  of such  Fundamental  Transaction  if it had been,
immediately  prior to such Fundamental  Transaction,  the holder of one share of
Common  Stock  (the  "Alternate  Consideration").   For  purposes  of  any  such
conversion,  the determination of the Set Price shall be appropriately  adjusted
to apply  to such  Alternate  Consideration  based on the  amount  of  Alternate
Consideration  issuable  in  respect  of one  share  of  Common  Stock  in  such
Fundamental Transaction, and the Corporation shall apportion the Set Price among
the Alternate Consideration in a reasonable manner reflecting the relative value
of any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received
in a Fundamental Transaction,  then the Holder shall be given the same choice as
to the  Alternate  Consideration  it receives  upon any  conversion of shares of
Preferred Stock following such Fundamental Transaction.  To the extent necessary
to effectuate  the foregoing  provisions,  any successor to the  Corporation  or
surviving entity in such Fundamental  Transaction  shall issue to the Holder new
preferred  stock  consistent  with the foregoing  provisions  and evidencing the
Holder's right to convert such preferred stock into Alternate Consideration. The
terms of any agreement  pursuant to which a Fundamental  Transaction is effected
shall include terms  requiring any such successor or surviving  entity to comply
with the provisions of this Section 9 and insuring that the Preferred  Stock (or
any such  replacement  security) will be similarly  adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.

                                       17
<PAGE>

      Section 10. Miscellaneous.

            (a) If (i) the  Corporation  shall  declare a dividend (or any other
      distribution)  on the Common Stock,  (ii) the Corporation  shall declare a
      special nonrecurring cash dividend on or a redemption of the Common Stock,
      (iii) the  Corporation  shall  authorize  the  granting  to all holders of
      Common Stock rights or warrants to subscribe for or purchase any shares of
      capital  stock of any class or of any  rights,  (iv) the  approval  of any
      stockholders of the  Corporation  shall be required in connection with any
      Fundamental  Transaction  or Change  of  Control  Transaction,  or (v) the
      Corporation  shall  authorize  the voluntary or  involuntary  dissolution,
      liquidation  or winding up of the  affairs  of the  Corporation;  then the
      Corporation  shall file a press  release or Current  Report on Form 8-K to
      disclose such occurrence and notify the Holders at their last addresses as
      they shall  appear  upon the stock books of the  Corporation,  at least 20
      calendar days prior to the applicable record or effective date hereinafter
      specified,  a notice stating (x) the date on which a record is to be taken
      for the  purpose of such  dividend,  distribution,  redemption,  rights or
      warrants,  or if a record  is not to be  taken,  the date as of which  the
      holders  of  Common  Stock of  record  to be  entitled  to such  dividend,
      distributions,  redemption, rights or warrants are to be determined or (y)
      the date on which any such  Fundamental  Transaction  or Change of Control
      Transaction is expected to become  effective or close,  and the date as of
      which it is  expected  that  holders  of Common  Stock of record  shall be
      entitled to exchange  their  Common  Stock for  securities,  cash or other
      property  deliverable upon any such  Fundamental  Transaction or Change of
      Control Transaction.  Subject to the applicable laws, Holders are entitled
      to convert the  Conversion  Amount of  Preferred  Stock  during the 20-day
      period  commencing  the date of such notice to the  effective  date of the
      event triggering such notice.

            (b) The Corporation  covenants that it will at all times reserve and
      keep available out of its  authorized and unissued  shares of Common Stock
      solely for the purpose of issuance  upon  conversion  of Preferred  Stock,
      each as herein provided,  free from preemptive  rights or any other actual
      contingent  purchase  rights of persons  other than the Holders,  not less
      than such number of shares of Common  Stock as shall be issuable  upon the
      conversion of all outstanding  shares of Preferred  Stock. The Corporation
      covenants that all shares of Common Stock that shall be so issuable shall,
      upon  issue,  be duly and  validly  authorized,  issued and fully paid and
      nonassessable.

            (c)  Upon  a  conversion  hereunder  the  Corporation  shall  not be
      required to issue stock certificates  representing  fractions of shares of
      Common  Stock,  but may if  otherwise  permitted,  make a cash  payment in
      respect of any final  fraction  of a share based on the VWAP at such time.
      If any fraction of a Conversion Share would,  except for the provisions of
      this Section,  be issuable upon a conversion  hereunder,  the  Corporation
      shall  pay an amount in cash  equal to the VWAP  immediately  prior to the
      applicable conversion multiplied by such fraction.

                                       18
<PAGE>

            (d) The issuance of  certificates  for Common Stock on conversion of
      Preferred  Stock shall be made without  charge to the Holders  thereof for
      any  documentary  stamp or similar taxes that may be payable in respect of
      the issue or delivery of such  certificate,  provided that the Corporation
      shall not be required to pay any tax that may be payable in respect of any
      transfer  involved in the issuance  and  delivery of any such  certificate
      upon  conversion in a name other than that of the Holder of such shares of
      Preferred Stock so converted.

