-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, W2UxjVOV3XHWRIQ7uuNEm7/LwTGfg8RlQ/d3KTH/VOTaXFdO0Mg5rG+i+ZaZYypN EGuw9IDKWbjiaI+8iu6jUQ== 0000909143-02-000160.txt : 20020819 0000909143-02-000160.hdr.sgml : 20020819 20020819153433 ACCESSION NUMBER: 0000909143-02-000160 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020819 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDGE TECHNOLOGY GROUP INC CENTRAL INDEX KEY: 0001015172 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 133778895 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20995 FILM NUMBER: 02742495 BUSINESS ADDRESS: STREET 1: 6611 HILLCREST AVENUE STREET 2: #223 CITY: DALLAS STATE: TX ZIP: 75205 BUSINESS PHONE: 214.999.2245 MAIL ADDRESS: STREET 1: 6611 HILLCREST AVENUE STREET 2: #223 CITY: DALLAS STATE: TX ZIP: 75205 FORMER COMPANY: FORMER CONFORMED NAME: VISUAL EDGE SYSTEMS INC DATE OF NAME CHANGE: 19960604 10-Q 1 edge.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _________________ Commission file number: 0-20995 EDGE TECHNOLOGY GROUP, INC. (Exact name of small business issuer as specified in its charter) DELAWARE 13-3778895 (State or other jurisdiction (IRS Employer incorporation or organization) Identification No.) 1445 ROSS AVENUE, SUITE 4500, DALLAS, TEXAS 75202 (Address of principal executive offices) (214) 397-0200 (Issuer's telephone number) 6611 HILLCREST AVENUE #223 DALLAS, TEXAS 75205 (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. As of August 13, 2002, the issuer had 18,939,622 shares of Common Stock outstanding. EDGE TECHNOLOGY GROUP, INC. TABLE OF CONTENTS Page No. PART I FINANCIAL INFORMATION ITEM 1. Financial Statements: Consolidated Balance Sheets as of December 31, 2001 and June 30, 2002 (unaudited)........................... 3 Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2001 and 2002........................................... 4 Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2002......... 5 Notes to Unaudited Consolidated Financial Statements....... 6 ITEM 2. Management's Discussion and Analysis or Plan of Operations................................ 13 PART II OTHER INFORMATION ITEM 1. Legal Proceedings.................................. 21 ITEM 2. Changes in Securities and Use of Proceeds.......... 21 ITEM 3. Defaults Upon Senior Securities.................... 22 ITEM 4. Submission of Matters to a Vote of Security Holders....................................... 22 ITEM 5. Other Information.................................. 23 ITEM 6. Exhibits and Reports on Form 8-K................... 24 SIGNATURE.................................................... 26 EDGE TECHNOLOGY GROUP, INC. CONSOLIDATED BALANCE SHEETS
December 31, June 30, 2001 2002 ------------ ------------ (unaudited) CURRENT ASSETS Cash and cash equivalents $ 82,567 $ 499,273 Accounts receivable - 322,067 Other current assets 20,339 69,337 ------------ ------------ Total current assets 102,906 890,677 NON-CURRENT ASSETS Fixed assets, net 35,385 290,287 Note receivable, net of allowance of $1,400,000 as of December 31, 2001 and $1,145,000 as of June 30, 2002 - - Goodwill - 3,548,958 Intangible Assets - 153,000 Other assets - 78,732 ------------ ------------ TOTAL ASSETS $ 138,291 $ 4,961,654 ============ ============ CURRENT LIABILITIES Accounts payable $ 451,993 $ 732,951 Accrued expenses 239,489 291,952 Other current liabilities - 1,418,942 ------------ ------------ Total current liabilities 691,482 2,443,845 Notes payable - related parties 1,639,000 - Other liabilities - 48,362 ------------ ------------ Total non-current liabilities 1,639,000 48,362 TOTAL LIABILITIES 2,330,482 2,492,207 STOCKHOLDERS' EQUITY / (DEFICIT) Series A convertible preferred stock, no par value, 5,000,000 shares authorized, none issued and outstanding at December 31, 2001 and 4,200 issued and outstanding at June 30, 2002, net of discount - 3,552,500 Warrants - 370,000 Common stock, $.01 par value, 100,000,000 shares authorized, 16,488,139 issued and outstanding at December 31, 2001 and 18,939,622 issued and outstanding at June 30, 2002 164,881 189,396 Additional paid in capital 40,048,615 41,753,172 Accumulated deficit (42,405,687) (43,395,621) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY / (DEFICIT) (2,192,191) 2,469,447 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY / (DEFICIT) $ 138,291 $ 4,961,654 ============ ============
The accompanying notes are an integral part of these financial statements. -3- EDGE TECHNOLOGY GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months For the Six Months Ended June 30, Ended June 30, 2001 2002 2001 2002 ------------ ------------ ------------ ------------ Sales $ - $ 511,101 $ - $ 511,101 Cost of sales - 340,040 - 340,040 ------------ ------------ ------------ ------------ Gross profit - 171,061 - 171,061 Operating expenses General and administrative 97,509 787,521 116,347 979,482 Marketing - 34,185 - 34,185 Depreciation and amortization - 12,167 - 12,167 Impairment of assets 2,495,954 - 2,495,954 - ------------ ------------ ------------ ------------ Total operating expenses 2,593,463 833,873 2,612,301 1,025,834 ------------ ------------ ------------ ------------ Operating loss (2,593,463) (662,812) (2,612,301) (854,773) Other income (expense) Interest income 281 4,381 981 4,389 Interest expense (19,234) (2,920) (37,350) (37,259) Taxes - other - (8,386) - (9,348) Amortization of deferred financing fees (2,680) - (5,705) - Other - (442) - (442) ------------ ------------ ------------ ------------ Total other income (expense) (21,633) (7,367) (42,074) (42,660) ------------ ------------ ------------ ------------ Loss from continuing operations (2,615,096) (670,179) (2,654,375) (897,433) ------------ ------------ ------------ ------------ Loss from discontinued operations (316,173) - (667,054) - ------------ ------------ ------------ ------------ Net loss (2,931,269) (670,179) (3,321,429) (897,433) Provision for preferred stock dividends - 82,849 - 82,849 Amortization of discount on preferred stock - 92,500 - 92,500 ------------ ------------ ------------ ------------ Net loss attributed to common stockholders $ (2,931,269) $ (845,528) $ (3,321,429) $ (1,072,782) ============ ============ ============ ============ Basic and diluted loss per share From continuing operations (0.16) $ (0.05) $ (0.16) $ (0.06) From discontinued operations (0.02) - (0.04) - ------------ ------------ ------------ ------------ Net loss per share attributed to common stockholders $ (0.18) $ (0.05) $ (0.20) $ (0.06) ============ ============ ============ ============ Weighted average common shares outstanding 16,385,143 17,767,656 16,200,739 17,127,898 ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. -4- EDGE TECHNOLOGY GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30, 2001 2002 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net cash used in operating activities $ (606,174) $ (890,229) CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (60,429) (37,006) Capitalized acquisition costs - (87,418) Acquisition of subsidiaries - (1,552,750) Proceeds from the sale of fixed assets 14,694 - ------------ ------------ Net cash used in investing activities (45,735) (1,677,174) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of preferred stock - 2,561,000 Proceeds from note payable, net 400,000 - Deferred financing fees - (35,007) Contributed capital 200,000 200,000 ------------ ------------ Net cash provided by financing activities 600,000 2,725,993 ------------ ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS (51,909) 158,590 Cash and cash equivalents, beginning of period 169,846 340,683 ------------ ------------ Cash and cash equivalents, end of period $ 117,937 $ 499,273 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 275 $ 1,841 ============ ============ Cash paid for taxes $ - $ 8,386 ============ ============
The accompanying notes are an integral part of these financial statements. -5- EDGE TECHNOLOGY GROUP, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS In this Quarterly Report on Form 10-QSB, we will refer to Edge Technology Group, Inc., a Delaware corporation, as "Edge," "Company," "we," "us" and "our." 1. BASIS OF PRESENTATION The consolidated financial statements included herein have been prepared by us without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying unaudited consolidated financial statements include all necessary adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows of the Company. The results of operations and cash flows for the six months ended June 30, 2002, are not necessarily indicative of the results of operations or cash flows that may be reported for the year ended December 31, 2002. The unaudited consolidated financial statements included herein should be read in conjunction with the audited financial statements and the notes thereto included in the Company's Form 10-KSB for the year ended December 31, 2001, and those audited and unaudited financial statements contained in the Company's Form 8- K/A filed with the Securities and Exchange Commission on June 24, 2002. 2. DISCONTINUED OPERATIONS - SALE OF "ONE-ON-ONE" ASSETS On September 10, 2001, we closed the previously announced sale of assets related to our One-on-One business to a newly formed, unrelated entity, Visual Edge, Inc. Accordingly, results of this operation have been classified as discontinued and prior periods have been restated. The operating results of the discontinued operation for the three and six months ended June 30, 2001, included sales of $164,242 and $264,297, respectively, and a net loss of $316,173 and $667,054, respectively. 3. UNCERTAINTY OF PROPOSED PLAN OF OPERATION The Company has suffered recurring losses from operations and has an accumulated deficit of approximately $43.4 million at June 30, 2002. Of this, approximately $33.5 million had accumulated through March 31, 2001, and is attributable to the Company's former One-on-One golf video business. Another approximately $6.6 million reflects impairment charges and bad debts stemming from investments and loans made prior to the Company's creation of its current business plan. The Company's recent change in focus to acquiring Information Technology ("IT") Professional Services, Business Application Software and Application Services and Management is a new business concept for the Company, and we cannot predict the nature and extent of demand for our anticipated products and services. -6- In order to continue the implementation of our new business plan, it will be necessary to secure additional financing. There can be no assurance that any additional financing will be available on acceptable terms. Should we be unable to obtain additional financing, we would be unable to acquire additional technology companies or continue operations. 4. BUSINESS COMBINATIONS Acquisition of Media Resolutions, Inc. - ------------------------------------- On April 11, 2002, we closed the previously announced acquisition of Media Resolutions, Inc., an Application Service Provider ("ASP") and website hosting company located in Dallas, Texas. We paid $330,000 in cash and 500,000 restricted shares of our Common Stock valued at $306,250 in exchange for all the outstanding shares of Media Resolutions. The acquisition was accounted for using the purchase method of accounting. As such, the assets and liabilities of Media Resolutions were recorded at their estimated fair value and the results of operations are included in our consolidated results of operations from the date of acquisition. Media Resolutions has five employees and generated revenues of approximately $283,000 and break even operating results in 2001. For more information about this acquisition, please see the Company's Form 8-K/A filed June 24, 2002, with the Securities and Exchange Commission. Acquisition of The Visionary Group, Inc. - ---------------------------------------- On April 8, 2002, we acquired The Visionary Group, Inc., a professional services firm providing IT Professional Services related to Oracle applications software. Headquartered in Dallas, Texas, The Visionary Group has operations in Dallas and Austin, Texas. We paid $910,000 in cash and paid approximately $70,000 of existing debt in exchange for all the outstanding shares of The Visionary Group. The acquisition was accounted for using the purchase method of accounting. As such, the assets and liabilities of The Visionary Group were recorded at their estimated fair value and the results of operations are included in our consolidated results of operations from the date of acquisition. The Visionary Group had 14 employees at the time of acquisition and generated revenues of $3.4 million and break even operating results in 2001. The Company filed a Form 8-K/A on June 24, 2002, with the Securities and Exchange Commission that provides further information about this acquisition. Following its acquisition, the gross revenues for The Visionary Group fell below acceptable levels, and we expect near-term revenue to be significantly below historical levels. We believe the decline in gross revenue has resulted from an overall decline in the market and the delay of several significant projects resulting from general economic conditions. -7- Management has aggressively taken steps to address the business and operational issues at The Visionary Group. The Visionary Group has eliminated all non-billable consultants and certain administrative positions, has curtailed occupancy costs and has replaced prior management with a leading professional with more than 20 years of industry experience including building both Oracle database and Oracle application businesses. No assurances can be given that these steps will prove adequate to restore the historical revenues of The Visionary Group. Acquisition of Universal Data Technology, Inc. - --------------------------------------------- On May 31, 2002, our newly created and wholly owned subsidiary, UDT Consulting, Inc., acquired the assets of Universal Data Technology, Inc, an IT Professional Services practice headquartered in Dallas, Texas with additional operations in Arkansas and Florida. Our total purchase price for substantially all of Universal Data Technology's assets will be the sum of $1,127,750 and the product of multiplying two times UDT Consulting's earnings before interest, taxes depreciation and amortization (EBITDA) for the twelve months immediately following the closing date of the acquisition (the "Measurement Period"). The calculation of the purchase price is subject to certain deductions and offset provisions. An initial payment of $227,500 and the forgiveness of a $150,000 promissory note from Universal Data Technology to Edge were applied toward the purchase price as of the date of the closing. The remainder of the purchase price will be paid monthly pursuant to an earn-out schedule, with any remaining payments to be delivered after the end of the Measurement Period. The assets acquired from Universal Data Technology were recorded at their estimated fair value and the results of operations are included in our consolidated results of operations from the date of acquisition. For the year ended December 31, 2001, Universal Data Technology generated revenues of approximately $5.6 million with a net loss of approximately $390,000. As of August 13, 2002, UDT Consulting employs approximately 25 full-time consultants and support staff. The Company filed a Form 8-K/A on June 24, 2002, with the Securities and Exchange Commission that provides further information about this acquisition. Acquisition of Virtually There, Inc. - ----------------------------------- On May 30, 2002, we acquired Virtually There, Inc., an ASP and website hosting company located in Fort Worth, Texas. In exchange for the outstanding shares of Virtually There, Inc, we paid $120,000 in cash, issued 1,153,846 shares of our restricted Common Stock valued at $450,000 to the shareholders of Virtually There, and assumed approximately $185,000 of Virtually There's existing liabilities as of the date of closing. Virtually There currently has eight employee and generated revenues of approximately $1.0 million with a net loss of approximately $79,000 for the year ended December 31, 2001. The acquisition was accounted for using the purchase method of accounting. As such, the assets and liabilities of Virtually There were recorded at their estimated fair value and the results of operations are included in our consolidated results of operations from the date of acquisition. The Company filed a Form 8-K/A on June 24, 2002, with the Securities and Exchange Commission that provides further information about this acquisition. The excess purchase price over the fair value of the tangible net assets acquired in the above transactions totaled approximately $3.5 million and was allocated to goodwill. -8- The following unaudited pro forma consolidated results of operations have been prepared as if the acquisitions had occurred at the beginning of 2001 and 2002, respectively.
For the Three Months For the Six Months Ended June 30 Ended June 30 2001 2002 2001 2002 ------------ ------------ ------------ ------------ Revenue $ 2,874,900 $ 1,180,307 $ 5,273,900 $ 2,587,196 Net loss (2,721,445) (909,472) (3,102,134) (1,623,876) Loss per share $ (0.15) $ (0.05) $ (0.17) $ (0.09)
5. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the Company and its wholly owned subsidiaries, The Visionary Group, Inc., UDT Consulting, Inc., Virtually There, Inc. and Media Resolutions, Inc. Each of the subsidiaries is a Texas corporation. All intercompany balances and transactions have been eliminated in consolidation. 6. REVENUE RECOGNITION Revenue from the sale of products or provision of services is recognized when the product is delivered or when the service is provided and collectability of the receivable is reasonably assured. Deposits received from customers in advance of the delivery of product or provision of service are included in other current liabilities in the accompanying balance sheets. 7. GOODWILL Goodwill of approximately $3.5 million was recorded as a result of the acquisitions. In accordance with SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill is assumed to have an indefinite life and will not be subject to amortization. The Company will evaluate its goodwill at least annually and test for impairment by applying a fair value based test. 8. INTANGIBLE ASSETS - Related Party Transaction On June 21, 2002, the Company acquired the name "Axtive Corporation" (pronounced "Active") and its related logo and trademark (collectively, "intangible assets") and certain tangible assets including furniture and fixtures, signage and office supplies from Axtive Software Corporation, as represented by it sole shareholder, Graham C. "Scooter" Beachum III, Edge's Vice President and General Manager. The assets were acquired in exchange for an initial grant of 400,000 restricted shares of Edge $0.01 par value common stock valued at approximately $168,000 at the time of acquisition. Such amount was allocated between tangible ($15,000) and intangible assets ($153,000) based upon their relative fair values. The intangible assets are assumed to have an indefinite life and will not be subject to amortization. If our stock does not trade for at least $.75 per share at any time during the next 12 months, Mr. Beachum will receive up to an additional 297,674 shares to bring the total shares given in exchange for the assets to a value not exceeding $300,000 based upon the market price on the date the assets were acquired. The issuance of additional shares, if any, will not affect the recorded value of the intangible assets. 9. LOSS PER SHARE Basic loss per share is calculated by dividing loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during each period. -9- For the periods ended June 30, 2001 and 2002, due to our net losses, shares of our $.01 par value common stock ("Common Stock") issuable upon the exercise of outstanding options and warrants have been excluded from the computation of diluted loss per share in the accompanying statements of operations as their impact would be antidilutive. 10. NOTE RECEIVABLE On September 22, 2000, we made an unsecured loan of $1.4 million to Hencie, Inc. ("Hencie"), a Texas-based IT Services business. The loan was guaranteed by a related company, Hencie Consulting Services, Inc. and personally guaranteed by Hencie's CEO. The loan to Hencie matured November 22, 2001, and went into default. Due to the uncertainty surrounding collection of the note, no interest was accrued in 2001 or 2002 and, during the fourth quarter of 2001, the note was fully reserved to reflect our estimate of its net realizable value. On May 22, 2002, we entered into a Settlement Agreement and Release with Hencie and the guarantors whereby we received an agreed judgment in the amount of $1.65 million, subject to reduction, and will receive monthly payments of principal and interest through April 2004 totaling approximately $1.3 million. The amounts due under the Settlement Agreement and Release are guaranteed by Hencie's CEO and secured by shares of Alternate Marketing Networks, Inc. (NASDAQ Small Cap: ALTM), the parent company of Hencie. Because of uncertainties regarding collection of amounts due under the agreement and the lack of liquidity in the collateral, the Company did not record a gain on settlement. Payments received will be recorded as a recovery of the bad debts previously written off. 11. FINANCING TRANSACTIONS 2000 Infinity Loans - ------------------- During 2000, Infinity Investors Limited ("Infinity"), a related party, made certain loans to us for working capital purposes. These loans totaled approximately $219,000 and bear interest at a rate equal to 8.5% per annum. As part of the reorganization of Edge effective September 1, 2000, Infinity became entitled to the repayment of these loans. The loan agreement was renegotiated in April 2001 and again in January 2002 to extend the due date to March 31, 2002. Upon maturity, as of April 1, 2002, Infinity elected to convert the outstanding principal and interest totaling $258,464 into Edge's $.01 par value Common Stock at $.65 per share resulting in 397,637 shares issued by us. Sandera Loan (formerly "Catalyst Loan") - ---------------------------------------- On December 13, 2000, we entered into a loan agreement with Catalyst Master Fund, L.P. ("Catalyst"), a related party, to borrow $620,000 (the "Catalyst Loan"). Catalyst was a stockholder of ours and certain of our directors are officers of an entity that manages Catalyst Master Fund L.P. -10- The Catalyst Loan was convertible at the option of the holder into Edge Common Stock at a conversion price of $1.50 per share. The Catalyst Loan was also secured by a pledge of substantially all of our assets. Effective April 16, 2001, we entered into an amended loan agreement with Catalyst that increased the borrowings available under the original loan agreement from $620,000 to a total of $2,120,000. Under the amended loan agreement, we could draw down amounts under the loan agreement as we had a need for funds, subject to our being in compliance with the covenants contained in that loan agreement. The amended loan agreement bears interest at eight percent (8%) per annum and was due March 31, 2002. The additional amount available under the amended loan agreement was also convertible into Edge Common Stock at a conversion price of $1.50 per share and was secured by a pledge of substantially all of our assets. On December 28, 2001, Catalyst Master Fund, L. P. assigned the Catalyst Loan, and its rights thereunder, to Sandera Partners, L. P. ("Sandera") as part of a redemption of Sandera's limited partnership interest in Catalyst. Certain of our directors are officers of an entity that manages Sandera. On April 1, 2002, Sandera converted all principal and interest due under the note (total of $1,530,124) and contributed an additional amount of approximately $470,000 in cash in exchange for 2,000 shares of Series A Preferred Stock (see "2002 Series A Convertible Preferred Stock" below). Infinity Option - --------------- On May 31, 2001, we sold to Infinity an option in return for the payment of $1.0 million payable in five payments of $200,000 each commencing on May 31, 2001 ("Infinity Option"). Pursuant to the Infinity Option, Infinity could elect on May 31, 2002, to exercise its option by assigning its interest in a note receivable of $10.0 million in exchange for 3,333,333 shares of Edge Common Stock. In March 2002, Infinity and Edge mutually agreed to terminate the option. 2002 Series A Convertible Preferred Stock - ----------------------------------------- On April 1, 2002, we issued 4,200 shares of Series A Convertible Preferred Stock ("Series A Preferred") at $1,000 per share providing proceeds to us of $2,669,876 calculated as $4,200,000, less $1,530,124 of the pre-existing Sandera debt converted to Series A Preferred. The Series A Preferred shares carry an 8% cumulative dividend and are convertible, at the option of the holder, into shares of $.01 par value Common Stock of Edge any time after one year at an initial conversion price of $.75 per share. The preferred shares have voting rights pari pasu with the Common Stock and as a separate class on certain matters. The shares also have an antidilution provision whereby the price and number of shares issuable upon conversion adjusts for stock splits, stock dividends and future share issuances below the conversion price of the Series A Preferred. The Series A Preferred have demand registration rights after one year following closing of the financing transaction and the right to elect one member to our Board of Directors. -11- In connection with the issuance of Series A Preferred, each purchaser received warrants entitling the holder to purchase 20 shares of Edge's $.01 par value Common Stock for each 100 shares of Common Stock the holder is entitled to receive upon conversion. The warrants entitle the holder to purchase common shares at the price of $1.15 per share. The warrants become exercisable on the second anniversary of the issuance of the Series A Preferred and, unless exercised earlier, will expire on the fourth anniversary of the issuance. We issued warrants exercisable for a total of 1,119,998 shares of Common Stock in the offering. We paid no commissions in connection with issuance of Series A Preferred. Proceeds from the offering were used to acquire Media Resolutions, Inc., The Visionary Group, Inc., Virtually There, Inc. and the assets of Universal Data Technology, Inc. and for general corporate purposes (See Note 4 "Business Combinations"). As of June 30, 2002, there had been no dividends declared on the Series A Preferred stock. Undeclared but cumulative dividends on the preferred shares as of that date totaled $82,849 and are reflected in the consolidated statements of operations. Receivables Factoring - --------------------- One of the Company's subsidiaries, UDT Consulting, Inc., has engaged with a third-party to factor certain of its receivables. The receivables are sold with recourse to UDT Consulting, and amounts due under the Factoring and Security Agreement are secured by a pledge of receivables and other assets of UDT Consulting, and are guaranteed by Edge Technology Group. Under the agreement, UDT Consulting receives approximately 80% of the face amount of the receivable, pays interest at a rate of prime plus 2% and is subject to additional fees in certain circumstances. At June 30, 2002, UDT Consulting had approximately $57,000 of receivables sold under the agreement. 