-----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, EqsPoeVZ6tK7rCOU/MsUUas3eYXtla9K4SFBVKndip+FFiJjmbDPps+NaJNwDdUn AZhDHNl2L8h0S+xzZorP7Q== 0000930661-02-001232.txt : 20020425 0000930661-02-001232.hdr.sgml : 20020425 ACCESSION NUMBER: 0000930661-02-001232 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020416 DATE AS OF CHANGE: 20020425 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: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-20995 FILM NUMBER: 02612920 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 10KSB 1 d10ksb.txt FORM 10-KSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO 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 Registrant as specified in its charter) DELAWARE 13-3778895 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 6611 HILLCREST AVENUE, #223 DALLAS, TX 75205 (Address of principal executive offices) (Zip Code) (214) 999-2245 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Exchange Act: COMMON STOCK, PAR VALUE $.01 PER SHARE REDEEMABLE WARRANTS, EACH TO PURCHASE ONE SHARE OF COMMON STOCK (Title of Class) Check mark whether the Registrant (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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] - 1 - The Registrant's revenue for its most recent fiscal year from continuing operations was approximately $8,700. The aggregate market value of the Registrant's common stock, $.01 par value, held by non-affiliates as of April 12, 2002, based on the average bid and asked price of the common stock was $2,636,093. As of April 12, 2002, there were 17,385,776 shares of the Registrant's common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: None - 2 - PART I ITEM 1. DESCRIPTION OF BUSINESS "Safe Harbor" Statement 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 Edge Technology Group ("Company") management as well as assumptions made by and information currently available to the Company's management. When used in this report the words "anticipate" "believe," "expect" and words or phrases of similar import, as they relate to the Company or Company management, are intended to identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions related to certain factors including, without limitation, the ability to: * adapt and successfully execute our revised business plan; * overcome the negative market stigma associated with certain over-the-counter technology companies; * manage and adapt to changing and expanding operations; * implement and improve operational, financial and management systems and processes; * locate, negotiate with, close and ultimately integrate additional attractive portfolio investments; * attract, retain and motivate qualified personnel; and * overcome numerous other risks and difficulties generally experienced by early stage business models generally and other factors detailed in this report under "Risk Factors." Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it 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. The Company expressly undertakes no obligation to update these forward-looking statements. Except as required by federal securities laws, Edge undertakes 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. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the applicable cautionary statements. - 3 - GENERAL Edge Technology Group, Inc., formerly known as Visual Edge Systems Inc., was incorporated in Delaware in July 1994 and commenced operations in January 1995. We changed the name of our company in September 2000 to Edge Technology Group, Inc. to better reflect our current business operations and business strategy. Edge Technology Group, Inc. ("Edge" or "Company") is a publicly traded company (OTC Bulletin Board: "EDGE"). We are in the early stage of revamping our business model beyond our historical golf training technology products. Our new business model is to acquire software related technology companies that deliver software products and related information technology services to middle market companies. We intend to offer products and services that improve the utilization of business information for middle market companies, initially within the United States. We expect that client organizations will benefit from integrated business process applications that are delivered on a fully outsourced basis through portal technology or, if needed, as traditional licensed products. Our acquisitions will target companies with existing strategic relationships with Oracle, IBM or Microsoft that will additionally allow us to take advantage of partnership opportunities available only to select parties. The technology companies targeted for acquisition are those that operate within the following business sectors and operating business units ("OBU"): (1) information technology ("IT") consulting and integration services, (2) business application software comprised of six product groups and (3) application services and management. These sectors will comprise the Edge business model: Edge Business Model [DIAGRAM] Initial development of our business model involves the acquisition of IT consulting and integration services firms that have existing relationships with numerous middle market clients. Subsequent acquisitions are expected to target software products with common data structures (such as Oracle, IBM and Microsoft), designed for the application service delivery channel. We expect that some synergistic relationships will develop between the acquired companies, and that funding for OBU-specific projects will be provided through public and private offerings of Edge securities. Nearly all operations are expected to continue within each OBU while a small corporate staff will interface with the capital markets, formulate and manage our overall strategic objectives and oversee all mergers and acquisitions. Prior to our current emphasis on IT consulting services, software applications and application services, the business consisted primarily of