            (e) To effect  conversions  of shares of Preferred  Stock,  a Holder
      shall not be required to surrender the  certificate(s)  representing  such
      shares of Preferred Stock to the  Corporation  unless all of the shares of
      Preferred Stock  represented  thereby are so converted,  in which case the
      Holder shall deliver the certificate  representing such share of Preferred
      Stock promptly following the Conversion Date at issue. Shares of Preferred
      Stock converted into Common Stock or redeemed in accordance with the terms
      hereof shall be canceled and may not be reissued.

            (f) Any and all notices or other  communications or deliveries to be
      provided  by the  Holders of the  Preferred  Stock  hereunder,  including,
      without  limitation,  any  Conversion  Notice,  shall  be in  writing  and
      delivered  personally,  by facsimile  or sent by a  nationally  recognized
      overnight  courier  service,  addressed  to the  attention  of  the  Chief
      Financial  Officer of the  Corporation  addressed  to WILLIAM  HODGE,  FAX
      NUMBER:  (704) 366 5056 or to such other  address or  facsimile  number as
      shall be specified in writing by the Corporation for such purpose. Any and
      all notices or other  communications  or  deliveries to be provided by the
      Corporation  hereunder  shall be in writing and delivered  personally,  by
      facsimile or sent by a nationally  recognized  overnight  courier service,
      addressed to each Holder at the facsimile  telephone  number or address of
      such Holder appearing on the books of the Corporation, which address shall
      initially be the address of such Holder set forth on the  signature  pages
      of the Purchase  Agreement,  or such other address as the Corporation or a
      Holder  may  designate  by ten days  advance  written  notice to the other
      parties hereto. Any notice or other communication or deliveries  hereunder
      shall be deemed  given and  effective  on the  earliest of (i) the date of
      transmission,  if such notice or  communication is delivered via facsimile
      at the facsimile  telephone number specified in this Section prior to 5:00
      p.m. (New York City time) (with  confirmation of  transmission),  (ii) the
      date after the date of  transmission,  if such notice or  communication is
      delivered  via facsimile at the facsimile  telephone  number  specified in
      this  Section  later  than 5:00 p.m.  (New York City time) on any date and
      earlier  than  11:59  p.m.  (New  York  City  time)  on  such  date  (with
      confirmation of  transmission),  (iii) five days after having been sent by
      registered or certified mail, return receipt  requested,  postage prepaid,
      (iv) one day after deposit with a nationally  recognized overnight courier
      service,  specifying  next day  delivery,  with  written  verification  of
      service,  or (v) upon  actual  receipt by the party to whom such notice is
      required to be given.

            (g) For purposes  hereof,  a share of Preferred Stock is outstanding
      until such date as the Holder shall have  received the  Conversion  Shares
      issuable to it in accordance with this Certificate of Designations.

                             **********************

                                       19
<PAGE>

RESOLVED,  FURTHER, that the Chairman, the president or any vice-president,  and
the secretary or any assistant secretary,  of the Corporation be and they hereby
are  authorized and directed to prepare and file a Certificate of Designation of
Preferences,  Rights and Limitations in accordance with the foregoing resolution
and the provisions of Delaware law.

      IN WITNESS  WHEREOF,  the undersigned  have executed this Certificate this
___ day of September 2004.

-------------------------------                      ---------------------------
Name:                                                Name:
Title:                                               Title:

                                       20
<PAGE>

                                     ANNEX A

                              NOTICE OF CONVERSION

(To be Executed by the Registered Holder in order to convert shares of Preferred
                                     Stock)

The  undersigned  hereby  elects to convert the number of shares of  Convertible
Preferred Stock indicated  below,  into shares of common stock,  par value $0.04
per share  (the  "Common  Stock"),  of RCG  Companies  Incorporated,  a Delaware
corporation (the  "Corporation"),  according to the conditions hereof, as of the
date  written  below.  If shares are to be issued in the name of a person  other
than  undersigned,  the  undersigned  will pay all transfer  taxes  payable with
respect  thereto and is delivering  herewith such  certificates  and opinions as
reasonably requested by the Corporation in accordance therewith.  No fee will be
charged to the Holder for any  conversion,  except for such transfer  taxes,  if
any.

Conversion calculations:

      Date to Effect Conversion

      -----------------------------------------
      Number of shares of Preferred Stock owned prior to Conversion

      -----------------------------------------
      Number of shares of Preferred Stock to be Converted

      -----------------------------------------
      Stated Value of shares of Preferred Stock to be Converted

      -----------------------------------------
      Number of shares of Common Stock to be Issued

      -----------------------------------------
      Applicable Set Price

      -----------------------------------------
      Number of shares of Preferred Stock subsequent to Conversion

      -----------------------------------------

                                               [HOLDER]

                                               By:______________________________
                                                  Name:
                                                  Title:

                                       21

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