12. OTHER CURRENT LIABILITIES Other current liabilities are primarily amounts due to the sellers of the businesses Edge has acquired. Such amounts represent deferred payment of the purchase price and amounts withheld at closing to ensure compliance with representations and warranties made by the sellers. In general, such amounts are due one year from the date of acquisition. 13. SUBSEQUENT EVENTS New Investors under 2002 Series A Convertible Preferred Stock Offering - ------------------------------------------------------------- In July and August 2002, the Company raised additional funds under the Series A Preferred offering by issuing 240 shares of Series A Preferred Stock at $1,000 per share providing proceeds to us of $240,000. The terms for the issuance of the Series A Preferred were identical to those investors who had invested in April 2002. In particular, we issued additional warrants exercisable for a total of 64,000 shares of Common Stock in the offering. The proceeds from the offering were used for general corporate purposes. -12- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included as Item 1 of this report. This document contains "forward-looking statements" made under the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to our management. These statements include without limitation, statements regarding our future capital requirements and our ability to satisfy our capital needs; statements regarding our recent acquisitions; statements regarding our ability to implement our plans to acquire additional companies; and other statements which speak to projections of future conditions or our anticipated performance which contain the words "anticipate" "believe," "expect" and words or phrases of similar import, as they relate to us or our management. You should be aware that these "forward-looking" statements are subject to certain risks, uncertainties and assumptions related to certain factors including, without limitation, the ability to adopt and successfully execute a revised business plan, respond to future business opportunities, and overcome numerous other risks and difficulties generally experienced by early stage business models, including, but not limited to those factors set forth under the heading "RISK FACTORS" in our annual report filed on Form 10-KSB for our fiscal year ended December 31, 2001, and discussed in the Form 8-K/A filed on June 24, 2002, as well as the Form 8-K filed on July 8, 2002. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein. We expressly undertake no obligation to update these forward-looking statements. Except as required by federal securities laws, we undertake no obligation to publicly update or revise any written or oral forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this report. GENERAL Prior to our emphasis on IT Professional Services, Business Application Software and Application Services and Management, the business consisted primarily of developing, marketing and selling personalized videotape golf lessons featuring One-on-One golf video instruction by leading professional golfer Greg Norman, sold under the name "One-on-One with Greg Norman." On September 10, 2001, we sold all the assets related to our One- on-One business to Visual Edge, Inc., a newly created company formed by certain members of our previous management. Visual Edge, Inc. is not related to us. The results of operations generated by the One-on-One business have been presented as "discontinued operations" in the financial statements because it represented a separate segment of our business. During the three and six months ended June 30, 2001, we had no operations other than those related to the business sold in September 2001. As such, the basic financial statements for the three and six months ended June 30, 2001, include neither sales nor costs of sales. -13- OUR ONGOING PLAN Our plan of operation for the upcoming months calls for the following: * Additional fundraising activities to continue our acquisition strategy; * Additional acquisitions to fill in Edge's end-to-end ("E2E") offering of business application software products and professional services to meet the needs of middle market companies; and * Operating the businesses that Edge has acquired to date. Recent Developments - ------------------- 2002 Series A Convertible Preferred Stock - ----------------------------------------- We issued 4,440 shares of Series A Preferred between April and August, 2002 as described in Note 11 "Financing Transactions" and Note 13 "Subsequent Events" listed in the Notes to Unaudited Consolidated Financial Statements included herein. Each share of our Series A Preferred was issued at a purchase price of $1,000 per share, carries an 8% cumulative dividend and is convertible into shares of our Common Stock at an initial conversion price of $.75 per share. For each 100 shares of Common Stock received upon conversion of the Series A Preferred we issued warrants to purchase 20 shares of our Common Stock at a purchase price of $1.15 per share. Acquisition of Media Resolutions, Inc. - -------------------------------------- On April 11, 2002, we closed the previously announced acquisition of Media Resolutions, Inc., an ASP and website hosting company located in Dallas, Texas. We paid $330,000 in cash and 500,000 restricted shares of our Common Stock valued at $306,250 in exchange for all the outstanding shares of Media Resolutions. The acquisition was accounted for using the purchase method of accounting. As such, the assets and liabilities of Media Resolutions were recorded at their estimated fair value and the results of operations are included in our consolidated results of operations from the date of acquisition. Media Resolutions has five employees and generated revenues of approximately $283,000 and break even operating results in 2001. For more information about this acquisition, please see the Company's Form 8-K/A filed June 24, 2002, with the Securities and Exchange Commission. Acquisition of The Visionary Group, Inc. - ---------------------------------------- On April 8, 2002, we acquired The Visionary Group, Inc., a professional services firm providing IT Professional Services related to Oracle applications software. Headquartered in Dallas, Texas, The Visionary Group has operations in Dallas and Austin, Texas. We paid $910,000 in cash and paid approximately $70,000 of existing debt in exchange for all the outstanding shares of The Visionary Group. The acquisition was accounted for using the purchase method of accounting. As such, the assets and liabilities of The Visionary Group were recorded at their estimated fair value and the results of operations are included in our consolidated results of operations from the date of acquisition. The Visionary Group had 14 employees at the time of acquisition and generated revenues of $3.4 million and break even operating results in 2001. The Company filed a Form 8-K/A on June 24, 2002, with the Securities and Exchange Commission that provides further information about this acquisition. -14- Following the acquisition, the gross revenues for The Visionary Group fell below acceptable levels and we expect near-term revenue to be significantly below historical levels. We believe the decline in gross revenue has resulted from an overall decline in the market and the delay of several significant projects resulting from general economic conditions. Management has aggressively taken steps to address the business and operational issues at The Visionary Group. The Visionary Group has eliminated all non-billable consultants and certain administrative positions, has curtailed occupancy costs and has replaced prior management with a leading professional with more than 20 years of industry experience including building both Oracle database and Oracle application businesses. No assurances can be given that these steps will prove adequate to restore the historical revenues of The Visionary Group. Acquisition of Universal Data Technology, Inc. - --------------------------------------------- On May 31, 2002, our newly created and wholly owned subsidiary, UDT Consulting, Inc., acquired the assets of Universal Data Technology, Inc, an IT Professional Services practice headquartered in Dallas, Texas with additional operations in Arkansas and Florida. Our total purchase price for substantially all of Universal Data Technology's assets will be the sum of $1,127,750 and the product of multiplying two times UDT Consulting's earnings before interest, taxes, depreciation and amortization (EBITDA) for the twelve months immediately following the closing date of the acquisition (the "Measurement Period"). The calculation of the purchase price is subject to certain deductions and offset provisions. An initial payment of $227,500 and the forgiveness of a $150,000 promissory note from Universal Data Technology to Edge were applied toward the purchase price as of the date of the closing. The remainder of the purchase price will be paid monthly pursuant to an earn-out schedule, with any remaining payments to be delivered after the end of the Measurement Period. The assets acquired from Universal Data Technology were recorded at their estimated fair value and the results of operations are included in our consolidated results of operations from the date of acquisition. For the year ended December 31, 2001, Universal Data Technology generated revenues of approximately $5.6 million with a net loss of approximately $390,000. As of August 13, 2002, UDT Consulting employs approximately 25 full-time consultants and support staff. The Company filed a Form 8-K/A on June 24, 2002, with the Securities and Exchange Commission that provides further information about this acquisition. Acquisition of Virtually There, Inc. - ----------------------------------- On May 30, 2002, we acquired Virtually There, Inc., an ASP and website hosting company located in Fort Worth, Texas. In exchange for the outstanding shares of Virtually There, Inc, we paid $120,000 in cash, issued 1,153,846 shares of our restricted Common Stock valued at $450,000 to the shareholders of Virtually There, assumed approximately $185,000 of Virtually There's existing liabilities as of the date of closing. Virtually There currently has eight employee and generated revenues of approximately $1.0 million with a net loss of approximately $79,000 for the year ended December 31, 2001. The acquisition was accounted for using the purchase method of accounting. As such, the assets and liabilities of Virtually There were recorded at their estimated fair value and the results of operations are included in our consolidated results of operations from the date of acquisition. The Company filed a Form 8-K/A on June 24, 2002, with the Securities and Exchange Commission that provides further information about this acquisition. -15- Acquisition of "Axtive" Name - ----------------------------- On June 21, 2002, the Company acquired the name Axtive Corporation (pronounced "Active") and its related logo, trademark and certain tangible assets including furniture and fixtures, signage and office supplies from Axtive Software Corporation, as represented by its sole shareholder, Graham C. "Scooter" Beachum III, Edge's Vice President and General Manager. The assets were acquired in exchange for an initial grant of 400,000 shares of Edge $.01 par value common stock valued at approximately $168,000 at the time of acquisition. If our stock does not trade for at least $.75 per share at any time during the next 12 months, Mr. Beachum will receive up to an additional 297,674 shares to bring the total shares given in exchange for the assets to a value not exceeding $300,000 based upon the market price on the date the assets were acquired. The transaction was negotiated at arms-length between Axtive Software Corporation and Edge. Graham C. Beachum, II, director of Edge and father of Graham C. "Scooter" Beachum, recused himself from voting on this issue. By a vote of a majority of the shares entitled to vote, we have obtained the consent necessary to change the name of the Company to Axtive Corporation. We are in the process of preparing and filing a Form 14-C "Information Statement and Notice of Action Taken Without a Meeting," in connection with the approval of an amendment to our Corporate Charter to adopt the new name. Pending this action, we have adopted Axtive Corporation as our dba ("doing business as") in the state of Delaware. The approval of our name change is expected to be effective 20 days after the mailing of the Information Statement to our stockholders. Adoption of the 2002 Stock Incentive Plan - ----------------------------------------- On June 25, 2002, the Company adopted, the 2002 Stock Incentive Plan (the "2002 Plan"), which provides for the issuance of non- qualified stock options and incentive stock options as well as restricted stock awards, unrestricted stock awards, performance stock awards, dividend equivalent rights, stock appreciate rights (in connection with options) and long-term performance awards to eligible employees, officers, independent consultants and directors of the Company and its subsidiaries. Under the terms of the 2002 Plan, options to purchase Common Stock are generally granted at not less than fair market value, become exercisable as established by the administering committee of the Board of Directors and generally expire ten years from the date of grant. If any shares reserved for an award are forfeited, repurchased or any such award otherwise terminates without a payment being made to the participant in the form of stock, such shares underlying such award will also become available for future awards under the 2002 Plan. By a vote of a majority of the shares entitled to vote, we have obtained the consent necessary to adopt the 2002 Plan. We are in the process of preparing a Form 14-C "Information Statement and Notice of Action Taken Without a Meeting" to mail to our stockholders. The adoption of the 2002 Plan is expected to be effective 20 days after the mailing of the Information Statement to our stockholders. -16- For administrative convenience and to provide that all options outstanding for current employees are under a single plan, 2,910,000 options previously granted pursuant to the 1996 Stock Option Plan, but in excess of the number of shares authorized under the plan (the "Transferred Options") were transferred to the 2002 Plan. The administrative transfer did not change the number of option shares, the vesting schedule or the exercise price of the options previously granted under the 1996 Plan. As a result, there was no accounting impact to the Company. Twelve million options are authorized for issuance under the 2002 Plan. As of August 13, 2002, there were 4,032,500 options outstanding under the 2002 Plan, (which includes the Transferred Options) of which 1,492,118 are vested, and 7,967,500 shares of Common Stock are available for future awards under the 2002 Plan. To date, the Company has not issued any restricted or unrestricted stock awards, stock appreciation rights, dividend equivalents rights or long-term performance awards under the 2002 Plan. RESULTS OF OPERATIONS Quarter ended June 30, 2002 compared with quarter ended June 30, 2001. - --------------------------------------------------------------- Sales from continuing operations for the three months ended June 30, 2002, increased to $511,011, driven by the recent acquisitions as noted above. Results from operations of each subsidiary were included only during the portion of the quarter that Edge owned that subsidiary. The cost of sales for the three months ended June 30, 2002, was $340,040, reflecting the mixture of expenses related to consulting and hosting services. Excluding $2,495,954 recorded in 2001 as an impairment of assets, operating expenses for the three months ended June 30, 2002, increased 855% to $833,873, as compared to $97,509 for the three months ended June 30, 2001. The increase in operating expenses is related to the operating activities of the Company and the corporate staff that Edge has assembled during the last twelve months in order to pursue its new business plan. As of August 13, 2002, the corporate group has two executives and eight employees. Interest expense for the three months ended June 30, 2002, decreased 85% to $2,920 from $19,234 for the three months ended June 30, 2001. This decrease is primarily attributable to the conversion of the Sandera and Infinity loans that were converted into equity (See Note 11 "2002 Series A Convertible Preferred Stock" in the Notes to Unaudited Consolidated Financial Statements under Item 1 herein for more information). -17- Excluding $2,495,954 recorded in 2001 as an impairment of assets, net loss before preferred stock dividends for the three months ended June 30, 2002, increased $234,864 to $670,179 from $435,315 for the three months ended June 30, 2001. Excluding the impairment of assets in 2001, net loss per share, basic and diluted, for the three months ended June 30, 2002, increased to $0.05 from $0.03 compared with the three months ended June 30, 2001. Six months ended June 30, 2002 compared to the six months ended June 30, 2001. - --------------------------------------------------------------- Sales from continuing operation for the six months ended June 30, 2002, increased to $511,011, driven by the recent acquisitions as noted above. Results from operations of each subsidiary were included only during the portion of the current quarter that Edge owned that subsidiary. The cost of sales for the six months ended June 30, 2002, was $340,040, reflecting the mixture of expenses related to consulting and hosting services. Excluding $2,495,954 recorded in 2001 as impairment of assets, operating expenses for the six months ended June 30, 2002 increased 871% to $1,013,667, as compared to $116,347 for the six months ended June 30, 2001. The increase in operating expenses is related to the operating activities of the Company and the corporate staff that Edge has assembled during the last twelve months in order to pursue its new business plan. As a result of the factors described above, the operating loss for the six months ended June 30, 2002, decreased $1,769,695 or 68% to $842,606 from $2,612,301 for the six months ended June 30, 2001. Interest expense for the six months ended June 30, 2002, decreased by $91 to $37,259 from $37,350 for the six months ended June 30, 2001. Because Edge issued its interest-bearing notes to investors during the second quarter of 2001 and converted them into common stock during the first quarter of 2002 as noted above, the net difference is minimal. Excluding $2,495,954 recorded in 2001 as impairment of assets, net loss before preferred stock dividends for the six months ended June 30, 2002, increased $71,958 to $897,433 from $825,475 for the six months ended June 30, 2001. Excluding the impairment of assets in 2001, net loss per share, basic and diluted, for the six months ended June 30, 2002, increased from $0.05 compared to $0.06 for the six months ended June 30, 2001. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2002, we had cash and cash equivalents of approximately $499,000 and a working capital deficit of approximately $1.5 million compared to cash and cash equivalents of approximately $83,000 and a working capital deficit of approximately $589,000 on December 31, 2001. During the six months ended June 30, 2002, net cash used in operating activities was $890,229, net cash used in investing activities was $1,677,174 and net cash provided by financing activities, primarily the sale of the Series A Preferred Stock, was $2,725,993 for a total increase in cash and cash equivalents for the period of $158,590. -18- We expect our liquidity to remain tight throughout 2002. Due to an unacceptable level of performance at one of our recent acquisitions, The Visionary Group, the Company advanced money to cover its operating expenses while taking aggressive steps to eliminate non-revenue generating overhead and reduce its cash needs going forward. Advancing funds to The Visionary Group further taxed our limited resources, and the Company is considering the sale of non-core assets to improve its near-term liquidity. We have historically financed our operations primarily through the sale of equity securities or instruments convertible into equity securities. Although we just completed the Series A Preferred financing described in Note 11 "Series A Convertible Preferred Stock" above, there can be no assurance that future financings can be completed. In order to continue the implementation of our new business plan, it will be necessary to secure additional financing. There can be no assurance that any additional financing will be available on acceptable terms. Should we be unable to obtain additional financing, we would be unable to acquire additional technology companies or continue operations. Ability to Continue as a Going Concern Our independent accountants have included an explanatory paragraph in their report on our financial statements for the year ended December 31, 2001, contained in our most recent Annual Report on Form 10-KSB, that states that our financial statements have been prepared assuming that we will continue as a going concern, but that substantial doubt exists as to our ability to do so. Seasonality Based upon our review of current companies and acquisition candidates, the IT Professional Service businesses experience a moderate level of seasonality. The first quarter revenue tends to be the lowest, higher revenues are generally reflected in the second and third quarters and revenues in the fourth quarter decline from the mid-year levels. Revenues for Business Application Software and Application Services and Management do not reflect a discernable pattern of seasonality. RISK FACTORS In addition to the information contained herein, readers of this report or any of our press releases should carefully consider the risk factors contained in previous filings, in particular, our Annual Report (Form 10-KSB), our 8-K/A filed June 24, 2002 and our 8-K filed on July 8, 2002. Readers are cautioned that such statements are only predictions and actual events or results may differ substantially. In evaluating those statements, readers should specifically consider the various factors identified in this report, including the matters set forth below, which could cause actual results to differ substantially from those indicated by those forward-looking statements. -19- THIRD PARTY REPORTS AND PRESS RELEASES We do not make financial forecasts or projections nor do we endorse the financial forecasts or projections of third parties or comment on the accuracy of third-party reports. We do not participate in the preparation of the reports or the estimates given by analysts. Analysts who issue financial reports are not privy to non-public financial information. Any purchase of our securities based on financial estimates provided by analysts or third parties is done entirely at the risk of the purchaser. We periodically issue press releases to update stockholders on new developments at Edge and our business. These releases may contain certain statements of a forward-looking nature relating to future events or our future financial performance within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, and which are intended to be covered by the safe harbors created thereby. Readers are cautioned that such statements are only predictions and that actual events or results may materially differ with those statements. In evaluating such statements, readers should specifically consider the various risk factors identified which could cause actual results to differ materially from those indicated by such forward-looking statements. -20- PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Hencie Matter - ------------- On September 22, 2000, we made an unsecured loan of $1.4 million to Hencie, Inc. ("Hencie"), a Texas-based IT Services business. The loan was guaranteed by a related company, Hencie Consulting Services, Inc. and personally guaranteed by Hencie's CEO. The loan to Hencie matured November 22, 2001, and is in default. Due to the uncertainty surrounding collection of the note, no interest was accrued in 2001 or 2002 and, during the fourth quarter of 2001, the note was fully reserved to reflect our estimate of its net realizable value. On May 22, 2002, we entered into a Settlement Agreement and Release with Hencie and the guarantors whereby we received an agreed judgment in the amount of $1.65 million, subject to reduction, and will receive monthly payments of principal and interest through April 2004 totaling approximately $1.3 million. The amounts due under the Settlement Agreement and Release are guaranteed by Hencie's CEO and secured by shares of Alternate Marketing Networks, Inc. (ALTM), the parent company of Hencie. As a result, we have written down the loan to approximately $1.3 million to reflect the settlement. Because of uncertainties regarding collection of amounts due under the agreement and the lack of liquidity in the collateral, the Company did not record a gain on settlement. Payments received will be recorded as a recovery of the bad debts previously written off. Proceedings against The Visionary Group - --------------------------------------- On June 4, 2002, we were notified The Visionary Group and Edge had been sued in the District Court of Dallas County, Texas for non-payment of approximately $110,000 due to a former sub-contractor. We have defenses to the suit and intend to defend the matter vigorously. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 2002 Series A Convertible Preferred Stock - ----------------------------------------- We issued 4,440 shares of Series A Preferred between April and August, 2002 as described in Note 11 "Financing Transactions" and Note 13 "Subsequent Events" listed above. Each share of our Series A Preferred was issued at a purchase price of $1,000 per share, carries an 8% cumulative dividend and is convertible into shares of our Common Stock at an initial conversion price of $.75 per share. For each 100 shares of Common Stock received upon conversion of the Series A Preferred we issued warrants to purchase 20 shares of our Common Stock at a purchase price of $1.15 per share. -21- Issuance of Restricted Common Stock - ----------------------------------- On April 11, 2002, we issued 500,000 restricted shares of our Common Stock as part of the consideration for our acquisition of Media Resolutions, Inc. The shares were issued to two investors in a private placement in conformity with Section 4(2) of the Securities Act. On May 30, 2002, we acquired Virtually There, Inc. In exchange for the outstanding shares of Virtually There, Inc, we paid $120,000 in cash, issued 1,153,846 shares of our restricted Common Stock to the shareholders of Virtually There, and assumed approximately $185,000 of Virtually There's existing liabilities as of the date of closing. The shares were issued in private placement in conformity with section 4(2) of the Securities Act. On June 21, 2002, we issued 400,000 restricted shares of our Common Stock to Graham C. "Scooter" Beachum, our Vice President and General Manager in exchange for the purchase of the name "Axtive Corporation" and its related logo, trademark and certain tangible assets. We are obligated, subject to certain conditions, to issue up to an additional 297,674 restricted shares on June 21, 2003. The restricted stock was issued to Mr. Beachum in conformity with section 4(2) of the Securities Act. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS AMENDMENT TO OUR CERTIFICATE OF INCORPORATION - --------------------------------------------- Our Board of Directors has unanimously adopted an amendment to our Certificate of Incorporation to change the name of our corporation from "Edge Technology Group, Inc." to "Axtive Corporation," (pronounced "Active"). Because of the many references in general commerce to "edge" as both a company name (or part thereof) and a brand name, we believed it was desirable to create a unique name that better portrays the proper image and provides a foundation for future marketing efforts. In addition, within the State of Texas and elsewhere, we became aware of other companies whose names could lead to confusion with Edge Technology Group. Under Delaware General Corporation Law, the affirmative vote of the holders of a majority of the outstanding shares of common stock is required to amend and restate our Certificate of Incorporation. Through the written consent of a majority of the outstanding shares of our Common Stock and our Series A Preferred Stock, the Company obtained the necessary votes to approve the amendment. For voting purposes holders of our Series A Preferred Stock participate in such a vote on an as-converted basis, which means that each share of Series A Preferred Stock is the equivalent of 1,333.33 shares of Common Stock. Since our board has obtained the required approval for the amendment to our Certificate of Incorporation by means of this written consent, a meeting to approve the Amendment to Certificate of Incorporation is unnecessary, and our board decided to forego the expense of holding a meeting to approve this matter. -22- The amendment to our certificate of incorporation will become effective upon the filing of the Amendment to Certificate of Incorporation with the Secretary of State of Delaware, which is expected to occur 20 calendar days following the mailing to our stockholders of a Form 14-C "Information Statement and Action Taken Without a Meeting." In the meantime, the Company has adopted "Axtive Corporation" as its "doing business as" (dba) and will conduct its business using the Axtive name. ADOPTION OF 2002 STOCK INCENTIVE PLAN - ------------------------------------- Our Board of Directors has unanimously adopted the 2002 Stock Incentive Plan. Under the terms of the 2002 Plan, the affirmative vote of the holders of a majority of the outstanding shares of common stock must approve the 2002 Plan within twelve months of the adoption by the Board of Directors. Any grants made under the 2002 Plan prior to this stockholder approval shall be subject to obtaining such approval. Through the written consent of a majority of the outstanding shares of our Common Stock and our Series A Preferred Stock, the Company obtained the necessary votes to approve the amendment. For voting purposes holders of our Series A Preferred Stock participate in such a vote on an as-converted basis, which means that each share of Series A Preferred Stock is the equivalent of 1,333.33 shares of Common Stock. Since our board has obtained the required approval for the 2002 Plan by means of this written consent, a meeting to approve the 2002 Plan is unnecessary, and our board decided to forego the expense of holding a meeting to approve this matter. The 2002 Stock Incentive Plan is expected to become effective 20 calendar days following the mailing of a Form 14-C information statement to our stockholders. A copy of the plan is attached as an exhibit hereto. ITEM 5. OTHER INFORMATION Purchase of the "Axtive" Name On June 21, 2002, the Company acquired the name Axtive Corporation (pronounced "Active") and its related logo, trademark and certain tangible assets including furniture and fixtures, signage and office supplies from Axtive Software Corporation, as represented by its sole shareholder, Graham C. "Scooter" Beachum III, Edge's Vice President and General Manager. The assets were acquired in exchange for an initial grant of 400,000 shares of Edge $.01 par value common stock valued at approximately $168,000 at the time of acquisition. If our stock does not trade to at least $.75 per share during the next 12 months, Mr. Beachum will receive up to an additional 297,674 shares to bring the total shares given in exchange for the assets to a value not exceeding $300,000 based upon the market price on the date the assets were acquired. The transaction was negotiated at arms-length between Axtive Software Corporation and Edge. Graham C. Beachum, II, director of Edge and father of Graham C. "Scooter" Beachum, recused himself from voting on this issue. -23- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) (The following Exhibits are filed as part of this Report as required by Item 601 of Regulation S-B. EXHIBIT NUMBER DESCRIPTION - ---------- -------------------------------------------------- 4.9 Form of Subscription and Securities Purchase Agreement dated April 1, 2002, between Edge Technology Group, Inc. and Purchasers as named therein. (Incorporated by reference to Exhibit 4.9 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001 filed on April 16, 2002.) 4.10 Certificate of Designation, Preference and Rights of Series A Convertible Preferred Stock of Edge Technology Group, Inc. dated April 1, 2002. (Incorporated by reference to Exhibit 4.10 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001 filed on April 16, 2002.) 4.11 Form of Common Stock Purchase Warrant dated April 1, 2002, issued to purchasers of Series A Convertible Preferred Stock. (Incorporated by reference to Exhibit 4.11 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001 filed on April 16, 2002.) 4.12 Registration Rights Agreement dated April 1, 2002 pertaining to Series A Convertible Preferred Stock. (Incorporated by reference to Exhibit 4.12 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001 filed on April 16, 2002.) 4.13 Letter Agreement dated April 1, 2002 pertaining to conversion of Infinity Note into shares of Common Stock. (Incorporated by reference to Exhibit 4.13 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001 filed on April 16, 2002.) 10.23 Agreement and Plan of Merger Among Edge Technology Group, Inc., Visionary Acquisition Corp., The Visionary Group, Inc. and The Visionary Group Shareholders dated April 8, 2002. (Incorporated by reference to Exhibit 10.23 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001 filed on April 16, 2002.) 10.24 Agreement and Plan of Merger Among Edge Technology Group, Inc., Media Resolutions Acquisition Corp., Media Resolutions, Incorporated and Media Resolutions Shareholders dated April 11, 2002. (Incorporated by reference to Exhibit 10.24 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001 filed on April 16, 2002.) -24- 10.25 Agreement and Plan of Merger Among Edge Technology Group, Inc., VT Acquisition Corp., Virtually There, Inc. and the shareholders of Virtually There, Inc. dated May 30, 2002. (Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed on June 14, 2002.) 10.26 Asset Purchase Agreement by and among Universal Data Technology, Inc., its Shareholders, Edge Technology Group, Inc. and UDT Consulting, Inc. (Incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K filed on June 14, 2002.) 10.27* 2002 Stock Incentive Plan dated June 25, 2002. (filed herewith) 10.28 Bill of Sale and Asset Purchase Agreement by and between Axtive Software Corporation and Edge Technology Group dated June 21, 2002. (filed herewith) 10.29 Factoring and Security Agreement between UDT Consulting, Inc., and Landry Marks Partners, LP dated June 24, 2002. (filed herewith) 99.1 Section 906 Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith) * Indicates management contract or compensatory plan or arrangement (b) Reports on Form 8-K On June 14, 2002, Edge filed a Form 8-K announcing the acquisition of Virtually There, Inc. and the purchase of the assets of Universal Data Technologies, Inc. as of May 30, 2002 and May 31, 2002, respectively. On June 24, 2002, Edge filed a Form 8-K/A detailing the four companies acquired during April and May 2002, including (i) Audited Financial Statements of The Visionary Group, Inc., Media Resolutions, Inc., Virtually There, Inc. and Universal Data Technology, Inc. as of and for the year ended December 31, 2001; (ii) unaudited interim financial information for Virtually There, Inc. and Universal Data Technology, Inc. for the three months ended March 31, 2002; (iii) unaudited combined pro forma Balance Sheets of Edge Technology Group, Inc., The Visionary Group, Inc., Media Resolutions, Inc., Virtually There, Inc. and Universal Data Technology, Inc. as of March 31, 2002, and the related unaudited combined pro forma Statements of Operations for the year ended December 31, 2001, and the three months ended March 31, 2002. On July 8, 2002, Edge filed a Form 8-K stating that the operating results of its subsidiary, The Visionary Group, were below acceptable levels. -25- SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EDGE TECHNOLOGY GROUP INC. By: /s/ DAVID N. PILOTTE -------------------------------- David N. Pilotte Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) August 19, 2002 -26- INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ---------- -------------------------------------------------- 4.9 Form of Subscription and Securities Purchase Agreement dated April 1, 2002, between Edge Technology Group, Inc. and Purchasers as named therein. (Incorporated by reference to Exhibit 4.9 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001 filed on April 16, 2002.) 4.10 Certificate of Designation, Preference and Rights of Series A Convertible Preferred Stock of Edge Technology Group, Inc. dated April 1, 2002. (Incorporated by reference to Exhibit 4.10 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001 filed on April 16, 2002.) 4.11 Form of Common Stock Purchase Warrant dated April 1, 2002, issued to purchasers of Series A Convertible Preferred Stock. (Incorporated by reference to Exhibit 4.11 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001 filed on April 16, 2002.) 4.12 Registration Rights Agreement dated April 1, 2002 pertaining to Series A Convertible Preferred Stock. (Incorporated by reference to Exhibit 4.12 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001 filed on April 16, 2002.) 4.13 Letter Agreement dated April 1, 2002 pertaining to conversion of Infinity Note into shares of Common Stock. (Incorporated by reference to Exhibit 4.13 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001 filed on April 16, 2002.) 10.23 Agreement and Plan of Merger Among Edge Technology Group, Inc., Visionary Acquisition Corp., The Visionary Group, Inc. and The Visionary Group Shareholders dated April 8, 2002. (Incorporated by reference to Exhibit 10.23 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001 filed on April 16, 2002.) 10.24 Agreement and Plan of Merger Among Edge Technology Group, Inc., Media Resolutions Acquisition Corp., Media Resolutions, Incorporated and Media Resolutions Shareholders dated April 11, 2002. (Incorporated by reference to Exhibit 10.24 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001 filed on April 16, 2002.) 10.25 Agreement and Plan of Merger Among Edge Technology Group, Inc., VT Acquisition Corp., Virtually There, Inc. and the shareholders of Virtually There, Inc. dated May 30, 2002. (Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed on June 14, 2002.) 10.26 Asset Purchase Agreement by and among Universal Data Technology, Inc., its Shareholders, Edge Technology Group, Inc. and UDT Consulting, Inc. (Incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K filed on June 14, 2002.) 10.27* 2002 Stock Incentive Plan dated June 25, 2002. (filed herewith) 10.28 Bill of Sale and Asset Purchase Agreement by and between Axtive Software Corporation and Edge Technology Group dated June 21, 2002. (filed herewith) 10.29 Factoring and Security Agreement between UDT Consulting, Inc., and Landry Marks Partners, LP dated June 24, 2002. (filed herewith) 99.1 Section 906 Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith) * Indicates management contract or compensatory plan or arrangement EX-10.27 3 edgeplan2.txt 2002 STOCK INCENTIVE PLAN EDGE TECHNOLOGY GROUP, INC. 2002 STOCK INCENTIVE PLAN Adopted Effective June 25, 2002 TABLE OF CONTENTS ARTICLE 1. PURPOSE OF PLAN.................................. 1 ARTICLE 2. EFFECTIVE DATE AND TERM OF PLAN................... 1 2.1 Term of Plan........................................ 1 2.2 Effect on Awards.................................... 1 2.3 Stockholder Approval................................ 1 ARTICLE 3. SHARES SUBJECT TO PLAN............................ 1 3.1 Number of Shares.................................... 1 3.2 Source of Shares.................................... 1 3.3 Availability of Unused Shares....................... 1 3.4 Adjustment Provisions............................... 2 3.5 Substitute Awards................................... 2 ARTICLE 4. ADMINISTRATION OF PLAN........................... 3 4.1 Administering Body.................................. 3 4.2 Authority of Administering Body..................... 3 4.3 Eligibility......................................... 4 4.4 No Liability........................................ 4 4.5 Amendments.......................................... 4 4.6 Other Compensation Plans............................ 5 4.7 Plan Binding on Successors.......................... 5 4.8 References to Successor Statutes, Regulations and Rules............................. 5 4.9 Issuances for Compensation Purposes Only............ 5 4.10 Invalid Provisions................................. 5 4.11 Governing Law...................................... 5 ARTICLE 5. GENERAL AWARD PROVISIONS......................... 6 5.1 Participation in the Plan........................... 6 5.2 Award Agreements.................................... 6 5.3 Exercise of Awards.................................. 6 5.4 Payment for Awards.................................. 7 5.5 No Employment or Other Continuing Rights............ 7 5.6 Restrictions Under Applicable Laws and Regulations.. 8 5.7 Additional Conditions............................... 8 5.8 No Privileges of Stock Ownership.................... 9 5.9 Non-Transferable.................................... 9 5.10 Information to Recipients.......................... 9 5.11 Withholding Taxes.................................. 10 5.12 Legends on Common Stock Certificates............... 10 5.13 Effect of Termination of Employment on Awards...... 10 5.14 Effect of Termination of Engagement on Awards - Non-Employees Only...................... 10 5.15 Transfer; Leave of Absence......................... 11 5.16 Limits on Awards to Certain Eligible Persons....... 11 ARTICLE 6. STOCK OPTIONS.................................... 12 6.1 Nature of Stock Options............................. 12 6.2 Option Exercise Price............................... 12 6.3 Option Period and Vesting........................... 12 6.4 Special Provisions Regarding Incentive Stock Options..................................... 12 6.5 Reload Options...................................... 13 6.6 Restrictions........................................ 13 ARTICLE 7. RESTRICTED STOCK AWARDS........................... 13 7.1 Nature of Restricted Stock Awards................... 13 7.2 Rights as Stockholders.............................. 13 7.3 Restriction......................................... 13 7.4 Repurchase or Restricted Stock...................... 14 7.5 Escrows............................................. 14 7.6 Vesting of Restricted Stock......................... 14 7.7 Waiver, Deferral and Reinvestment of Dividends...... 14 ARTICLE 8. UNRESTRICTED STOCK AWARDS......................... 14 8.1 Grant or Sale of Unrestricted Stock................. 14 ARTICLE 9. PERFORMANCE STOCK AWARDS.......................... 14 9.1 Nature of Performance Stock Awards.................. 15 9.2 Rights as a Stockholder............................. 15 9.3 Acceleration, Waiver, Etc........................... 15 ARTICLE 10. DIVIDEND EQUIVALENT RIGHTS....................... 15 10.1 Dividend Equivalent Rights......................... 15 10.2 Interest Equivalents............................... 15 ARTICLE 11. STOCK APPRECIATION RIGHTS........................ 15 11.1 Grant of Stock Appreciation Rights................. 16 11.2 Coupled Stock Appreciation Rights.................. 16 11.3 Independent Stock Appreciation Rights.............. 16 11.4 Payment and Limitations on Exercise................ 17 ARTICLE 12. REORGANIZATIONS................................. 17 12.1 Corporate Transactions Not Involving a Change in Control................................ 17 12.2 Corporate Transactions Involving a Change in Control....................................... 17 ARTICLE 13. DEFINITIONS..................................... 18 EDGE TECHNOLOGY GROUP, INC. 2002 STOCK INCENTIVE PLAN _______________________________________________________ 1. PURPOSE OF PLAN The Company has adopted this Plan to promote the interests of the Company, its Affiliated Entities and its stockholders by using investment interests in the Company to attract, retain and motivate its management and other persons, including officers, directors, key employees and certain consultants, to encourage and reward such persons' contributions to the performance of the Company and to align their interests with the interests of the Company's stockholders. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in Article 13. 2. EFFECTIVE DATE AND TERM OF PLAN 2.1 Term of Plan. This Plan became effective as of the Effective Date and shall continue in effect until the Expiration Date, at which time this Plan shall automatically terminate. 2.2 Effect on Awards. Awards may be granted during the Plan Term, but no Awards may be granted after the Plan Term. Notwithstanding the foregoing, each Award properly granted under this Plan during the Plan Term shall remain in effect after termination of this Plan until such Award has been exercised, terminated or expired, as applicable, in accordance with its terms and the terms of this Plan. 2.3 Stockholder Approval. This Plan shall be approved by the Company's stockholders within 12 months after the Effective Date. The effectiveness of any Awards granted prior to such stockholder approval shall be specifically subject to, and conditioned upon, such stockholder approval. 3. SHARES SUBJECT TO PLAN 3.1 Number of Shares. The maximum number of shares of Common Stock reserved and available for issuance under this Plan shall be 12,000,000, subject to adjustment as set forth in Section 3.4. 3.2 Source of Shares. The Common Stock to be issued under this Plan will be made available, at the discretion of the Board, either from authorized but unissued shares of Common Stock or from previously issued shares of Common Stock reacquired by the Company, including without limitation, shares purchased on the open market. 3.3 Availability of Unused Shares. Shares of Common Stock underlying unexercised, unearned or yet-to-be acquired portions of any Award granted under this Plan that expire, terminate or are canceled, and shares of Common Stock issued pursuant to Awards under this Plan that are reacquired by the Company pursuant to the terms under which such shares were issued, will again become available for the grant of further Awards under this Plan. Notwithstanding the provisions of this Section 3.3, no shares of Common Stock may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the IRC. -1- 3.4 Adjustment Provisions. (a) If (i) the outstanding shares of Common Stock of the Company are increased, decreased or exchanged for a different number or kind of shares or other securities, or if additional shares or new or different shares or other securities are distributed in respect of such shares of Common Stock (or any stock or securities received with respect to such Common Stock), through merger, consolidation, sale or exchange of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, spin-off or other distribution with respect to such shares of Common Stock (or any stock or securities received with respect to such Common Stock), or (ii) the value of the outstanding shares of Common Stock of the Company is reduced by reason of an extraordinary cash dividend, an appropriate and proportionate adjustment may be made in (1) the maximum number and kind of shares or securities available for issuance under this Plan, (2) the number and kind of shares or other securities that can be granted to any one individual Recipient under his or her Awards, (3) the number and kind of shares or other securities subject to then outstanding Awards under this Plan, and/or (4) the price for each share or other unit of any other securities subject to then outstanding Awards under this Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of securities comprising such Awards) as to which such Awards remain exercisable. (b) No fractional interests will be issued under this Plan resulting from any adjustments, but the Administering Body, in its sole discretion, may make a cash payment in lieu of any fractional shares of Common Stock issuable as a result of such adjustments. (c) To the extent any adjustments relate to stock or securities of the Company, such adjustments shall be made by the Administering Body, whose determination in that respect shall be final, binding and conclusive. (d) The grant of Awards pursuant to this Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets. (e) No adjustment to the terms of an Incentive Stock Option shall be made unless such adjustment either (i) would not cause such Incentive Stock Option to lose its status as an incentive stock option under the provisions of the IRC or (ii) is agreed to in writing by the Administering Body and the Recipient. 3.5 Substitute Awards. The Administering Body may grant Awards under this Plan in substitution for stock and stock based Awards held by employees of another corporation who become employees of the Company or a Subsidiary Corporation as a result of a merger or consolidation of the employing corporation with the Corporation or a Subsidiary Corporation or the acquisition by the Company or a Subsidiary Corporation of property or stock of the employing corporation. The Administering Body may direct that the substitute Awards be granted on such terms and conditions as the Administering Body considers appropriate in the circumstances. -2- 4. ADMINISTRATION OF PLAN 4.1 Administering Body. (a) Subject to the provisions of Section 4.1(b)(ii), this Plan shall be administered by the Board or by the Stock Plan Committee of the Board appointed pursuant to Section 4.1(b). The Stock Plan Committee may (but is not required to be), in the discretion of the Board, the same as the compensation committee of the Board. (b) (i) The Board in its sole discretion may from time to time appoint a Stock Plan Committee of not less than two (2) Board members to administer this Plan and, subject to applicable law, to exercise all of the powers, authority and discretion of the Board under this Plan. The Board may from time to time increase or decrease (but not below two (2)) the number of members of the Stock Plan Committee, remove from membership on the Stock Plan Committee all or any portion of its members, and/or appoint such person or persons as it desires to fill any vacancy existing on the Stock Plan Committee, whether caused by removal, resignation or otherwise. The Board may disband the Stock Plan Committee at any time and thereby revest in the Board the administration of this Plan. (ii) Notwithstanding the foregoing provisions of this Section 4.1(b) to the contrary, upon becoming and so long as the Company remains an Exchange Act Registered Company and has not, by action of the Board, elected to opt out of the provisions of this Section 4.1(b)(ii), (1) the Board shall appoint the Stock Plan Committee, (2) this Plan shall be administered by the Stock Plan Committee and (3) each member of the Stock Plan Committee shall be a Non- employee Director, and, in addition, if Awards are to be made to persons subject to Section 162(m) of the IRC and such Awards are intended to constitute Performance- Based Compensation, then each member of the Stock Plan Committee shall, in addition to being a Non-employee Director, be an Outside Director. (iii) The Stock Plan Committee shall report to the Board the names of Eligible Persons granted Awards, the precise type of Award granted, the number of shares of Common Stock issuable pursuant to such Award and the terms and conditions of each such Award. 