developing, marketing and selling personalized videotape golf lessons featuring One-on-One golf video instruction ("One-on-One") by leading professional golfer Greg Norman, sold under the - 4 - name "One-on-One with Greg Norman." We developed video production technology that digitally combined actual video footage of a golfer's swing with a synchronized "split-screen" comparison to Greg Norman's golf swing to produce a One-on-One golf lesson. The assets of the One-on-One business were sold to members of its prior management in September 2001. BUSINESS STRATEGY Our business strategy is to bring together complementary software related companies to offer our clients a complete end-to-end solution for their software needs. Our targeted customers are an estimated 150,000 middle-market companies in the U.S. with software and consulting needs. We will initially focus primarily on the U.S. market. PRODUCT AND SERVICE OFFERINGS Information Technology Consulting and Integration Services ("IT Services") The IT Services sector is currently experiencing a period of significant change, which may create immense opportunity for proactive entrepreneurial companies. After experiencing a multi-year period of record-setting sales, the sector is currently projected to continue growing, but at a slower pace. Many participants were not prepared for decelerating growth and a changing environment. In addition, the financial markets have reacted by demanding near-term profitability, forcing major corrections in the valuations of technology companies and providing limited access to private venture capital and public market financing. We plan to specifically serve the needs of middle market businesses, initially within the United Sates. Middle market companies are defined as those that generate between $10 million and $2 billion in annual revenue and typically employ between 100 and 10,000 persons. Of the 3 million middle market companies in the United States (1997 data), there were approximately 150,000 companies that we would target. IT Services are estimated to generate $300 billion of global revenues,/1/ of which our management estimates that U.S. middle market companies consume $62 billion. Such services consist of implementation, integration and development of custom technology applications. International Data Corporation ("IDC") projects a 12% annual growth rate through 2005./2/ Some industry forecasters such as Gartner Dataquest use a broader definition of "IT services" to account for $670 billion of 2000 revenue from an estimated 15,000 competitors. This is a highly fragmented market with industry leader IBM Global Services controlling less than 5%, the ten largest market participants controlling less than 20%, the top 400 global corporations controlling less than 50% and over 14,000 small to medium sized firms controlling the remaining 50+% market share./3/ We retained an outside consulting firm to conduct independent market interviews. A mid-level executive at one potential competitor commented that, "the middle market buys through local IT service organizations that they know and trust; they do not use Big Five consulting firms."/4/ Thus, thousands of medium sized market participants are both our potential competitors and acquisition targets. Business Application Software ("BAS") Business Application Software providers develop, publish and support specific software applications and suites of applications. IDC projects that the global software market is growing at an average annual growth rate (AAGR) of 14.5%, from under $140 billion in 1998 to over $270 billion by 2003. In a recent update, Merrill - -------------- 1 Consulting Reincarnation, Chief Executive Magazine, June 2001. 2 "Can Compaq Escape from Hardware Hell?," Business Week, July 9, 2001. 3 Gartner Dataquest Says IT Services Market Remained Fragmented in 2000, press release, August 20, 2001. 4 Edge competitor interviews, Marek Thompson Advisors, LLC, August 14, 2001. - 5 - Lynch projected that the market had rapidly grown to $190 billion by 2000, yet Merrill still anticipates more moderate growth over the next two years./5/ Dunn and Bradstreet estimates that more than 25,000 independent software vendors ("ISVs") compete within the U.S. market (SIC 7372--prepackaged software), including a total of approximately 3,700 ISVs that generate greater than $1 million of annual revenue and approximately 1,100 BAS providers that generate greater than $10 million of annual revenue./6/ We intend to acquire BAS providers or individual software applications and to integrate these applications into our application and service management offering. Our management envisions that acquired BAS products would fit into our application framework consisting of Internet Services, Collaboration Applications, Business Operations Applications, eBusiness Applications, Business Intelligence Applications and Content/Knowledge Management Applications. .. Internet Services provide general portals tools like a directory of web ----------------- sites, an engine to search the Internet for information by a word or phrase, news, email, stock quotes and a community forum. .. Collaboration Applications provide feature-rich e-mail and other types of -------------------------- messaging for internal and external communication. These solutions also support workgroup and project team collaboration and document sharing, business process automation and workflow applications. .. Business Operation Applications provide enterprise application software for ------------------------------- back office business operations along with a range of industry-specific solutions. .. eBusiness Applications offer a variety of e-commerce solutions to help ---------------------- businesses create and maintain a successful electronic commerce presence on the Web. .. Business Intelligence Applications are data mining tools that perform ---------------------------------- analytics and segmentation on massive amounts of