4.2 Authority of Administering Body. (a) Subject to the express provisions of this Plan, the Administering Body shall have the power to interpret and construe this Plan and any agreements or other documents defining the rights and obligations of the Company and such Eligible Persons who have been granted Awards hereunder and thereunder, to determine all questions arising hereunder and thereunder, to adopt and amend such rules and regulations for the administration hereof and thereof as it may deem desirable, and otherwise to carry out the terms of this Plan and such agreements and other documents. The interpretation and construction by the Administering Body of any provisions of this Plan or of any Award shall be conclusive and binding. Any action taken by, or inaction of, the Administering Body relating to this Plan or any Award shall be within the absolute discretion of the Administering Body and shall be conclusive and binding upon all persons. Subject only to compliance with the express provisions hereof, the Administering Body may act in its absolute discretion in matters related to this Plan and any and all Awards. -3- (b) Subject to the express provisions of this Plan, the Administering Body may from time to time, in its discretion, select the Eligible Persons to whom, and the time or times at which, such Awards shall be granted, the nature of each Award, the number of shares of Common Stock that comprise or underlie each Award, the period for the purchase or exercise of each Award, as applicable, the Performance Criteria applicable to the Award, if any, and such other terms and conditions applicable to each individual Award as the Administering Body shall determine. The Administering Body may grant, at any time, new Awards to an Eligible Person who has previously received Awards whether such prior Awards are still outstanding, have previously been canceled, disposed of or exercised as a whole or in part, as applicable, or are canceled in connection with the issuance of new Awards. The Administering Body may grant Awards singly, in combination or in tandem with other Awards, as it determines in its discretion. Any and all terms and conditions of the Awards, including the purchase or exercise price, as the case may be, may be established by the Administering Body without regard to existing Awards. (c) Any action of the Administering Body with respect to the administration of this Plan shall be taken pursuant to a majority vote of the authorized number of members of the Administering Body or by the unanimous written consent of its members; provided, however, that (i) if the Administering Body is the Stock Plan Committee and consists of two (2) members, then actions of the Administering Body must be unanimous and (ii) if the Administering Body is the Board, actions taken at a meeting of the Board shall be valid if approved by directors constituting a majority of the required quorum for such meeting. 4.3 Eligibility. Only Eligible Persons shall be eligible to receive Awards under this Plan as shall be selected from time to time by the Administering Body, in its sole and absolute discretion. 4.4 No Liability. No member of the Board or the Stock Plan Committee or any designee thereof will be liable for any action or inaction with respect to this Plan or any Award or any transaction arising under this Plan or any Award, except in circumstances constituting bad faith of such member. 4.5 Amendments. (a) The Administering Body may, insofar as permitted by applicable law, rule or regulation, from time to time suspend or discontinue this Plan or revise or amend it in any respect whatsoever, and this Plan as so revised or amended will govern all Awards hereunder, including those granted before such revision or amendment; provided, however, that no such revision or amendment shall alter, impair or diminish any rights or obligations under any Award previously granted under this Plan, without the written consent of the Recipient. Without limiting the generality of the foregoing, the Administering Body is authorized to amend this Plan to comply with or take advantage of amendments to applicable laws, rules or regulations, including amendments to the Securities Act, Exchange Act or the IRC or any rules or regulations promulgated thereunder. No stockholder approval of any amendment or revision shall be required unless (i) such approval is required by applicable law, rule or regulation or (ii) an amendment or revision to this Plan is required by any stock exchange or automated quotation system then listing the shares of Common Stock. -4- (b) The Administering Body may, with the written consent of a Recipient, make such modifications in the terms and conditions of an Award as it deems advisable. Without limiting the generality of the foregoing, the Administering Body may, in its discretion with the written consent of Recipient, at any time and from time to time after the grant of any Award (i) accelerate or extend the vesting or exercise period of any Award as a whole or in part, (ii) adjust or reduce the purchase or exercise price, as applicable, of Awards held by such Recipient by cancellation of such Awards and granting of Awards at lower purchase or exercise prices or by modification, extension or renewal of such Awards and (iii) reduce or otherwise modify the Performance Criteria applicable to any Award. In the case of Incentive Stock Options, Recipients acknowledge that extensions of the exercise period may result in the loss of the favorable tax treatment afforded incentive stock options under Section 422 of the IRC. (c) Except as otherwise provided in this Plan or in the applicable Award Agreement, no amendment, revision, suspension or termination of this Plan will, without the written consent of the Recipient, alter, terminate, impair or adversely affect any right or obligation under any Award previously granted under this Plan. 4.6 Other Compensation Plans. The adoption of this Plan shall not affect any other stock option, securities purchase, incentive or other compensation plans in effect for the Company, and this Plan shall not preclude the Company from establishing any other forms of incentive or other compensation for Employees, Directors, Consultants or others, whether or not approved by stockholders. 4.7 Plan Binding on Successors. This Plan shall be binding upon the successors and assigns of the Company. 4.8 References to Successor Statutes, Regulations and Rules. Any reference in this Plan to a particular statute, regulation or rule shall also refer to any successor provision of such statute, regulation or rule. 4.9 Issuances for Compensation Purposes Only. This Plan constitutes an "employee benefit plan" as defined in Rule 405 promulgated under the Securities Act. Awards to eligible Employees or Directors shall be granted for any lawful consideration, including compensation for services rendered, promissory notes or otherwise. Awards to Consultants shall be granted only in exchange for bona fide services rendered by such consultants or advisors and such services must not be in connection with the offer and sale of securities in a capital- raising transaction. 4.10 Invalid Provisions. In the event that any provision of this Plan is found to be invalid or otherwise unenforceable under any applicable law, such invalidity or unenforceability shall not be construed as rendering any other provisions contained herein invalid or unenforceable, and all such other provisions shall be given full force and effect to the same extent as though the invalid and unenforceable provision were not contained herein. 4.11 Governing Law. This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of Texas, without giving effect to the principles of the conflicts of laws thereof. -5- 5. GENERAL AWARD PROVISIONS 5.1 Participation in the Plan. (a) A person shall be eligible to receive Award grants under this Plan if, at the time of the grant of such Award, such person is an Eligible Person. (b) Incentive Stock Options may be granted only to Employees meeting the employment requirements of Section 422 of the IRC. (c) Notwithstanding anything to the contrary herein, the Administering Body may, in order to fulfill the purposes of this Plan, modify grants of Awards to Recipients who are foreign nationals or employed outside of the United States to recognize differences in applicable law, tax policy or local custom. 5.2 Award Agreements. (a) Each Award granted under this Plan shall be evidenced by an Award Agreement, which shall be duly executed on behalf of the Company and by the Recipient or, in the Administering Body's discretion, a confirming memorandum issued by the Company to the Recipient setting forth such terms and conditions applicable to such Award as the Administering Body may in its discretion determine. Award Agreements may but need not be identical and shall comply with and be subject to the terms and conditions of this Plan, a copy of which shall be provided to each Recipient and incorporated by reference into each Award Agreement. Any Award Agreement may contain such other terms, provisions and conditions not inconsistent with this Plan as may be determined by the Administering Body. (b) In case of any conflict between this Plan and any Award Agreement, this Plan shall control. (c) In consideration of the granting of an Award under the Plan, if requested by the Company, the Recipient shall agree, in the Award Agreement, to remain in the employ of (or to consult for or to serve as a Non-employee Director of, as applicable) the Company or any Affiliated Entity for a period of at least one (1) year (or such shorter period as may be fixed in the Award Agreement or by action of the Administering Body following grant of the Award) after the Award is granted (or, in the case of a Non-employee Director, until the next annual meeting of stockholders of the Company). 5.3 Exercise of Awards. No Award granted hereunder shall be issuable or exercisable except in respect of whole shares, and fractional share interests shall be disregarded. Not less than 100 shares of Common Stock (or such other amount as is set forth in the applicable Award Agreement) may be purchased at one time and Stock Options, or other Awards, as applicable, must be purchased or exercised, as applicable, in multiples of 100 unless the number purchased is the total number at the time available for purchase under the terms of the Award. An Award shall be deemed to be claimed or exercised when the Secretary or other designated official of the Company receives appropriate written notice, on such form acceptable to the Company, from the Recipient, together with payment of the applicable purchase or exercise price made in accordance with the Award Agreement and any amounts required under Section 5.11. Notwithstanding any other provision of this Plan, the Administering Body may impose, by rule and/or in Award Agreements, such conditions upon the exercise of Awards (including without limitation conditions limiting the time of exercise to specified periods) as may be required to satisfy applicable regulatory requirements, including without limitation Rule 16b-3 and Rule 10b-5 under the Exchange Act, and any amounts required under Section 5.11 or other applicable section of or regulation under the IRC. -6- 5.4 Payment for Awards. (a) Awards requiring payment of a purchase or exercise price shall be payable upon the exercise of such Award pursuant to any Award granted hereunder by delivery of legal tender of the United States or payment of such other consideration as the Administering Body may from time to time deem acceptable in any particular instance. (b) The Company may assist any person to whom Awards are granted hereunder (including without limitation any Employee, Director or Consultant of the Company) in the payment of the exercise price or other amounts payable in connection with the receipt or exercise of such Award, by lending such amounts to such person on such terms and at such rates of interest and upon such security (if any) as shall be approved by the Administering Body. (c) In the discretion of the Administering Body, payments for purchase or exercise of Awards may be by matured capital stock of the Company (i.e., owned longer than six (6) months) delivered in transfer to the Company by or on behalf of the person exercising the Award and duly endorsed in blank or accompanied by stock powers duly endorsed in blank, with signatures guaranteed in accordance with the Exchange Act if required by the Administering Body (valued at Fair Market Value as of the exercise date), or such other consideration as the Administering Body may from time to time in the exercise of its discretion deem acceptable in any particular instance; provided, however, that the Administering Body may, in the exercise of its discretion, (i) allow exercise of Stock Options in a broker- assisted or similar transaction in which the exercise price is not received by the Company until promptly after exercise, and/or (ii) allow the Company to loan the applicable purchase or exercise price to the Recipient, if the purchase or exercise will be followed by a prompt sale of some or all of the underlying shares and a portion of the sale proceeds is dedicated to full payment of the purchase or exercise price and amounts required pursuant to Section 5.11. 5.5 No Employment or Other Continuing Rights. Nothing contained in this Plan (or in any Award Agreement or in any other agreement or document related to this Plan or to Awards granted hereunder) shall confer upon any Eligible Person or Recipient any right to continue in the employ (or other business relationship) of the Company or any Affiliated Entity or constitute any contract or agreement of employment or engagement, or interfere in any way with the right of the Company or any Affiliated Entity to reduce such person's compensation or other benefits or to terminate the employment or engagement of such Eligible Person or Recipient, with or without cause. Except as expressly provided in this Plan or in any Award Agreement pursuant to this Plan, the Company shall have the right to deal with each Recipient in the same manner as if this Plan and any such Award Agreement did not exist, including without limitation with respect to all matters related to the hiring, retention, discharge, compensation and conditions of the employment or engagement of the Recipient. Any questions as to whether and when there has been a termination of a Recipient's employment or engagement, the reason (if any) for such termination, and/or the consequences thereof under the terms of this Plan or any statement evidencing the grant of Awards pursuant to this Plan shall be determined by the Administering Body, and the Administering Body's determination thereof shall be final and binding. -7- 5.6 Restrictions Under Applicable Laws and Regulations. (a) All Awards granted under this Plan shall be subject to the requirement that, if at any time the Company shall determine, in its discretion, that the listing, registration or qualification of the shares subject to any such Award granted under this Plan upon any securities exchange or under any federal, state or foreign law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Awards or the issuance, if any, or purchase of shares in connection therewith, such Awards may not be granted or exercised as a whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. During the term of this Plan, the Company will use reasonable efforts to seek to obtain from the appropriate regulatory agencies any requisite qualifications, consents, approvals or authorizations in order to issue and sell such number of shares of its Common Stock as shall be sufficient to satisfy the requirements of this Plan. The inability of the Company to obtain from any such regulatory agency having jurisdiction thereof the qualifications, consents, approvals or authorizations deemed by the Company to be necessary for the lawful issuance and sale of any shares of its Common Stock hereunder shall relieve the Company of any liability in respect of the nonissuance or sale of such stock as to which such requisite authorization shall not have been obtained. (b) The Company shall be under no obligation to register or qualify the issuance of Awards or underlying shares of Common Stock under the Securities Act or applicable state securities laws. Unless the shares of Common Stock applicable to any such Award have been registered under the Securities Act and qualified or registered under applicable state securities laws, the Company shall be under no obligation to issue any shares of Common Stock covered by any Award unless the Award and underlying shares of Common Stock, as applicable, may be issued pursuant to applicable exemptions from such registration or qualification requirements. In connection with any such exempt issuance, the Administering Body may require the Recipient to provide a written representation and undertaking to the Company, satisfactory in form and scope to the Company and upon which the Company may reasonably rely, that such Recipient is acquiring such securities for his or her own account as an investment and not with a view to, or for sale in connection with, the distribution of any such shares of stock, and that such person will make no transfer of the same except in compliance with any rules and regulations in force at the time of such transfer under the Securities Act and other applicable law, and that if shares of stock are issued without such registration, a legend to this effect (together with any other legends deemed appropriate by the Administering Body) may be endorsed upon the securities so issued. The Company may also order its transfer agent to stop transfers of such securities. The Administering Body may also require the Recipient to provide the Company such information and other documents as the Administering Body may request in order to satisfy the Administering Body as to the investment sophistication and experience of the Recipient and as to any other conditions for compliance with any such exemptions from registration or qualification. 5.7 Additional Conditions. Any Award may also be subject to such other provisions (whether or not applicable to any other Award or Eligible Person) as the Administering Body determines appropriate including without limitation (a) provisions to assist the Recipient in financing the purchase of Common Stock issuable as a result of such Award, (b) provisions for the forfeiture of or restrictions on resale or other disposition of shares of Common Stock acquired under any form of benefit, (c) provisions giving the Company the right to repurchase shares of Common Stock acquired under any form of benefit in the event the Recipient elects to dispose of such shares, and (d) provisions to comply with federal and state securities laws and federal and state income tax withholding requirements. -8- 5.8 No Privileges of Stock Ownership. Except as otherwise set forth herein, a Recipient shall have no rights as a stockholder with respect to any shares issuable or issued in connection with an Award until the date of the receipt by the Company of all amounts payable in connection with the purchase or exercise, as applicable, of the Award, the satisfaction or waiver of all applicable Performance Criteria and performance by the Recipient of all obligations applicable thereto. Status as an Eligible Person shall not be construed as a commitment that any Award will be granted under this Plan to an Eligible Person or to Eligible Persons generally. No person shall have any right, title or interest in any fund or in any specific asset (including shares of capital stock) of the Company by reason of any Award granted hereunder. Neither this Plan (nor any documents related hereto) nor any action taken pursuant hereto (or thereto) shall be construed to create a trust of any kind or a fiduciary relationship between the Company and any Person. To the extent that any Person acquires a right to receive Awards hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company. 5.9 Non-Transferable. (a) No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Administering Body, pursuant to a DRO, unless and until such Award has been exercised, or the shares underlying such Award have been issued, and all restrictions applicable to such shares have lapsed. No Award or interest or right therein shall be subject to liability for the debts, contracts or engagements of the Recipient or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence. (b) During the lifetime of the Recipient, only he or she may exercise an Option or other Award (or any portion thereof) granted to him or her under the Plan, unless it has been disposed of with the consent of the Administering Body pursuant to a DRO. After the death of the Recipient, any exercisable portion of an Option or other Award may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Award Agreement, be exercised by his personal representative or by any person empowered to do so under the deceased Recipient's will or under the then applicable laws of descent and distribution. 5.10 Information to Recipients. (a) The Administering Body in its sole discretion shall determine what, if any, financial and other information shall be provided to Recipients and when such financial and other information shall be provided after giving consideration to applicable federal and state laws, rules and regulations, including without limitation applicable federal and state securities laws, rules and regulations. -9- (b) The furnishing of financial and other information that is confidential to the Company shall be subject to the Recipient's agreement that the Recipient shall maintain the confidentiality of such financial and other information, shall not disclose such information to third parties, and shall not use the information for any purpose other than evaluating an investment in the Company's securities under this Plan. The Administering Body may impose other restrictions on the access to and use of such confidential information and may require a Recipient to acknowledge the Recipient's obligations under this Section 5.10(b) (which acknowledgment shall not be a condition to the Recipient's obligations under this Section 5.10(b)). 5.11 Withholding Taxes. Whenever the granting, vesting or exercise of any Award granted under this Plan, or the transfer of any shares issued upon exercise of any Award, gives rise to tax or tax withholding liabilities or obligations, the Administering Body shall have the right to require the Recipient to remit to the Company an amount sufficient to satisfy any federal, state and local withholding tax requirements prior to issuance of such shares. The Administering Body may, in the exercise of its discretion, allow satisfaction of tax withholding requirements by accepting delivery of stock of the Company (or by withholding a portion of the stock otherwise issuable in connection with such Awards). 5.12 Legends on Common Stock Certificates. Each certificate representing shares acquired as a result of any Award granted hereunder shall be endorsed with all legends, if any, required by applicable federal and state securities and other laws to be placed on the certificate. The determination of which legends, if any, shall be placed upon such certificates shall be made by the Administering Body in its sole discretion and such decision shall be final and binding. 5.13 Effect of Termination of Employment on Awards - Employees Only. (a) Termination. Subject to Section 5.13(b), and except as otherwise provided in a written agreement between the Company and the Recipient, which may be entered into at any time before or after termination of employment of the Recipient, in the event of the termination of an Employee Recipient's employment, all of the Recipient's unvested Awards shall terminate and all of the Recipient's unexercised Awards shall expire and become unexercisable as of the earlier of (A) the date such Awards would have expired in accordance with their terms had the Recipient remained employed and (B) (i) six (6) months after the Recipient's engagement is terminated as a result of death or Permanent Disability and (ii) ninety (90) days after Recipient's engagement is terminated for any other reason. (b) Alteration of Vesting and Exercise Periods. Notwithstanding anything to the contrary in Section 5.13(a), the Administering Body may in its discretion designate shorter or longer periods to claim or otherwise exercise Awards following a Recipient's termination of employment; provided, however, that any shorter periods determined by the Administering Body shall be effective only if provided for in the instrument that evidences the grant to the Recipient of such Award or if such shorter period is agreed to in writing by the Recipient. Notwithstanding anything to the contrary herein, Awards shall be claimed or exercisable by a Recipient following such Recipient's termination of employment only to the extent that installments thereof had become exercisable on or prior to the date of such termination; and provided, further, that the Administering Body may, in its discretion, elect to accelerate the vesting of all or any portion of any Awards that had not vested on or prior to the date of such termination. -10- 5.14 Effect of Termination of Engagement on Awards - Non- Employees Only. (a) Termination. Subject to Section 5.14(b), and except as otherwise provided in a written agreement between the Company and the Recipient, which may be entered into at any time before or after termination of engagement of the Recipient, in the event of the termination of any non- Employee Recipient's engagement (including, Directors and Consultants), all of the Recipient's unvested Awards shall terminate and all of the Recipient's unexercised Awards shall expire and become unexercisable as of the earlier of (A) the date such Awards would have expired in accordance with their terms had the Recipient remained engaged by the Company and (B)(i) six (6) months after Recipient's engagement is terminated as a result of death or Permanent Disability and (ii) ninety (90) days after Recipient's engagement is terminated for any other reason. (b) Alternation of Vesting and Exercise Periods. Notwithstanding anything to the contrary in Section 5.14(a), the Administering Body may, in its discretion, designate shorter or longer periods to claim or otherwise exercise Awards following a non-Employee Recipient's termination of engagement; provided, however, that any shorter periods determined by the Administering Body shall be effective only if provided for in the instrument that evidences the grant to the Recipient of such Award or if such shorter period is agreed to in writing by the Recipient. Notwithstanding anything to the contrary herein, awards shall be claimed or exercisable by a Recipient following such Recipient's termination of engagement only to the extent that the installments thereof had become exercisable on or prior to the date of such termination; and provided further, that the Administering Body may, in its discretion, elect to accelerate the vesting of all or any portion of any Awards that had not vested on or prior to the date of such termination. 5.15 Transfer; Leave of Absence. For purposes of this Plan, the transfer by a Recipient to the employment or engagement of (i) the Company from a Subsidiary Corporation, (ii) from the Company to a Subsidiary Corporation or (iii) from one Subsidiary Corporation to another Subsidiary Corporation (including, with respect to Consultants, the assignment between the Company and a Subsidiary Corporation or between two Subsidiary Corporations, as applicable, of an agreement pursuant to which such services are rendered) or, with respect solely to Employees, an approved leave of absence for military service, sickness, or for any other purpose approved by the Company, shall not be deemed a termination. In the case of any Employee on an approved leave of absence, the Administering Body may make such provision respecting continuance of Awards as the Administering Body in its discretion deems appropriate, except that in no event shall a Stock Option or other Award be exercisable after the date such Award would expire in accordance with its terms had the Recipient remained continuously employed. 5.16 Limits on Awards to Certain Eligible Persons. (a) Limitations Applicable to Section 162(m) Participants. Notwithstanding any other provision of this Plan, in order for the compensation attributable to Awards hereunder to qualify as Performance-Based Compensation, no one Eligible Person shall be granted any one or more Awards with respect to more than 1,000,000 shares of Common Stock in any one calendar year. The limitation set forth in this Section 5.16 shall be subject to adjustment as provided in Section 3.4 and under Article 11, but only to the extent such adjustment would not affect the status of compensation attributable to Awards hereunder as Performance-Based Compensation. (b) Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of this Plan, the Plan, and any Award granted or awarded to any individual who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule. -11- 6. STOCK OPTIONS 6.1 Nature of Stock Options. Subject to the limitations provided otherwise herein, Stock Options may be Incentive Stock Options or Non-qualified Stock Options. 6.2 Option Exercise Price. The exercise price for each Stock Option shall be determined by the Administering Body as of the date such Stock Option is granted. The exercise price shall be no less than the Fair Market Value of the Common Stock subject to the Option. The Administering Body may, with the consent of the Recipient and subject to compliance with statutory or administrative requirements applicable to Incentive Stock Options, amend the terms of any Stock Option to provide that the exercise price of the shares remaining subject to the Stock Option shall be reestablished at a price not less than 100% of the Fair Market Value of the Common Stock on the effective date of the amendment. No modification of any other term or provision of any Stock Option that is amended in accordance with the foregoing shall be required, although the Administering Body may, in its discretion, make such further modifications of any such Stock Option as are not inconsistent with this Plan. 6.3 Option Period and Vesting. Stock Options granted hereunder shall vest and may be exercised as determined by the Administering Body, except that exercise of such Stock Options after termination of the Recipient's employment or engagement shall be subject to Section 5.13 or 5.14, as the case may be. Each Stock Option granted hereunder and all rights or obligations thereunder shall expire on such date as shall be determined by the Administering Body, but not later than ten (10) years after the date the Stock Option is granted and shall be subject to earlier termination as provided herein or in the Award Agreement. The Administering Body may, in its discretion at any time and from time to time after the grant of a Stock Option, accelerate vesting of such Option as a whole or in part by increasing the number of shares then purchasable, provided that the total number of shares subject to such Stock Option may not be increased. Except as otherwise provided herein, a Stock Option shall become exercisable, as a whole or in part, on the date or dates specified by the Administering Body and thereafter shall remain exercisable until the expiration or earlier termination of the Stock Option. 6.4 Special Provisions Regarding Incentive Stock Options. (a) Notwithstanding anything in this Article 6 to the contrary, the exercise price and vesting period of any Stock Option intended to qualify as an Incentive Stock Option shall comply with the provisions of Section 422 of the IRC and the regulations thereunder. As of the Effective Date, such provisions require, among other matters, that (i) the exercise price must not be less than the Fair Market Value of the underlying stock as of the date the Incentive Stock Option is granted, and not less than 110% of the Fair Market Value as of such date in the case of a grant to a Significant Stockholder; and (ii) that the Incentive Stock Option not be exercisable after the expiration of five (5) years from the date of grant in the case of an Incentive Stock Option granted to a Significant Stockholder. (b) The aggregate Fair Market Value (determined as of the respective date or dates of grant) of the Common Stock for which one or more Incentive Stock Options granted to any Recipient under this Plan (or any other option plan of the Company or any of its Subsidiary Corporations or affiliates) may for the first time become exercisable as Incentive Stock Options under the federal tax laws during any one calendar year shall not exceed $100,000. (c) Any Options granted as Incentive Stock Options pursuant to this Plan that for any reason fail or cease to qualify as such shall be treated as Non-qualified Stock Options. -12- 6.5 Reload Options. At the discretion of the Administering Body, Stock Options granted pursuant to this Plan may include a "reload" feature pursuant to which a Recipient exercising an Option by the delivery of a number of shares of matured capital stock in accordance with Section 5.4(c) hereof and the Award Agreement would automatically be granted an additional Option (with an exercise price equal to the Fair Market Value of the Common Stock on the date the additional Option is granted and with the same expiration date as the original Option being exercised, and with such other terms as the Administering Body may provide) to purchase that number of shares of Common Stock equal to the number delivered to exercise the original Option. 6.6 Restrictions. The Administering Body, in its sole and absolute discretion, may impose such restrictions on the ownership and transferability of the shares purchasable upon the exercise of an Option as it deems appropriate. Any such restriction shall be set forth in the respective Award Agreement and may be referred to on the certificates evidencing such shares. The Recipient shall give the Company prompt notice of any disposition of shares of Common Stock required by exercise of an Incentive Stock Option within (i) two years from the date of granting (including the date the Option is modified, extended or renewed for purposes of section 424(h) of the IRC) such Option to such Recipient or (ii) one year after the transfer of such shares to such Recipient. 7. RESTRICTED STOCK AWARDS 7.1 Nature of Restricted Stock Awards. The Administering Body may grant Restricted Stock Awards to any Eligible Person. A Restricted Stock Award is an Award entitling the recipient to acquire, at par value or such other purchase price determined by the Administering Body (but not less than the par value thereof unless permitted by applicable state law), shares of Common Stock subject to such restrictions and conditions as the Administering Body may determine at the time of grant ("Restricted Stock"). Conditions may be based on continuing employment (or other business relationships) and/or the achievement of pre-established Performance Criteria. 7.2 Rights as Stockholders. Subject to Section 7.3, upon delivery of the shares of the Restricted Stock to the escrow holder pursuant to Section 7.5, the Recipient shall have, unless otherwise provided by the Administering Body, all the rights of a stockholder with respect to said shares, subject to the restrictions in his or her Award Agreement, including the right to receive all dividends and other distributions paid or made with respect to the shares; provided, however, that in the discretion of the Administering Body, any extraordinary distributions with respect to the Common Stock shall be subject to the restrictions set forth in Section 7.3. 7.3 Restriction. All shares of Restricted Stock issued under this Plan (including any shares received by holders thereof with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) shall, in the terms of each individual Award Agreement, be subject to such restrictions as the Administering Body shall provide, which restrictions may include, without limitation, restrictions concerning voting rights and transferability and restrictions based on duration of employment or engagement with the Company or its Affiliated Entities, Company performance and individual performance; provided, however, that, unless the Administering Body otherwise provides in the terms of the Award Agreement or otherwise, no share of Restricted Stock granted to a person subject to Section 16 of the Exchange Act shall be sold, assigned or otherwise transferred until at least six (6) months and one (1) day have elapsed from the date on which the Restricted Stock was issued, and provided, further, that, except with respect to shares of Restricted Stock granted to Section 162(m) participants, by action taken after the Restricted Stock is issued, the Administering Body may, on such terms and conditions as it may determine to be appropriate, remove any or all of the restrictions imposed by the terms of the Award Agreement. Restricted Stock may not be sold or encumbered until all restrictions are terminated or expire. -13- 7.4 Repurchase of Restricted Stock. The Administering Body shall provide in the terms of each individual Award Agreement that the Company shall have a right to repurchase from the Recipient the Restricted Stock then subject to restrictions under the Award Agreement immediately upon a termination of employment (with or without cause and for any reason whatsoever) or, if applicable, upon a termination of engagement (with or without cause and for any reason whatsoever) between the Recipient and the Company, at a cash price per share equal to the price paid by the Recipient for such Restricted Stock; provided, however, that except with respect to shares of Restricted Stock granted to Section 162(m) participants, the Administering Body in its sole and absolute discretion may provide that no such right of repurchase shall exist in the event of a termination of employment or engagement following a Change in Control of the Company or because of the Recipient's death or Permanent Disability. 7.5 Escrows. The Secretary of the Company or such other escrow holder as the Administering Body may appoint shall retain physical custody of each certificate representing Restricted Stock until all of the restrictions imposed under the Award Agreement with respect to the shares evidenced by such certificate expire or shall have been removed. 7.6 Vesting of Restricted Stock. The Administering Body at the time of grant shall specify the date or dates and/or attainment of pre-established Performance Criteria and other conditions on which Restricted Stock shall become vested, subject to such further rights of the Company or its assigns as may be specified in the instrument evidencing the Restricted Stock Award. 7.7 Waiver, Deferral and Reinvestment of Dividends. The written instrument evidencing the Award of Restricted Stock may require or permit the immediate payment, waiver, deferral or investment of dividends paid on the Restricted Stock. 8. UNRESTRICTED STOCK AWARDS 8.1 Grant or Sale of Unrestricted Stock. (a) Grant or Sale of Unrestricted Stock. The Administering Body may, in its sole discretion, grant (or sell at a purchase price determined by the Administering Body) an Unrestricted Stock Award to any Eligible Person, pursuant to which such individual may receive shares of Common Stock free of any vesting restrictions ("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted or sold as described in the preceding sentence in respect of past services or other valid consideration, or in lieu of any cash compensation due to such individual. (b) Deferral of Awards. Each Recipient who has made an election to receive shares of Unrestricted Stock under this Article 8 will have the right to defer receipt of up to 100% of such shares of Unrestricted Stock payable to such Recipient in accordance with such rules and procedures as may from time to time be established by the Administering Body for that purpose, and such election shall be effective on the later of the date six (6) months and one (1) day from the date of such election or the beginning of the next calendar year. The deferred Unrestricted Stock shall be entitled to receive Dividend Equivalent Rights settled in shares of Common Stock. -14- 9. PERFORMANCE STOCK AWARDS 9.1 Nature of Performance Stock Awards. A Performance Stock Award is an Award entitling the Recipient to acquire shares of Common Stock upon the attainment of specified Performance Criteria. The Administering Body may make Performance Stock Awards independent of or in connection with the granting of any other Award under the Plan. Performance Stock Awards may be granted under the Plan to any Eligible Person. The Administering Body, in its sole discretion, shall determine whether and to whom Performance Stock Awards shall be made, the Performance Criteria applicable under each such Award, the periods during which performance is to be measured, and all other limitations and conditions applicable to the awarded shares; provided, however, that the Administering Body may rely on the Performance Criteria and other standards applicable to other performance unit plans of the Company in setting the standards for Performance Stock Awards under the Plan. 9.2 Rights as a Stockholder. A Recipient receiving a Performance Stock Award shall have the rights of a stockholder only as to shares actually received by the Recipient under the Plan and not with respect to shares subject to the Award but not actually received by the Recipient. A Recipient shall be entitled to receive a stock certificate evidencing the acquisition of shares of Common Stock under a Performance Stock Award only upon satisfaction of all conditions specified in the Award Agreement evidencing the Performance Stock Award (or in a performance plan adopted by the Administering Body). 9.3 Acceleration, Waiver, Etc. At any time prior to the Participant's termination of employment (or other business relationship) by the Company, the Administering Body may, in its sole discretion, accelerate, waive or, subject to the other provisions of this Plan, amend any and all of the goals, restrictions or conditions imposed under any Performance Stock Award. 10. DIVIDEND EQUIVALENT RIGHTS 10.1 Dividend Equivalent Rights. A Dividend Equivalent Right is an Award entitling the Recipient to receive credits based on cash dividends that would be paid on the shares of Common Stock specified in the Dividend Equivalent Right (or other Award to which it relates) if such shares were held by the Recipient. A Dividend Equivalent Right may be granted hereunder to any Eligible Person, as a component of another Award or as a freestanding Award. The terms and conditions of Dividend Equivalent Rights shall be specified in the Award Agreement. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Common Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value on the date of reinvestment or such other price as may then apply under a dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent Rights may be settled in cash or shares of Common Stock or a combination thereof, in a single installment or installments. A Dividend Equivalent Right granted as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon exercise, settlement or payment of, or lapse of restrictions on, such other Award and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other award. A Dividend Equivalent Right granted as a component of another Award may also contain terms and conditions different from such other Award. 10.2 Interest Equivalents. Any Award under this Plan that is settled in whole or in part in cash on a deferred basis may provide in the grant for interest equivalents to be credited with respect to such cash payment. Interest equivalents may be compounded and shall be paid upon such terms and conditions as may be specified by the grant. -15- 11. STOCK APPRECIATION RIGHTS 11.1 Grant of Stock Appreciation Rights. A Stock Appreciation Right may be granted to any Eligible Person selected by the Administering Body. A Stock Appreciation Right may be granted (a) in connection and simultaneously with the grant of a Stock Option, (b) with respect to previously granted Stock Options, or (c) independent of a Stock Option. A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with the Plan as the Administering Body shall impose and shall be evidenced by an Award Agreement. 11.2 Coupled Stock Appreciation Rights. (a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a particular Stock Option and shall be exercisable only when and to the extent the related Stock Option is exercisable. (b) A CSAR may be granted to the Recipient for no more than the number of shares subject to the simultaneously or previously granted Stock Option to which it is coupled. (c) A CSAR shall entitle the Recipient (or other person entitled to exercise the Stock Option pursuant to the Plan) to surrender to the Company unexercised a portion of the Stock Option to which the CSAR relates (to the extent then exercisable pursuant to its terms) and to receive from the Company in exchange therefore an amount determined by multiplying the difference obtained by subtracting the Stock Option exercise price from the Fair Market Value of a share of Common Stock on the date of exercise of the CSAR by the number of shares of Common Stock with respect to which the CSAR shall have been exercised, subject to any limitations the Administering Body may impose. 11.3 Independent Stock Appreciation Rights. (a) An Independent Stock Appreciation Right ("ISAR") shall be unrelated to any Stock Option and shall have the terms set by the Administering Body. An ISAR shall be exercisable in such installments as the Administering Body may determine. An ISAR shall cover such number of shares of Common Stock as the Administering Body may determine; provided, however, that unless the Administering Body otherwise provides in the terms of the ISAR or otherwise, no ISAR granted to a person subject to Section 16 of the Exchange Act shall be exercisable until at least six (6) months and one day has elapsed from the date on which the Stock Option was granted. The exercise price per share of the Common Stock subject to each ISAR shall be set by the Administering Body. An ISAR is exercisable only while the Recipient remains employed or engaged by the Company; provided that the Administering Body may determine that the ISAR may be exercised subsequent to termination of employment or engagement or following a Change in Control of the Company, or because of the Recipient's retirement, death or Permanent Disability, or otherwise. (b) An ISAR shall entitle the Recipient (or other person entitled to exercise the ISAR pursuant to the Plan) to exercise all or a specified portion of the ISAR (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying the difference obtained by subtracting the exercise price per share of the ISAR from the Fair Market Value of a share of Common Stock on the date of exercise of the ISAR by the number of shares of Common Stock with respect to which the ISAR shall have been exercised, subject to any limitations the Administering Body may impose. -16- 11.4 Payment and Limitations on Exercise. (a) Payment of the amounts determined under Section 11.2(c) and 11.3(b) above shall be in cash, in Common Stock (based on its Fair Market Value as of the date the Stock Appreciation Right is exercised) or a combination of both, as determined by the Administering Body. To the extent such payment is effected in Common Stock it shall be made subject to satisfaction of all provisions of the Plan pertaining to Stock Options. (b) Holders of Stock Appreciation Rights may be required to comply with any timing or other restrictions with respect to the settlement or exercise of a Stock Appreciation Right, including a window-period limitation, as may be imposed in the discretion of the Administering Body. 12. REORGANIZATIONS 12.1 Corporate Transactions Not Involving a Change in Control. If the Company shall consummate any Reorganization not involving a Change in Control in which holders of shares of Common Stock are entitled to receive in respect of such shares any securities, cash or other consideration (including without limitation a different number of shares of Common Stock), each Award outstanding under this Plan shall thereafter be claimed or exercisable, in accordance with this Plan, only for the kind and amount of securities, cash and/or other consideration receivable upon such Reorganization by a holder of the same number of shares of Common Stock as are subject to that Award immediately prior to such Reorganization, and any adjustments will be made to the terms of the Award, and the underlying Award Agreement, in the sole discretion of the Administering Body as it may deem appropriate to give effect to the Reorganization. 