data in a timely fashion. Used in conjunction with the data warehousing and reporting tools, data mining tools allow business analyst to import and manage data for detailed analysis. .. Content and Knowledge Management Applications provide robust and efficient --------------------------------------------- management of media assets with the ability to associate content object with products, rules, promotions or other content objects. Business users have total control over their available data. Application Services and Management Application Service Providers ("ASPs") are a relatively new type of business that deploy, host and manage access to software applications for multiple parties from a centrally managed facility. Mercer Management Consulting counted over 500 ASPs that quickly emerged by the end of 2000,/7/ although several early business models are already experiencing a shakeout. Gartner Dataquest recently reduced its global market size estimate to $12 billion by 2004 (less than half of its earlier $25 billion estimate), which continues to represent respectable growth from the industry's $1.4 billion of U.S. revenue in 2000./8/ Gartner also projects industry consolidation that will result in approximately 20 enterprise-class and 100 single-function ASPs by 2004./9/ We intend to participate in this consolidation trend by acquiring profitable ASPs. The acquired ASPs are intended to merge into a single OBU, enhanced with proprietary software applications (acquired separately), and integrated to work seamlessly with ubiquitous database technologies from Microsoft and Oracle. We anticipate that our IT Services OBU would implement, integrate and customize the combined software and service package. - ------------------- 5 Merrill Lynch Software. Global: The Hard News on Software, February 22, 2001. 6 Industry Report: Prepackaged Software, Zapdata.com / Dunn & Bradstreet, 2001. 7 "Application Service Providers: Where are the real profit zones?," Mercer Management Consulting, 2001. 8 New World Order, Interactive Week, June 25, 2001. 9 "When ASPs Go Sour," eWEEK, April 29, 2001. - 6 - MARKETING AND DISTRIBUTION We intend, through our acquired companies, to market our IT Consulting and Integration Services, Business Software Applications and Application Services and Management outsourcing to middle market businesses. We generally define middle market businesses to include businesses with gross revenues ranging from $10 million to $2 billion and between 100 and 10,000 employees. We believe that products and services we may develop or acquire should be marketed with the goal of improving utilization of business information. We intend that these product and service offerings would offer software applications and professional services that support business intelligence systems, enterprise information performance and support improved knowledge management throughout the business operational matrix. We will target companies in this market that have requirements for business process applications, consulting and integration services and outsourced application service and management. We believe this model will enable middle market companies to access integrated business process applications that can be delivered on a fully outsourced basis through portal technology or, if needed, delivered as a traditional licensed product. This entails the integration, deployment and hosting, ongoing management and network access to remotely hosted business process applications like e-commerce, accounting, scheduling and messaging. We intend to provide products and services to the middle market customers that trade the difficulties of purchasing software, managing software implementation risk, staffing an internal information technology department and suffering from unpredictable budgets in return for a single interface, a interoperable data structure, access to applications that complete the end-to-end solution for business processes and a selection of pricing structures. We believe that it will be necessary for the success of our business plans to have multiple sales models for generating revenue. We intend to use the two basic sales models in the industry, software application sales and service sales. Software application sales models that we intend to deploy are: .. License - one-time fee charged to a customer for a software application which they install and operate on their equipment; .. Maintenance - annual fee charged to a customer for software upgrades for licensed products; .. Royalty - one-time fee charged to a reseller for each product sold to an end customer; and .. Subscription service - fees charged to a customer to use a software application, which may be accessed on a contracted time, per user or per transaction basis. Service sales models that we intend to use are: .. Project Based Contracts - fixed-fee contracts for implementation and deployment of application offerings and training; .. Support Contracts - fees charged for online, phone or on-site support of applications and implementations which may be for a contracted duration or accessed per call; and .. Development fees - hourly fees charged for writing new software code for applications and implementations. COMPETITION Our IT Consulting and Integration Services, Business Application Software and Application Services and Management businesses are likely to face competition from four primary categories of businesses: Application - 7 - Service Providers, Independent Software Vendors (ISVs), Information Technology Consultants and Technology Incubators. Application Service Providers include companies whose core competency is delivering applications over the Internet using a portal interface. These companies have invested heavily in their infrastructure and focus on providing a high level of customer service, reliability and in-house integration expertise. ASPs generally seek to limit customization in order to reduce cost and risks. ASPs generally license