12.2 Corporate Transactions Involving a Change in Control. As of the effective time and date of any Change in Control, this Plan and any then outstanding Awards (whether or not vested) shall automatically terminate unless (a) provision is made in writing in connection with such transaction for the continuance of this Plan and for the assumption of such Awards, or for the substitution for such Awards of new grants covering the securities of a successor entity or an affiliate thereof, with appropriate adjustments as to the number and kind of securities and exercise prices, in which event this Plan and such outstanding Awards shall continue or be replaced, as the case may be, in the manner and under the terms so provided; or (b) the Board otherwise has provided or shall provide in writing for such adjustments as it deems appropriate in the terms and conditions of the then-outstanding Awards (whether or not vested), including without limitation (i) accelerating the vesting of outstanding Awards and/or (ii) providing for the cancellation of Awards and their automatic conversion into the right to receive the securities, cash and/or other consideration that a holder of the shares underlying such Awards would have been entitled to receive upon consummation of such Change in Control had such shares been issued and outstanding immediately prior to the effective date and time of the Change in Control (net of the appropriate option exercise prices). If, pursuant to the foregoing provisions of this Section 12.2, this Plan and the Awards granted hereunder shall terminate by reason of the occurrence of a Change in Control without provision for any of the actions described in clause (a) or (b) hereof, then any Recipient holding outstanding Awards shall have the right, at such time immediately prior to the consummation of the Change in Control as the Board shall designate, to convert, claim or exercise, as applicable, the Recipient's Awards to the full extent not theretofore converted, claimed or exercised, including any installments which have not yet become vested. -17- 13. DEFINITIONS Capitalized terms used in this Plan and not otherwise defined shall have the meanings set forth below: "Administering Body" shall mean the Board as long as no Stock Plan Committee has been appointed and is in effect and shall mean the Stock Plan Committee as long as the Stock Plan Committee is appointed and in effect. "Affiliated Entity" means any Parent Corporation or Subsidiary Corporation. "Award" or "Awards," except where referring to a particular category or grant under the Plan, shall include Incentive Stock Options, Non-qualified Stock Options, Restricted Stock Awards, Unrestricted Stock Awards, Performance Stock Awards, Dividend Equivalent Rights and Stock Appreciation Rights. "Award Agreement" means the agreement or confirming memorandum setting forth the terms and conditions of the Award. "Board" means the Board of Directors of the Company. "Change in Control" means the following and shall be deemed to occur if any of the following events occur: (a) Any Person becomes after the Effective Date the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either the then outstanding shares of Common Stock or the combined voting power of the Company's then outstanding securities entitled to vote generally in the election of directors; or (b) Individuals who, as of the effective date hereof, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Company, provided that any individual who becomes a director after the effective date hereof whose election, or nomination for election by the Company's stockholders, is approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered to be a member of the Incumbent Board unless that individual was nominated or elected by any Person having the power to exercise, through beneficial ownership, voting agreement and/or proxy, 50% or more of either the outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors, in which case that individual shall not be considered to be a member of the Incumbent Board unless such individual's election or nomination for election by the Company's stockholders is approved by a vote of at least two- thirds of the directors then comprising the Incumbent Board; or (c) Consummation by the Company of the sale or other disposition by the Company of all or substantially all of the Company's assets or a reorganization or merger or consolidation of the Company with any other person, entity or corporation, other than -18- (i) a reorganization or merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto (or, in the case of a reorganization or merger or consolidation that is preceded or accomplished by an acquisition or series of related acquisitions by any Person, by tender or exchange offer or otherwise, of voting securities representing 5% or more of the combined voting power of all securities of the Company, immediately prior to such acquisition or the first acquisition in such series of acquisitions) continuing to represent, either by remaining outstanding or by being converted into voting securities of another entity, more than 50% of the combined voting power of the voting securities of the Company or such other entity outstanding immediately after such reorganization or merger or consolidation (or series of related transactions involving such a reorganization or merger or consolidation), or (ii) a reorganization or merger or consolidation effected to implement a recapitalization or reincorporation of the Company (or similar transaction) that does not result in a material change in beneficial ownership of the voting securities of the Company or its successor; or (d) Approval by the stockholders of the Company or any order by a court of competent jurisdiction of a plan of liquidation of the Company. (e) Notwithstanding the foregoing, a Change in Control of the type described in paragraph (b), (c) or (d) shall be deemed to be completed on the date it occurs, and a Change in Control of the type described in paragraph (a) shall be deemed to be completed as of the date the entity or group attaining 50% or greater ownership has elected its representatives to the Company's Board of Directors and/or caused its nominees to become officers of the Company with the authority to terminate or alter the terms of employee's employment. "Commission" means the Securities and Exchange Commission. "Common Stock" means the common stock of the Company as constituted on the Effective Date of this Plan, and as thereafter adjusted as a result of any one or more events requiring adjustment of outstanding Awards under Section 3.4 above. "Company" means Edge Technology Group, Inc., a Delaware corporation. "Consultant" means any consultant or advisor if: (a) the consultant or advisor renders bona fide services to the Company or any Affiliated Entity; (b) the services rendered by the consultant or advisor are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company's securities; and (c) the consultant or advisor is a natural person who has contracted directly with the Company or an Affiliated Entity to render such services. "CSAR" means a coupled stock appreciation right as defined in Section 4.2. "Director" means any person serving on the Board of the Company irrespective of whether such person is also an Employee of the Company. "Dividend Equivalent Right" shall mean any Award granted pursuant to Article 10 of this Plan. -19- "DRO" shall mean a domestic relations order as defined by the IRC or Title I of ERISA or the rules thereunder. "Effective Date" means June 6, 2002, which is the date this Plan was adopted by the Board. "Eligible Person" shall include key Employees, Directors and Consultants of the Company or of any Affiliated Entity. "Employee" means any officer or other employee (as defined in accordance with Section 3401(c) of the IRC) of the Company or any Affiliated Entity. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Act Registered Company" means that the Company has any class of any equity security registered pursuant to Section 12 of the Exchange Act. "Expiration Date" means the tenth anniversary of the Effective Date. "Fair Market Value" of a share of the Company's capital stock as of a particular date shall be: (a) if the stock is listed on an established stock exchange or exchanges (including for this purpose, the NASDAQ National Market), the closing sale prices of the stock quoted for such date as reported in the transactions index of each such exchange, as published in The Wall Street Journal and determined by the Administering Body, or, if no sale price was quoted in any such index for such date, then as of the next preceding date on which such a sale price was quoted; or (b) if the stock is not then listed on an exchange or the NASDAQ National Market, the average of the closing bid and asked prices per share for the stock in the over-the-counter market as quoted on The NASDAQ Small Cap Market on such date (in the case of (a) or (b), subject to adjustment as and if necessary and appropriate to set an exercise price not less than 100% of the Fair Market Value of the stock on the date an option is granted); or (c) if the stock is not then listed on an exchange or quoted in the over- the-counter market, an amount determined in good faith by the Administering Body; provided, however, that (i) when appropriate, the Administering Body, in determining Fair Market Value of capital stock of the Company, may take into account such other factors as it may deem appropriate under the circumstances and (ii) if the stock is traded on the NASDAQ Small Cap Market and both sales prices and bid and asked prices are quoted or available, the Administering Body may elect to determine Fair Market Value under either clause (i) or (ii) above. Notwithstanding the foregoing, the Fair Market Value of capital stock for purposes of grants of Incentive Stock Options shall be determined in compliance with applicable provisions of the IRC. "Incentive Stock Option" means a Stock Option that qualifies as an incentive stock option under Section 422 of the IRC, or any successor statute thereto. "IRC" means the Internal Revenue Code of 1986, as amended. "ISAR" means an independent stock appreciation right as defined in Section 11.3. "Non-employee Director" means any director of the Company who qualifies as a "non-employee director" within the meaning of Rule 16b-3. "Non-qualified Stock Option" means a Stock Option that is not an Incentive Stock Option. -20- "Outside Director" means an "outside director" as defined in the regulations adopted under Section 162(m) of the IRC. "Parent Corporation" means any Parent Corporation as defined in Section 424(e) of the IRC. "Performance-Based Compensation" means performance-based compensation as described in Section 162(m) of the IRC. If the amount of compensation an Eligible Person will receive under any Award is not based solely on an increase in the value of Common Stock after the date of grant, the Stock Plan Committee, in order to qualify Awards as performance-based compensation under Section 162(m) of the IRC, can condition the granting, vesting or exercisability or purchase price of such Awards on the attainment of a pre-established, objective performance goal. For this purpose, a pre-established, objective performance goal may include one or more of the following performance criteria: (a) book value; (b) earnings per share (including earnings before interest, taxes and amortization); (c) return on equity; (d) total stockholder return; (e) return on capital; (f) return on assets or net assets; (g) income or net income; (h) operating income or net operating income; (i) operating margin; (j) attainment of stated goals related to the Company's capitalization, costs, financial condition or results of operations; and (k) any other similar performance criteria. "Performance Criteria" shall mean the following business criteria with respect to the Company, any Affiliated Entity or any division or operating unit: (a) net income, (b) pre-tax income, (c) operating income, (d) cash flow, (e) earnings per share, (f) return on equity, (g) return on invested capital or assets, (h) cost reductions or savings, (i) funds from operations, (j) appreciation in the fair market value of Common Stock, (k) earnings before any one or more of the following items: interest, taxes, depreciation or amortization and (l) such other criteria deemed appropriate by the Administering Body. "Performance Stock Awards" means Awards granted pursuant to Article 9. "Permanent Disability" shall mean that the Recipient becomes physically or mentally incapacitated or disabled so that the Recipient is unable to perform substantially the same services as the Recipient performed prior to incurring such incapacity or disability (the Company, at its option and expense, being entitled to retain a physician to confirm the existence of such incapacity or disability, and the determination of such physician to be binding upon the Company and the Recipient), and such incapacity or disability continues for a period of three consecutive months or six months in any 12-month period or such other period(s) as may be determined by the Stock Plan Committee with respect to any Award, provided that for purposes of determining the period during which an Incentive Stock Option may be exercised pursuant to Section 5.13(b)(ii) hereof, Permanent Disability shall mean "permanent and total disability" as defined in Section 22(e) of the IRC. "Person" means any person, entity or group, within the meaning of Section 13(d) or 14(d) of the Exchange Act, but excluding (a) the Company and its Subsidiary Corporations, (b) any employee stock ownership or other employee benefit plan maintained by the Company that is qualified under ERISA and (c) an underwriter or underwriting syndicate that has acquired the Company's securities solely in connection with a public offering thereof. "Plan" means this 2002 Stock Incentive Plan of the Company. "Plan Term" means the period during which this Plan remains in effect (commencing on the Effective Date and ending on the Expiration Date). -21- "Recipient" means a person who has received Awards under this Plan or any person who is the successor in interest to a Recipient. "Reorganization" means any merger, consolidation or other reorganization. "Restricted Stock" shall have the meaning ascribed thereto in Section 7.1. "Restricted Stock Awards" means any Award granted pursuant to Article 7 of this Plan. "Rule 16b-3" means Rule 16b-3 under the Exchange Act. "Securities Act" means the Securities Act of 1933, as amended. "Significant Stockholder" is an individual who, at the time an Award is granted to such individual under this Plan, owns more than 10% of the combined voting power of all classes of stock of the Company or of any Parent Corporation or Subsidiary Corporation (after application of the attribution rules set forth in Section 424(d) of the IRC). "Stock Appreciation Right" means a stock appreciation right granted under Article 11 of this Plan. "Stock Option" or "Option" means a right to purchase stock of the Company granted under Article 6 of this Plan to an Eligible Person. "Stock Plan Committee" means the committee appointed by the Board to administer this Plan pursuant to Section 4.1. "Subsidiary Corporation" means any Subsidiary Corporation as defined in Section 424(f) of the IRC. "Unrestricted Stock" shall have the meaning ascribed thereto in Section 8.1. "Unrestricted Stock Award" means any Award granted pursuant to Article 8 of this Plan. -22- EX-10.28 4 edge-axtive2.txt ASSET PURCHASE AGREEMENT BETWEEN REGISTRANT AND AXTIVE SOFTWARE CORPORATION ================================================================ BILL OF SALE AND ASSET PURCHASE AGREEMENT by and between Axtive Software Corporation, a Texas corporation and Edge Technology Group, Inc., a Delaware corporation Dated: June 21, 2002 ================================================================ BILL OF SALE AND ASSET PURCHASE AGREEMENT THIS BILL OF SALE AND ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into this 21st day of June, 2002 (the "Effective Date"), by and between Axtive Software Corporation a Texas corporation (the "Company") and Edge Technology Group, Inc., a Delaware corporation (the "Purchaser"). WITNESSETH: WHEREAS, the Company desires to sell, and the Purchaser desires to purchase, certain of the tangible and intangible assets of the Purchaser, in accordance with the terms and conditions set forth herein. NOW THEREFORE, in consideration of the covenants, warranties and representations set forth below, the parties hereto, each intending to be legally bound, agree as follows: AGREEMENT 1. Purchase and Sale of Purchased Assets. The Company hereby sells, assigns, transfers, conveys and delivers to the Purchaser, and the Purchaser hereby purchases from the Company, free and clear of any and all liens, claims, charges, liabilities, encumbrances and security interests of whatsoever kind and nature all of the following assets (collectively, the "Purchased Assets"): a) Intangible Assets. All right, title and interest in, to and under the intangible assets as listed on Schedule 1(a) hereto. b) Tangible Assets. All right, title and interest in, to and under the intangible assets as listed on Schedule 1(b) hereto. 2. Purchase Price. The consideration paid by the Purchaser for the Purchased Assets (the "Common Stock Consideration") shall consist of shares of the Purchaser's common stock, par value $0.01 (the "Common Stock") to be issued to the Company as follows: a) An initial amount of 400,000 unregistered, restricted, privately placed shares will be issued to the Company (the "Initial Issuance") in the form of (i) a stock certificate representing 200,000 shares of Common Stock to be issued in the name of and delivered to the Company (the "Delivered Stock Certificate") and (ii) a stock certificate representing 200,000 shares of Common Stock to be issued in the name of the Company and the possession of which shall be retained by the Purchaser in accordance with Section 7 below (the "Retained Stock Certificate"). -1- b) If during the period beginning on the Effective Date and ending on the date that is one year after the Effective Date (the "Measurement Date") the Purchaser's Common Stock has not traded on the NASD Over-The-Counter Bulletin Board (or other national exchange on which the Purchaser's Common Stock is then traded) at a price equal to or in excess of $0.75 per share, then on the Measurement Date the Purchaser shall issue to the Company, but retain possession of, an additional certificate (the "Second Retained Stock Certificate") representing unregistered, restricted, privately placed shares of Common Stock (the "Subsequent Issuance") in an amount such that the aggregate amount of shares received by the Company in both the Initial Issuance and the Subsequent Issuance shall, when multiplied by the "Market Value" of the Common Stock on the Measurement Date, be equal to or greater than three-hundred thousand dollars ($300,000); provided, however, that in no event shall the Subsequent Issuance comprise an amount of Common Stock in excess of 297,674 shares. For purposes of this Agreement, the "Market Value" of the Common Stock on any given day shall be the average closing bid price per share of Edge's Common Stock on either (a) the exchange on which the Purchaser's Common Stock is then listed or (b) the NASD Over-The-Counter Bulletin Board, in either case for the 10 days through and including such given day. c) Notwithstanding the foregoing, in the event either (i) after reasonable efforts, the Purchaser is unable to successfully prosecute the expansion of the scope of the Intangible Assets to encompass the use by the Purchaser in its current business operations, including for such purposes the business operations of the Purchaser's subsidiaries (an "Unsuccessful Expansion"), or (ii) during the period of time beginning on the Effective Date and continuing until two years after the Effective Date (the "Delivery Date"), any trial court enters a final order prejudicing any of the Purchaser's rights to own or use any of the Intangible Assets (an "Unsuccessful Defense"), then none of the shares represented by the Retained Stock Certificate and only one- half of the shares (rounded up to the nearest whole number of shares), if any, represented by the Second Retained Stock Certificate will be delivered to the Company, all as set forth in Section 7(e) below. 3. Representations and Warranties of the Company. The Company represents and warrants to the Purchaser as follows: a) Organization. The Company is a corporation duly formed, validly existing and in good standing under laws of the State of Texas. b) Enforceability and Authority. This Agreement and the other documents and instruments executed by the Company in connection herewith (the "Ancillary Documents") have been duly executed and delivered by the Company and constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as may be limited by bankruptcy, reorganization, fraudulent conveyance, insolvency and similar laws of general application relating to or affecting the enforcement of rights of creditors and subject to general principles of equity. The Company has full power and authority (both legal and corporate) to execute and deliver this Agreement and the Ancillary Documents, and to perform its obligations hereunder and thereunder, and all required approvals of the Board of Directors and the shareholders of the Company have been duly and properly obtained. -2- c) Title of Assets. The Company has good and marketable title to all of the Purchased Assets, and the Purchased Assets are free and clear of all liens, claims, charges, liabilities, encumbrances, and security interests. Furthermore, the Company (i) has not at any time preceding the Effective Date, transferred or entered into any agreement to transfer any of the goodwill of the Company and (ii) has continued to use the marks transferred hereunder in commerce and has affirmatively defended its use of and prosecuted potential infringement upon such marks. As of the Closing, the Purchaser will obtain good and marketable title to the Purchased Assets and will own the Purchased Assets free and clear of all liens, claims, charges, liabilities, encumbrances, and security interests. Notwithstanding the foregoing, the Purchaser agrees to permit the Company a period of thirty (30) days from the Effective Date in which to amend its articles of incorporation to change its name from "Axtive Software Corporation" to a name which does not contain the word "Axtive" or any derivation of Axtive or any of the other Intangible Assets transferred hereunder. d) Litigation. There is no action, suit, proceeding, claim, application, complaint or investigation in any court or before any arbitrator or any regulatory or governmental body pending against the Company affecting the transactions contemplated by this Agreement or which, if decided adversely, could affect the right of the Purchaser to acquire or retain the Purchased Assets. e) Information Delivered. The Company (i) has received from the Purchaser copies of the Purchaser's Reports (the "Reports") on Form 10-KSB for the fiscal year ended December 31, 2001, and the Form 10-QSB for the fiscal quarter ended March 31, 2002, the (the Reports collectively referred to herein as the "SEC Documents") and (ii) has had the opportunity to ask questions of and receive answers from the Purchaser concerning the terms and conditions of this Agreement and to obtain from the Purchaser any additional information that the Purchaser possesses or can acquire without unreasonable effort or expense necessary to verify the accuracy of the information described in the SEC Documents. f) Accredited Investors. The Company (i) is an "accredited investor" as that term is defined under Regulation D under the Securities Act of 1933, as amended (the "1933 Act"), and has such knowledge and experience in financial and business matters that the Company is capable of evaluating the merits and risks of an investment in the Purchaser's Common Stock, (ii) fully understands the nature, scope and duration of the limitations on transfer of the Purchaser's Common Stock received hereunder, described in this Agreement and (iii) can bear the economic risk of an investment in the shares of the Purchaser's Common Stock and can afford a complete loss of such investment. -3- g) Investment Purposes. The Company further represents, warrants, acknowledges and agrees that (i) it is acquiring the shares of the Purchaser's Common Stock under this Agreement for its own account, as principal and not on behalf of other persons, and for investment and not with a view to the resale or distribution of all or any part of such shares in accordance with applicable securities laws, (ii) it will not sell or otherwise transfer such shares unless, in the opinion of counsel who is reasonably satisfactory to the Purchaser, the transfer can be made without violating the registration provisions of the 1933 Act and the rules and regulations thereunder, unless such sale or transfer is under an effective registration statement, and (iii) the certificates representing such shares will also bear the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE WERE NOT ISSUED IN A TRANSACTION REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR, IN THE OPINION OF COUNSEL TO THE ISSUER, IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. 4. Indemnification from the Company. The Company consents and agrees to defend, indemnify and hold the Purchaser, its officers, directors, agents, attorneys and accountants harmless for, from and against any and all damages, losses which shall include any diminution in value, liabilities (absolute and contingent), payments, obligations, penalties, claims, litigation, demands, defenses, judgments, suits, proceedings, costs, disbursements or expenses (including, without limitation, fees, disbursements and expenses of attorneys, accountants and other professional advisors and of expert witnesses and costs of investigation and preparation) of any kind or nature whatsoever (collectively, "Damages"), directly or indirectly resulting from, relating to or arising out of any breach or nonperformance (partial or total) of or inaccuracy in any representation or warranty or covenant or agreement of the Company contained in this Agreement. 5. Survival. The representations, warranties, covenants, acknowledgments and indemnifications set forth herein shall survive the execution and delivery of this Agreement and the Ancillary Documents for a period of twenty-four (24) months from the Effective Date. The representations, warranties, covenants and indemnifications contained herein shall not be affected by any investigation, verification, approval or subsequent notice made by or on behalf of any party hereto. No specific representation or warranty shall limit the generality or applicability of a more general representation or warranty. -4- 6. Bill of Sale. This Agreement is intended to also operate as a bill of sale and shall be evidence of the transfer of the Purchased Assets as provided for herein and such transfer and assumption is made based in substantial part on the representations and warranties and obligations provided for herein. 7. Closing. a) Simultaneous Closing. The transactions contemplated by this Agreement (the "Closing") have taken place at the offices of Arter & Hadden LLP, 1717 Main Street, Suite 4100, Dallas, Texas 75201 on the Effective Date, simultaneously with the execution and delivery of this Agreement. In connection with the Closing, all of the deliveries contemplated by Sections 7(b) and 7(c) below were deemed to have been made simultaneously and no delivery or payment was considered to have been made until all transactions taken at the Closing have been completed. b) Delivery of the Initial Stock Certificate. At the Closing, the Purchaser shall provide to the Company the Delivered Stock Certificate. c) Issuance of the Retained Stock Certificate. At the Closing, the Purchaser shall issue to the Company, but retain possession of, the Retained Stock Certificate. d) Issuance of the Second Retained Stock Certificate. On the Measurement Date, if a Subsequent Issuance is warranted pursuant to Section 2(b) above, then the Purchaser shall issue to the Company, but retain possession of, the Second Retained Stock Certificate. e) Delivery of the Retained Stock Certificates. On the Delivery Date, the Purchaser shall deliver possession of the Retained Stock Certificate, and, if applicable, the Second Retained Stock Certificate to the Company; provided however, that in the event of either an Unsuccessful Expansion or an Unsuccessful Defense the Purchaser shall reduce the consideration deliverable on the Delivery Date by the amount of stock represented by the entire Retained Certificate and one-half of the shares (rounded up to the nearest whole number of shares) represented by the Second Retained Stock Certificate, if issued. The Purchaser's ability to reduce the Purchase Price pursuant to this Section 7(e) shall in no way be construed to limit the Purchaser's remedies nor to in any way limit the Purchaser's ability to pursue additional remedies, whether at law, in equity, under the Indemnification provisions of Section 4 of this Agreement, or otherwise. f) Graham C. "Scooter" Beachum, III Indemnity. As partial consideration for the Purchaser's agreement to deliver possession of the Retained Stock Certificate, and, if applicable, the Second Retained Stock Certificate to the Company on the Measurement Date, Graham C. "Scooter" Beachum, III ("Beachum") hereby agrees as follows: -5- (i) Beachum hereby affirms and represents and warrants to the Purchaser that the Company's representations and warranties set forth in this Agreement are true and correct. In addition to, and not in lieu of, the Company's obligation to indemnify the Purchaser set forth in Section 4 hereof if such representations and warranties prove inaccurate within twenty four (24) months from the Effective Date, the Purchaser shall be entitled to seek recourse against Beachum if such representations and warranties of the Company prove incorrect on or before twenty four (24) months from the Effective Date, subject to the limitations contained herein. (ii) Beachum's obligation to the Purchaser shall be limited to the lesser of (i) $150,000 or (ii) a dollar amount calculated as follows. On the Measurement Date, the aggregate number of shares of Common Stock issued to the Company shall be calculated (which is the sum of the Initial Issuance and any Subsequent Issuance). Beachum's obligation to the Purchaser shall equal the dollar amount equal to the product of fifty percent (50%) of such aggregate number of shares multiplied by the Market Value of the Common Stock on the Measurement Date (but not to exceed $150,000). By way of illustration, if the aggregate number of shares issued to Beachum on and through the Measurement Date is 600,000 shares (representing 400,000 Initial Shares and 200,000 shares issued in the Subsequent Issuance), and the Market Value of the shares on the Measurement Date is $.50 per share, then Beachum's aggregate liability to the Purchaser for any inaccuracy in the representations and warranty of the Company shall be $150,000 (calculated as 50% x 600,000 shares x $.50 per share Market Value). g) Additional Closing Deliveries. At the Closing, the Company shall deliver such other documents of transfer and assignment as shall be necessary to transfer title in the Purchased Assets from the Company to the Purchaser. 8. Severable Provisions; Enforceability. Each provision of this Agreement is intended to be severable. If any provision hereof shall be declared by a court of competent jurisdiction to be illegal, unenforceable or invalid for any reason whatsoever, such illegality, unenforceability or invalidity will not affect the validity of the remainder of this Agreement or any applicable provision. 9. Governing Law. THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF TEXAS, REGARDLESS OF ANY CONFLICT OF LAW RULES TO THE CONTRARY. 10. Entire Agreement. This Agreement and the exhibits and schedules attached hereto constitute the entire Agreement among the parties with respect to the purchase and sale of the Purchased Assets and the other matters referenced herein. This Agreement, therefore, supersedes any and all prior agreements, arrangements, communications, and representations, whether oral or written, among the parties, or any of them, relating to the subject matters hereof. -6- 11. Construction. The parties hereto acknowledge that each party was represented by legal counsel, or had the opportunity to obtain legal counsel, in connection with this Agreement and that each party and each party's counsel, as applicable, have reviewed and revised this Agreement, or have had an opportunity to do so, and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 12. Further Assurances. Each party hereto agrees to do all acts and things and to make, execute, and deliver such written instruments as shall from time to time be reasonably required to further evidence the sale and transfer of the Purchased Assets, and to carry out the terms and provisions of this Agreement. 13. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted assigns, legal representatives, executors, heirs and successors. 14. Amendment, Modification or Waiver. No amendment, modification or waiver of any condition, provision or term of this Agreement shall be valid or of any effect unless made in writing, signed by the party or parties to be bound and specifying with particularity the nature and extent of such amendment, modification or waiver. 15. No Third Party Beneficiaries or Expansion of Rights. Notwithstanding anything contained herein to the contrary, nothing in this Agreement, express or implied, is intended to or shall be construed to confer upon, or give to, any person, partnership, corporation or other entity other than the Company or the Purchaser, any remedy or claim under or by reason of this Agreement or any terms, covenants or conditions hereof, and all the terms, covenants and conditions, promises and agreements contained in this Agreement shall be for the sole and exclusive benefit of each of the Company and the Purchaser. -7- 16. Notices. Any notice or other communication required or permitted to be given to any party pursuant to this Agreement shall be in writing and shall be deemed to have been delivered: (a) if mailed, three (3) days after deposited in the United States mail, postage prepaid; (b) if telecopied, upon delivery; (c) if hand-delivered, upon delivery against receipt or upon refusal to accept the notice; or (d) if delivered by Federal Express or other similar courier, one (1) day after deposited with such courier, postage prepaid, in each case, addressed to such party at the address set forth below: a) If to the Company: Axtive Software Corporation 3109 Knox, Suite 204 Dallas, Texas 75205 Attn: Graham C. "Scooter" Beachum III b) If to the Purchaser: Edge Technology Group, Inc. 6611 Hillcrest #223 Dallas, Texas 75205 Attention: David Pilotte With a copy, which shall not constitute notice, to: Arter & Hadden LLP 1717 Main Street, Suite 4100 Dallas, Texas 75201 Attention: Victor B. Zanetti, Esq. or to such other place as the respective addressee may have designated in a written notice to the other party as provided in this Section. Notices may be given by each party's respective legal counsel. 17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original. 18. Execution by Facsimile; Delivery of Original Signed Agreement. This Agreement may be executed by facsimile, and shall be deemed effectively executed upon the receipt by the Purchaser and the Company of the last page of this Agreement duly executed by the other parties hereto. [Signature Page Follows] -8- IN WITNESS WHEREOF, Purchaser and the Company have executed and delivered this Agreement as of the day and year first above written. PURCHASER: Edge Technology Group, Inc., a Delaware corporation By: -------------------------------- Name: ------------------------------ Title: ---------------------------- COMPANY: Axtive Software Corporation, a Texas corporation By: -------------------------------- Name: ------------------------------ Title: ---------------------------- Graham C. "Scooter" Beachum, III hereby agrees with the terms of the foregoing Agreement, and specifically, Mr. Beachum's indemnity obligation under Section 7(f) of the Agreement. ----------------------------------- Graham C. "Scooter" Beachum, III -9- LIST OF SCHEDULES 1(a) Intangible Assets 1(b) Tangible Assets -10- Schedule 1.1(a) Intangible Assets 1. The trademark for the "Axtive" name, Registration No. 2,159,847, including all uses of such name in connection with such registration. 2. The trademark for the "Axtive" name and design, Registration No. 2,159,847, including all uses of such name and design in connection with such registration. 3. The trademark on the "X Logo" as filed on the Principal Register on November 2, 1999. -11- Schedule 1.1(b) Tangible Assets 2 executive desks 1 credenza 1 glass conference table with 8 chairs 1 sign -12- EX-10.29 5 factoring2.txt FACTORING AGREEMENT BETWEEN UDT CONSULTING, INC. AND LANDRY MARKS PARTNERS Page 1 of 23 FACTORING AND SECURITY AGREEMENT THIS FACTORING AND SECURITY AGREEMENT is made as of June 24, 2002 by and between UDT Consulting, Inc., a Texas Corporation ("Seller") and LANDRY MARKS PARTNERS LP, a Texas limited partnership ("Purchaser"). 1. Definitions. The following terms used herein shall have the following meaning. All capitalized terms not herein defined shall have the meaning set forth in the Uniform Commercial Code: 1.1 "Account" - this term shall have the same definition as given to it in the Uniform Commercial Code. 1.2 "Advance" - for each Purchased Account, the Purchase Price minus the product of (A) the Reserve Percentage multiplied by (B) the Face Amount. 1.3 "Account Debtor" - this term shall have the same definition as given to it in the Uniform Commercial Code. 1.4 "Avoidance Claim" - any claim that any payment received by Purchaser from or for the account of an Account Debtor is avoidable under the Bankruptcy Code or any other debtor relief statute. 1.5 "Chosen State" - Texas. 1.6 "Clearance Days" - three (3) business days for all payments. 1.7 "Closed" - a Purchased Account is closed upon the first to occur of (i) receipt of full payment by Purchaser or (ii) the unpaid Face Amount has been charged to the Reserve Account by Purchaser pursuant to the terms hereof. 1.8 "Late Payment Fee" - a fee in the amount of One- half percent (1/2%) of the Face Amount of a Purchased Account. 1.9 "Collateral" - all now owned and hereafter acquired Accounts, Chattel Paper, Instruments, including Promissory Notes, Documents, and General Intangibles. 1.10 "Discounts" - the Initial Discount plus the Additional Discount. 1.11 "Eligible Account" - an Account which is acceptable for purchase as determined by Purchaser in the exercise of its reasonable sole credit or business judgment. 1.12 "Events of Default" - See Section 13.1. 1.13 "Face Amount" - the face amount due on a Purchased Account at the time of Purchase. 1.14 "Additional Discount" - the Additional Discount Percentage multiplied by the Advance, less any payments made on such Account, for a Purchased Account, for each calendar day that any portion thereof remains unpaid, computed from the date on which a Purchased Account was purchased to and including the Ineligible Account Date. 1.15 "Additional Discount Percentage" - Wall Street Journal Prime Rate plus two percent (2%) per annum, computed and applied on a daily basis. 1.16 "Initial Discount" - two and one half percent (2 1/2 %) of the Face Amount. Page 1 of 14 1.17 "Invoice" - the document that evidences or is intended to evidence an Account. Where the context so requires, reference to an Invoice shall be deemed to refer to the Account to which it relates. 1.18 "Default Charge" - .15% per day on all amounts due from Seller to Purchaser. 1.19 "Ineligible Account Date" - the date which is sixty (60) days from the date on which a Purchased Account was purchased. 1.20 "Maximum Amount"- $200,000. 1.21 "Misdirected Payment Fee" - fifteen percent (15%) of the amount of any payment on account of a Purchased Account which has been received by Seller and not delivered in kind to Purchaser. 1.22 "Missing Notation Fee" - fifteen percent (3%) of the Face Amount. 1.23 "Obligations" - all present and future obligations owing by Seller to Purchaser whether or not for the payment of money, whether or not evidenced by any note or other instrument, whether direct or indirect, absolute or contingent, due or to become due, joint or several, primary or secondary, liquidated or unliquidated, secured or unsecured, original or renewed or extended, whether arising before, during or after the commencement of any bankruptcy case in which Seller is a Debtor, including but not limited to any obligations arising pursuant to letters of credit or acceptance transactions or any other financial accommodations. 1.24 "Parties" - Seller and Purchaser. 1.25 "Purchase Price" - the Face Amount less the Initial Discount. 1.26 "Purchased Accounts" - Eligible Accounts purchased hereunder which have not been Repurchased. 1.27 "Repurchased" - an Account has been repurchased when Seller has paid to Purchaser the then unpaid Face Amount. 1.28 "Required Reserve Amount" - the Reserve Percentage multiplied by the unpaid balance of Purchased Accounts. 1.29 "Reserve Account" - a bookkeeping account on the books of the Purchaser representing an unpaid portion of the Purchase Price, maintained by Purchaser to ensure Seller's performance with the provisions hereof. 1.30 "Reserve Percentage" - twenty percent (20%). 1.31 "Reserve Shortfall" - the amount by which the Reserve Account is less than the Required Reserve Amount. 1.32 "Schedule of Accounts" - a form supplied by Purchaser from time to time wherein Seller lists such of its Accounts as it requests that Purchaser purchase under the terms of this Agreement. 2. Sale; Purchase Price; Billing; Reserve -------------------------------------- 2.1 Assignment and Sale. 2.1.1 Seller shall sell to Purchaser as absolute owner, with full recourse, such of Seller's Accounts as are listed from time to time on Schedules of Accounts. 2.1.2 Each Schedule of Accounts shall be accompanied by such documentation supporting and evidencing the Account as Purchaser shall from time to time request. Page 2 of 14 Purchaser shall have the right, but not the obligation, to purchase from Seller such Accounts as Purchaser determines to be Eligible Accounts, so long as the aggregate Advances, less payments received on such Accounts does not exceed, before and after such purchase, the Maximum Amount. Purchaser shall pay the Advance, less any amounts due to Purchaser from Seller, of any Purchased Account, to Seller whereupon the Accounts shall be deemed purchased hereunder. 2.2 Billing. In the event Purchaser desires to confirm amounts directly with Seller's customer, upon reasonable prior notice to Seller, Purchaser may send a statement to all Account Debtors itemizing their account activity during the preceding billing period. All Account Debtors will be instructed to make payments to Purchaser prior to an Account being purchased by Purchaser, and Purchaser's obligation to Purchase an Account shall be expressly conditioned upon such notification. 2.3 Reserve Account. 2.3.1 Seller shall pay to Purchaser on demand the amount of any Reserve Shortfall. 2.3.2 Purchaser shall pay to Seller weekly, any amount by which the Reserve Account exceeds the Required Reserve Amount. 2.3.3 Purchaser may charge the Reserve Account with any Obligation, including any amounts due from Seller to Purchaser hereunder. 2.3.4 Purchaser may pay any amounts due Seller hereunder by a credit to the Reserve Account; 2.3.5 Upon termination of this Agreement, Purchaser may retain the Reserve Account: 2.3.5.1 for forty-five (45) days thereafter to be applied to payment of any Obligations that were unknown to Purchaser at the time of termination, and 2.3.5.2 unless and until Seller has executed and delivered to Purchaser a general release in the form of Exhibit A hereto. 3. Authorization for Purchases. Subject to the terms and conditions of this Agreement, Purchaser is authorized to purchase Accounts upon telephonic, facsimile or other instructions received from any of Mike Teachworth, Brian Dewhirst or David Pilotte, each a Vice President of Seller. 4. Fees and Expenses. Seller shall pay to Purchaser: 4.1 Additional Discount. The Additional Discount on the date on which a Purchased Account is Closed, which amount may also be charged against the Reserve Account. 4.2 Misdirected Payment Fee. Any Misdirected Payment Fee immediately upon its accrual. 4.3 Missing Notation Fee. The Missing Notation Fee on any Invoice that is sent by Seller to an Account Debtor which does not contain the notice as required by Section 10.5 hereof, which fee shall be due and payable immediately upon demand from Purchaser. 4.4 Late Payment Fee. The Late Payment Fee, on all Accounts not Closed within 30 days after purchase by Purchaser. For each Account not Closed by such deadline, Purchaser shall charge the Late Payment Fee on the 31st day after purchase, and each 15th day thereafter until such Account is Closed. 4.5 Out-of-pocket Expenses. The out-of-pocket expenses directly incurred by Purchaser in the administration and/or enforcement of this Agreement such as wire transfer fees, postage and audit fees. Page 3 of 14 5. Repurchase Of Accounts. Purchaser may require that Seller repurchase, and Seller may, at its option repurchase, by payment of the then unpaid Face Amount thereof, together with any unpaid Discounts and/or fees relating to the Purchased Account within three (3) business days after written demand from Purchaser/Seller, or, at Purchaser's option, by Purchaser's charge to the Reserve Account: 5.1 Any Purchased Account, the payment of which has been disputed by the Account Debtor obligated thereon, Purchaser being under no obligation to determine the merit or validity of such dispute; 5.2 Any Purchased Account for with Seller has breached its warranty under Section 12 hereunder; 5.3 Any Purchased Account owing from an Account Debtor which in Purchaser's reasonable credit judgement has become insolvent; 5.4 All Purchased Accounts upon the occurrence of an Event of Default, or upon the termination date of this Agreement; and 5.5 Any Purchased Account which remains unpaid beyond the Ineligible Account Date. 6. Security Interest. 6.1 As collateral securing the Obligations, Seller grants to Purchaser a continuing first priority security interest in and to the Collateral. 6.2 Notwithstanding the creation of the above security interest, the relationship of the parties shall be that of Purchaser and Seller of Accounts, and not that of lender and borrower. 7. Clearance Days. For purposes of section 2.3 under this Agreement, Clearance Days will be added to the date on which any payment is received by Purchaser. Clearance days will not be added to receipts on the Accounts. 8. Authorization to Purchaser. 8.1 Seller hereby irrevocably authorizes Purchaser at Seller's expense, to exercise at any time any of the following powers until all of the Obligations have been paid in full: (a) receive, take, endorse, assign, deliver, accept and deposit, in the name of Purchaser or Seller, any and all cash, checks, commercial paper, drafts, remittances and other instruments and documents relating to the Collateral or the proceeds thereof, (b) take or bring, in the name of Purchaser or Seller, all steps, actions, suits or proceedings deemed by Purchaser necessary or desirable to effect collection of or other realization upon the Accounts and other Collateral, (c) after an Event of Default, change the address for delivery of mail to Seller and to receive and open mail addressed to Seller, (d) after an Event of Default, extend the time of payment of, compromise or settle for cash, credit, return of merchandise, and upon any terms or conditions, any and all Accounts or other Collateral which includes a monetary obligation and discharge or release any Account Debtor or other obligor (including filing of any public record releasing any lien granted to Seller by such account debtor), without affecting any of the Obligations, (e) pay any sums necessary to discharge any lien or encumbrance which is senior to Purchaser's security interest in the Collateral, which sums shall be included as Obligations hereunder, and in connection with which sums the Default Charge shall accrue and shall be due and payable, (f) file in the name of Seller or Purchaser or both, (1) mechanics lien or related notices or (2) claims under any payment bond, in connection with goods or services sold by Seller in connection with the improvement of realty, and (g) notify any Account Debtor obligated with respect to any Account, that the underlying Account has been assigned to Purchaser by Seller and that payment thereof is to be made to the order of and directly and solely to Purchaser, and (h) communicate directly with Seller's Account Debtors to verify the amount and validity of any Account created by Seller. 8.2 Seller authorizes Purchaser at any time and from time to time to file any initial financing statements and amendments thereto that: Page 4 of 14 8.2.1 indicate the Collateral (as defined in section 1.9 above) of the Seller or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC, or as being of an equal or lesser scope or with greater detail; 8.2.2 contain any other information required by Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether the Seller is an organization, the type of organization, and any organization identification number issued to the Seller and, (ii) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of real property to which the Collateral relates; 8.2.3 contain a notification that the Seller has granted a negative pledge to the Purchaser, and that any subsequent lienor may be tortuously interfering with Purchaser's rights; and 8.2.4 advises third parties that any notification of Seller's Account Debtors will interfere with Purchaser's collection rights. 8.3 Seller hereby releases and exculpates Purchaser, its officers, employees and designees, from any liability arising under this Agreement or in furtherance thereof, whether of omission or commission, and whether based upon any error of judgment or mistake of law or fact, except for willful misconduct. In no event will Purchaser have any liability to Seller for lost profits, punitive, exemplary, speculative or other special or consequential damages. Without limiting the generality of the foregoing, Seller releases Purchaser from any claims which Seller may now or hereafter have arising out of Purchaser's endorsement and deposit of checks issued by Seller's customers stating that they were in full payment of an Account, but issued for less than the full amount which may have been owed on the Account. 8.4 Seller authorizes Purchaser to accept, indorse and deposit on behalf of Seller any checks tendered by an Account Debtor "in full payment" of its obligation to Seller. Seller hereby waives, and agrees that it shall not assert against Purchaser any claim arising therefrom, irrespective of whether such action by Purchaser effects an accord and satisfaction of Seller's claims under the Uniform Commercial Code, or otherwise. 9. ACH Authorization. In order to satisfy any of the Obligations, Purchaser is hereby authorized by Seller to initiate electronic debit or credit entries through the ACH system to any deposit account maintained by Seller wherever located. 10. Covenants By Seller. 10.1 Seller shall not, without the prior written consent of Purchaser in each instance, (a) grant any extension of time for payment of any of the Purchased Accounts, (b) compromise or settle any of the Purchased Accounts for less than the full amount thereof, (c) release in whole or in part any Account Debtor, or (d) grant any credits, discounts, allowances, deductions, return authorizations or the like with respect to any of the Purchased Accounts. 10.2 From time to time as requested by Purchaser, at the sole expense of Seller, Purchaser or its designee shall have unrestricted access, during reasonable business hours if prior to an Event of Default and at any time if on or after an Event of Default, to all premises where the Collateral is located for the purposes of inspecting (and removing, if after the occurrence of an Event of Default) any of the Collateral, including Seller's books and records, and Seller shall permit Purchaser or its designee to make copies of such books and records or extracts therefrom as Purchaser may request. 10.3 Seller shall furnish to Purchaser on a monthly basis such financial statements and other financial information as Purchaser may from time to time request. All such financial statements shall show all material contingent liabilities and shall accurately and fairly present the results of operations and the financial condition of Seller at the dates and for the period indicated. Without limitation of the foregoing, Seller shall furnish to Purchaser the following statements: Page 5 of 14 10.3.1 Income statements of the Seller dated as of the last day of each month, to be delivered within 20 days after the end of each month and certified by Seller as true, correct, and complete, and yearly income statements of Seller to be delivered within 90 days after the end of each fiscal year and certified by Seller as true, correct, and complete. 10.3.2 Schedules containing the aging of accounts receivable and accounts payable of the Seller dated as of the last day of each month, to be delivered within 5 business days after the end of each month and certified by the Seller to be true, correct and complete. 10.3.3 Annual balance sheets and financial statements from Seller within 90 days of the end of each fiscal year of the reporting party, which are true and correct in all respects, have been prepared in accordance with GAAP, and fairly present the financial condition(s) of the person(s) referred to therein as of the date(s) indicated. 10.3.4 If Seller fails to furnish or cause to be furnished promptly any report required above, or if Purchaser reasonably deems such reports to be unacceptable, Purchaser may elect (in addition to exercising any other right and remedy) to conduct an audit of all books and records of Seller and/or prepare the statement or statements which Seller failed to procure and deliver. Such audit shall be made and such statement or statements shall be prepared by an independent firm of certified public accountants to be selected by Purchaser. Seller shall pay all reasonable expenses of the audit and other services, which expenses shall be immediately due and payable with interest thereon at the rate of twelve percent (12%) per annum. 10.4 Without expense to Purchaser, Purchaser may use any of Seller's personnel, equipment, including computer equipment, programs, printed output and computer readable media, supplies and premises for the collection of Accounts and realization on other Collateral as Purchaser, in its sole discretion, deems appropriate. Seller hereby irrevocably authorizes all accountants and third parties to disclose and deliver to Purchaser at Seller's expense all financial information, books and records, work papers, management reports and other information in their possession relating to Seller. 10.5 Before sending any Invoice to an Account Debtor, Seller shall mark same with a notice of assignment as may be required by Purchaser. 10.6 Seller shall pay when due all payroll and other taxes, and shall provide proof thereof to Purchaser in such form as Purchaser shall reasonably require. 10.7 Seller shall not create, incur, assume or permit to exist any lien upon or with respect to any Collateral now owned or hereafter acquired by Seller. 10.8 Seller shall maintain insurance on all insurable property owned or leased by Seller in the manner, to the extent and against at least such risks (in any event, including but not limited to fire and business interruption insurance) as usually maintained by owners of similar businesses and properties in similar geographic areas. All such insurance shall be in amounts and form and with insurance companies acceptable to Purchaser in its sole discretion. Seller shall furnish to Purchaser: (a) upon written request, any and all information concerning such insurance carried; (b) as requested by Purchaser, loss payee endorsements (or their equivalent) in favor of Purchaser. All policies of insurance shall provide for not less than thirty (30) day's prior written cancellation notice to Purchaser. 10.9 Notwithstanding that Seller has agreed to pay the Misdirected Payment Fee, Seller shall deliver in kind to Purchaser no later than the second business day following the date of receipt by Seller of the amount of any payment on account of a Purchased Account. Such delivery shall be to a P.O. box at_______________________ (address) or to the offices of Purchaser: 5950 Sherry Lane, Suite 750, Dallas, TX 75225. Page 6 of 14 10.10 Avoidance Claims. 10.10.1 Seller shall indemnify Purchaser from any loss arising out of the assertion of any Avoidance Claim and shall pay to Purchaser on demand the amount thereof. 10.10.2 Seller shall notify Purchaser within two business days of it becoming aware of the assertion of an Avoidance Claim. 10.10.3 This provision shall survive termination of this Agreement. 11. Account Disputes. Seller shall notify Purchaser promptly of and, if requested by Purchaser, will settle all disputes concerning any Purchased Account, at Seller's sole cost and expense. Purchaser may, but is not required to, attempt to settle, compromise, or litigate (collectively, "Resolve") the dispute upon such terms as Purchaser in its sole discretion deem advisable, for Seller's account and risk and at Seller's sole expense. Upon the occurrence of an Event of Default Purchaser may Resolve such issues with respect to any Account of Seller. 12. Representation and Warranties. Seller represents and warrants that: 12.1 It is fully authorized to enter into this Agreement and to perform hereunder; 12.2 This Agreement constitutes the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally); and 12.3 Seller is solvent and in good standing in the State of its organization. 12.4 Each Purchased Account is and will remain: 12.4.1 a bona fide existing obligation created by the sale and delivery of conforming goods or the rendition of services in the ordinary course of Seller's business, and all underlying goods have been delivered to the Account Debtor, or all underlying services have been rendered by the Seller, in complete fulfillment of all of the terms and conditions of a fully executed, delivered and unexpired contract with the Account Debtor (a true and complete copy of which contract having been delivered to Purchaser), and the Account Debtor has accepted the goods or services to which the Account relates; 12.4.2 denominated and payable only in United States dollars and constitutes the legal, valid and binding payment obligation of the Account Debtor, enforceable in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally); 12.4.3 current and not past due as of the date of purchase by Purchaser, and has not been paid by or on behalf of the Account Debtor in whole or in part, and is not and will not be subject to any dispute, rescission, set-off, recoupment, defense or claim by the Account Debtor, whether relating to the price, quality, quantity, workmanship, delay in delivery, set off, counterclaim or otherwise, and the Account Debtor has not and will not claim any defense of any kind or character (other than bankruptcy or insolvency arising after the date of such sale of such account to Purchaser hereunder) against payment of such account; 12.5 No Purchased Account is from a sale of goods or rendition of services to an entity which is affiliated with Seller. Each Purchased Account has resulted from an "arms length" transaction with the applicable Account Debtor. 12.6 Seller has not received notice of any actual, imminent, or threatened bankruptcy, insolvency, or material impairment of the financial condition of any applicable Account Debtor liable under a Purchased Account. Seller has no knowledge of any fact which would lead it to expect that, as of the date of sale of such account to Purchaser, that such Account will not be paid in the full stated amount when due. Page 7 of 14 Each representation and warranty of Seller contained in this Agreement shall be deemed to be made at and as of the date hereof and at and as of the date of each sale of Accounts to Purchaser hereunder. 13 Default. 13.1 Events of Default. The following events will constitute an Event of Default hereunder: 13.1.1 Seller defaults in the payment of any Obligations or in the performance of any provision hereof or of any other agreement now or hereafter entered into with Purchaser, or any warranty or representation contained herein proves to be false in any way, howsoever minor, 13.1.2 Seller or any guarantor of the Obligations becomes subject to any debtor-relief proceedings, 13.1.3 any such guarantor fails to perform or observe any of such Guarantor's obligations to Purchaser or shall notify Purchaser of its intention to rescind, modify, terminate or revoke any guaranty of the Obligations, or any such guaranty shall cease to be in full force and effect for any reason whatever, 13.1.4 Purchaser for any reason, in good faith, deems itself insecure with respect to the prospect of repayment or performance of the Obligations; 13.1.5 Seller or any Account Debtor: 13.1.5.1 Executes an assignment for the benefit of creditors, or takes any action in furtherance thereof; or (B) admits in writing its inability to pay, or fails to pay, its debts generally as they become due; or (C) as a debtor, files a petition, case, proceeding or other action pursuant to, or voluntarily seeks the benefit or benefits of, Title 11 of the United States Code as now or hereafter in effect or any other federal, state or local law, domestic or foreign, as now or hereafter in effect relating to bankruptcy, insolvency, liquidation, receivership, reorganization, arrangement, composition, extension or adjustment of debts, or similar laws affecting the rights of creditors (Title 11 of the United States Code and such other laws being herein called "Debtor Relief Laws"), or takes any action in furtherance thereof; or (D) seeks the appointment of a receiver, trustee, custodian or liquidator of the Project or any part thereof or of any significant portion of its other property; or 13.1.5.2 Suffers the filing of a petition, case, proceeding or other action against it as a debtor under any Debtor Relief Law or seeking appointment of a receiver, trustee, custodian or liquidator of the Collateral or any part thereof or of any significant portion of its other property, and (A) admits, acquiesces in or fails to contest diligently the material allegations thereof, or (B) the petition, case, proceeding or other action results in entry of any order for relief or order granting relief sought against it, or (C) in a proceeding under Debtor Relief Laws, the case is converted from one chapter to another, or (D) fails to have the petition, case, proceeding or other action permanently dismissed or discharged on or before the earlier of trial thereon or sixty (60) days next following the date of its filing; or 13.1.5.3 Conceals, removes, or permits to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them, or makes or suffers a transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or makes any transfer of its property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or suffers or permits, while insolvent, any creditor to obtain a lien upon any of its property through legal proceedings which are not vacated and such lien discharged prior to enforcement thereof and in any event within sixty (60) days from the date thereof; or Page 8 of 14 13.1.5.4 Fails to have discharged within a period of ten (10) days any attachment, sequestration, or similar writ levied upon any of its property; or 13.1.5.5 Fails to pay immediately any final money judgment against it. 13.2 Waiver of Notice. SELLER WAIVES ANY REQUIREMENT THAT PURCHASER INFORM SELLER BY AFFIRMATIVE ACT OR OTHERWISE OF ANY ACCELERATION OF SELLER'S OBLIGATIONS HEREUNDER. FURTHER, PURCHASER'S FAILURE TO CHARGE OR ACCRUE INTEREST OR FEES AT ANY "DEFAULT" OR "PAST DUE" RATE SHALL NOT BE DEEMED A WAIVER BY PURCHASER OF ITS CLAIM THERETO. 13.3 Effect of Default. 13.3.1 Upon the occurrence of any Event of Default, in addition to any rights Purchaser has under this Agreement or applicable law, Purchaser may immediately terminate this Agreement, at which time all Obligations shall immediately become due and payable without notice. 13.3.2 The Default Charge shall accrue and is payable on demand on any Obligation not paid when due. 14. Account Stated. From time to time during the term of this Agreement, Purchaser may render to Seller a statement setting forth the transactions arising hereunder. Each statement shall be considered correct and binding upon Seller as an account stated, except to the extent that Purchaser receives, within ten (10) days after the receipt of such statement, written notice from Seller of any specific exceptions by Seller to that statement, and then it shall be binding against Seller as to any items to which it has not objected. 15. Waiver. No failure to exercise and no delay in exercising any right, power, or remedy hereunder shall impair any right, power, or remedy which Purchaser may have, nor shall any such delay be construed to be a waiver of any of such rights, powers, or remedies, or any acquiescence in any breach or default hereunder; nor shall any waiver by Purchaser of any breach or default by Seller hereunder be deemed a waiver of any default or breach subsequently occurring. All rights and remedies granted to Purchaser hereunder shall remain in full force and effect notwithstanding any single or partial exercise of, or any discontinuance of action begun to enforce, any such right or remedy. The rights and remedies specified herein are cumulative and not exclusive of each other or of any rights or remedies that Purchaser would otherwise have. Any waiver, permit, consent or approval by Purchaser of any breach or default hereunder must be in writing and shall be effective only to the extent set forth in such writing and only as to that specific instance. 16. Termination; Effective Date. 16.1 This Agreement will be effective when accepted by Purchaser. Seller may terminate this Agreement at any time upon giving Purchaser at least thirty (30) days prior written notice of termination. 16.2 Purchaser may terminate this Agreement at any time upon giving Seller at least thirty (30) days prior written notice of termination. 16.3 Purchaser may, at its election, terminate this Agreement immediately and without the requirement of notice to Seller upon an Event of Default hereunder. Page 9 of 14 16.4 Upon termination, Seller shall pay the Obligations to Purchaser, and Purchaser shall not purchase any Accounts from Seller. Termination of this Agreement shall not affect the rights and obligations of the parties hereunder with respect to transactions occurring on or prior to the date of such termination, and this Agreement shall continue to govern the rights and obligations of the parties hereto with respect to accounts purchased by Purchaser from Seller on or prior to the date of such termination. All security interests granted or contemplated by this Agreement shall survive the termination of this Agreement until all amounts payable to Purchaser with respect to transactions occurring on or prior to the date of termination have been paid to Purchaser, and Seller has performed all its obligations to Purchaser with respect to such transactions and all obligations under this Agreement including but not limited to payment of any fees owing hereunder. 17. Amendment. Neither this Agreement nor any provisions hereof may be changed, waived, discharged or terminated, nor may any consent to the departure from the terms hereof be given, orally (even if supported by new consideration), but only by an instrument in writing signed by all parties to this Agreement. Any waiver or consent so given shall be effective only in the specific instance and for the specific purpose for which given. 18. No Lien Termination without Release. In recognition of the Purchaser's right to have its attorneys' fees and other expenses incurred in connection with this Agreement secured by the Collateral, notwithstanding payment in full of all Obligations by Seller, Purchaser shall not be required to record any terminations or satisfactions of any of Purchaser's liens on the Collateral unless and until Seller has executed and delivered to Purchaser a general release in the form of Exhibit A hereto. Seller understands that this provision constitutes a waiver of its rights under Section 9-513 of the UCC. 19. Conflict. Unless otherwise expressly stated in any other agreement between Purchaser and Seller, if a conflict exists between the provisions of this Agreement and the provisions of such other agreement, the provisions of this Agreement shall control. 20. Survival. All representations, warranties and agreements of Seller herein contained shall be effective so long as any portion of this Agreement remains executory. 21. Severability. In the event any one or more of the provisions contained in this Agreement is held to be invalid, illegal or unenforceable in any respect, then such provision shall be ineffective only to the extent of such prohibition or invalidity, and the validity, legality, and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 22. Enforcement. This Agreement and all agreements relating to the subject matter hereof is the product of negotiation and preparation by and among each party and its respective attorneys, and shall be construed accordingly. 23. Relationship of Parties. The relationship of the parties hereto shall be that of Seller and Purchaser of Accounts, and Purchaser shall not be a fiduciary of the Seller, although Seller may be a fiduciary of the Purchaser. 24. Attorneys Fees. Seller agrees to reimburse Purchaser on demand for: 24.1 the actual amount of all costs and expenses, including attorneys' fees, which Purchaser may incur after the execution hereof in: 24.1.1 administering this Agreement and any documents prepared in connection herewith; 24.1.2 any way arising out of this Agreement; 24.1.3 protecting, preserving or enforcing any lien, security interest or other right granted by Seller to Purchaser or arising under applicable law, whether or not suit is brought, including but not limited to the defense of any Avoidance Claims; 24.2 the actual costs, including photocopying (which, if performed by Purchaser's employees, shall be at the rate of $.10/page), travel, and attorneys' fees and expenses incurred in complying with any subpoena or other legal process attendant to any litigation in which Seller is a party; Page 10 of 14 24.3 The actual amount of all costs and expenses, including attorneys' fees, which Purchaser may incur in enforcing this Agreement and any documents prepared in connection herewith, or in connection with any federal or state insolvency proceeding commenced by or against Seller, including those (i) arising out the automatic stay, (ii) seeking dismissal or conversion of the bankruptcy proceeding or (ii) opposing confirmation of Seller's plan thereunder. 25. Entire Agreement. This Agreement supersedes all other agreements and understandings between the parties hereto, verbal or written, express or implied, relating to the subject matter hereof. No promises of any kind have been made by Purchaser or any third party to induce Seller to execute this Agreement. No course of dealing, course of performance or trade usage, and no parole evidence of any nature, shall be used to supplement or modify any terms of this Agreement. 26. Choice of Law. This Agreement and all transactions contemplated hereunder and/or evidenced hereby shall be governed by, construed under, and enforced in accordance with the internal laws of the Chosen State. 27. JURY TRIAL WAIVER. IN RECOGNITION OF THE HIGHER COSTS AND DELAY WHICH MAY RESULT FROM A JURY TRIAL, THE PARTIES HERETO WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING HEREUNDER, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY FURTHER WAIVES ANY RIGHT TO CONSOLIDATE ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 28. Venue; Jurisdiction. Governing Law; Venue; Submission to Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. THIS AGREEMENT IS PERFORMABLE BY THE PARTIES IN TARRANT COUNTY, TEXAS. SELLER AND PURCHASER EACH AGREE THAT TARRANT COUNTY, TEXAS SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING UNDER OR RELATING TO THIS AGREEMENT, AND THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM. SELLER AND PURCHASER EACH CONSENT TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. SELLER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM 29. Assignment. Purchaser may assign its rights and delegate its duties hereunder to any affiliated parties as such is defined by the Securities and Exchange Commission. Upon such assignment, Seller shall be deemed to have attorned to such assignee and shall owe the same obligations to such assignee and shall accept performance hereunder by such assignee as if such assignee were Purchaser. This Agreement is not assignable by Seller, unless consented to in writing by Purchaser. Page 11 of 14 30. Indemnfication. Seller agrees to indemnify, defend and hold the Indemnified Persons (hereinafter defined) harmless from and against any and all loss, liability, obligation, damage, penalty, judgment, claim, deficiency and expense (including interest, penalties, attorneys' fees and amounts paid in settlement) owing to any third party to which any Indemnified Person may become subject arising out of or based upon this Agreement as well as any prior relationship of Seller with any Indemnified Person, whether by alleged or actual negligence of any Indemnified Person, except and to the extent caused by the gross negligence or willful misconduct of any Indemnified Person. Where used herein, the term "Indemnified Persons" shall mean Purchaser and its partners, officers, members, employees, attorneys, representatives, agents, affiliates, successors and assigns. 31. Waiver and Release. Seller, by its execution of this Agreement, does hereby covenant, warrant and represent that (i) Seller is not in default and no default exists under any prior agreements or transactions with Purchaser, (ii) Seller releases, relinquishes and waives any and all defenses to the enforceability of any prior agreements or transactions with Purchaser in connection therewith to which Seller may have otherwise been entitled as of the date hereof, (iii) Seller relinquishes, waives and releases Purchaser from any and all claims known or unknown which Seller may or might have against Purchaser arising directly or indirectly out of or from any prior agreements or transactions between Seller and Purchaser, (iv) the benefit received and to be received by Seller as a result of this Agreement shall and does constitute sufficient and valuable consideration to Seller for entering into and performing its obligations under this Agreement, (v) the execution, delivery and performance by Seller of this Agreement and the consummation of the transaction contemplated thereby are (a) not prohibited by any indenture, contract or agreement, law or corporate or partnership documents, including, but not limited to the Bylaws and Articles of Incorporation or Certificate of Incorporation, as the case may be, if Seller is a corporation, or Seller's partnership agreement, if Seller is a partnership, (b) duly authorized by appropriate action of Seller, and (c) legally valid and binding obligations of Seller and will continue to be such and enforceable against the Seller according to their terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally), (vi) that this Agreement will be executed and delivered by properly authorized officers of Seller, (vii) Purchaser has no obligation to continue the prior agreements or enter into this Agreement except for the considerations herein expressed, and (viii) the representations and warranties set forth herein will survive the execution and delivery of this Agreement. 32. Notice. 32.1 All notices required to be given to any party other than Purchaser shall be deemed given upon the first to occur of (i) deposit thereof in a receptacle under the control of the United States Postal Service, (ii) deposit with a nationally recognized overnight courier (such as Federal Express, Airborne, or a similar courier), or (iii) actual receipt by such party or an employee or agent of such party. 32.2 All notices to Purchaser hereunder shall be deemed given upon actual receipt by one of the following officers of Purchaser: Tolbert Marks or Thomas Landry. For the purposes hereof, notices hereunder shall be sent to the addresses hereafter, or to such other addresses as each such party may in writing hereafter indicate. 32.3 Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if all signatures were upon the same instrument. Delivery of an executed counterpart of the signature page to this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement, and any party delivering such an executed counterpart of the signature page to this Agreement by facsimile to any other party shall thereafter also promptly deliver a manually executed counterpart of this Agreement to such other party, provided that the failure to deliver such manually executed counterpart shall not affect the validity, enforceability, or binding effect of this Agreement. 33. True Sales. Seller and Purchaser acknowledge and agree that the sale of accounts contemplated and covered hereby are fully intended by the parties hereto as true sales governed by the provisions of Section 306.103 of the Texas Finance Code and Section 9.109(e) of the Texas Business and Commerce Code, as each may be amended from time to time, and, accordingly, legal and equitable title in all of Seller's accounts sold to and purchased by Purchaser from time to time hereunder will pass to Purchaser. Page 12 of 14 IN WITNESS WHEREOF, the Parties have executed this agreement on the day and year first above written. SELLER: UDT Consulting, Inc., a Texas Corporation By: /s/ David N. Pilotte ---------------------------------- Name: David N. Pilotte Executive Vice President and Chief Financial Officer Address: 1601 Elm Street, Suite 4000, Dallas, TX 75201 SWORN BEFORE ME this 24th of June, 2002 in the County of Dallas, State of Texas. /s/ Amy L. Moris ----------------------------------- Notary November 30, 2005 Commission Expires PURCHASER: LANDRY MARKS PARTNERS LP, a Texas limited partnership By: Landry Marks GP LLC, a Texas limited liability company, its General Partner By: /s/ Thomas M. Landry ----------------------------------- Thomas M. Landry, Manager Address: 5950 Sherry Lane, Suite 750, Dallas, TX 75225 Page 13 of 14 EXHIBIT A GENERAL RELEASE FOR GOOD AND VALUABLE CONSIDERATION, the receipt and adequacy of which are hereby acknowledged, the undersigned and each of them (collectively "Releasor") hereby forever releases, discharges and acquits Landry Marks Partners LP. ("Releasee"), its parent, directors, partners, agents and employees, of and from any and all claims of every type, kind, nature, description or character, and irrespective of how, why, or by reason of what facts, whether heretofore existing, now existing or hereafter arising, or which could, might, or may be claimed to exist, of whatever kind or name, whether known or unknown, suspected or unsuspected, liquidated or unliquidated, each as though fully set forth herein at length, to the extent that they arise out of or are in way connected to or are related to that certain Factoring and Security Agreement dated June 24, 2002. Releasor agrees that the matters released herein are not limited to matters which are known or disclosed. Releasor acknowledges that factual matters now unknown to it may have given or may hereafter give rise to Claims which are presently unknown, unanticipated and unsuspected, and it acknowledges that this Release has been negotiated and agreed upon in light of that realization and that it nevertheless hereby intends to release, discharge and acquit the Releasee from any such unknown Claims. Acceptance of this Release shall not be deemed or construed as an admission of liability by any party released. Releasor acknowledges that either (a) it has had advice of counsel of its own choosing in negotiations for and the preparation of this release, or (b) it has knowingly determined that such advise is not needed. DATED: Individual Releasor: __________________________________ [Name of individual], individually Entity Releasor: By:________________________________ Name:______________________________ Title:_____________________________ Page 14 of 14 EX-99.1 6 edge906-2.txt 906 CERTIFICATION OF FINANCIAL STATEMENTS Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) (the "Act"), each of the undersigned officers of Edge Technology Group, a Delaware corporation (the "Company"), does hereby certify that: The Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002, (the "Periodic Report") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 780(d)) and information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ GRAHAM C. BEACHUM ----------------------------------- Graham C. Beachum II Chief Executive Officer /s/ DAVID N. PILOTTE ----------------------------------- David N. Pilotte Chief Financial Officer Dated: August 14, 2002 THE FOREGOING CERTIFICATION IS BEING FURNISHED SOLELY PURSUANT TO SECTION 906 OF THE ACT AND IS NOT BEING FILED AS PART OF THE PERIODIC REPORT OR AS A SEPARATE DISCLOSURE DOCUMENT. -----END PRIVACY-ENHANCED MESSAGE-----