their software portfolios from multiple vendors to provide applications for their customers. ISVs are software applications developers that traditionally sell customized software solutions to large corporations with large-scale information technology infrastructures. Leaders like Microsoft, Oracle, JD Edwards and PeopleSoft are highly focused on the market and are adding hosted solutions to their existing software offerings. Smaller companies such as webMethods and Go2Net have built their products to be delivered on the new delivery model. Today these players offer software for sale, usually with extensive implementation and customization work required. Most are introducing license rental and ASP services. They are also working to deliver template-based implementations which would make the integration process more of a commodity and therefore make them legitimate competitors in the ASP market. Information technology consultants, including large system integrators, Internet professional services firms and consultants are currently largely separate from ASPs. As the ASP market broadens and begins to compete with the traditional information technology services industry, these companies will likely adjust their business models from pure consulting to include ongoing maintenance and support. Our likely competitors in this industry area include Internet service firms such as Viant and Razorfish and technology consulting firms and integrators such as Accenture, MarchFirst and the in-house information technology departments of current and potential clients. Technology holding companies or "incubators" that have multiple business-to-business portfolios companies are beginning to structure as a collection of wholly owned subsidiaries under a single delivery mechanism to the customer. Technology incubators that might compete with us are those that have made minority investments into a variety of businesses and are now acquiring or otherwise combining their formerly minority owned subsidiaries into a single customer contact. Within the technology holding companies, the associated companies are supported with a comprehensive array of infrastructure services, including Web hosting and design, systems integration, information technology management and marketing and public relations. These services are designed to allow each of the associated companies to focus on its core competencies and accelerate the time-to-market of its products and services. Our competitors generally have financial resources superior to ours, and, as a result, these competitors may be able to respond more quickly to new or emerging technologies and changes in client requirements or to devote greater resources to the development, promotion and sales of their products and services. There can be no assurance that we will be able to compete successfully with existing or new competitors or that competition will not have a material adverse effect on our business, financial condition, operating results and liquidity. PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION - 8 - Included with the sale of the One-on-One assets was our patent from the United States Patent and Trademark Office covering certain aspects of our digital video editing and videotape production process. We currently have no patents or trademarks. FINANCING TRANSACTIONS For the past several years, we have sought financing through private sources. In general, we raised capital through a combination of debt and equity issuances to private investor groups. All the financing transactions described below were deemed to be exempt from registration under the Securities Act of 1933 in reliance on Section 4(2) of such act as transactions by an issuer not involving any public offering. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates issued in such transactions. Infinity Financing and Conversion On June 13, 1997, we arranged a three-year $7.5 million debt and convertible equity facility (the "Infinity Financing") with a group of investment funds led by Infinity Investors Limited ("Infinity"), a related party, which resulted in net proceeds to us of approximately $7.2 million. Under the Securities Purchase Agreement dated June 13, 1997, including the amendments that have since been made to this agreement, we issued to the investment funds 1,039,388 shares of our Common Stock, 6,000 shares of Series A-2 Convertible Preferred Stock with a liquidation preference of $1,000 per share and 8.25% Convertible Notes in the original principal amount of $1.5 million. Under the terms of the investment agreements, the investment funds were granted the right to convert their Series A-2 Convertible Preferred Stock and Convertible Notes into additional shares of our Common Stock, subject to our right to prepay or redeem any of those convertible instruments at any time. Because our Common Stock was delisted from the Nasdaq SmallCap Market, an Event of Default existed under the Infinity Financing. As a result, the investment funds attained the rights to convert each share of Series A-2 Convertible Preferred Stock into a number of shares of Common Stock based on a formula using a percentage of the market price of the Common Stock. On August 30, 1999, one of the investment funds delivered a notice to us to convert 1,627 of its 4,400 shares of our Series A-2 Convertible Preferred Stock into 2,398,714 shares of our Common Stock. The conversion was disputed, and litigation ensued in the Delaware Court of Chancery. In January 2000, the court dismissed the action stating that the claim relating to the conversion was moot because parties to the dispute had resigned from their positions with Edge. In addition, because of the existence of an Event of Default under the Infinity Financing, the investment funds also attained the rights to convert the Convertible Notes into Common Stock based on the same formula used to convert the Series A-2 Convertible Preferred Stock into shares of Common Stock during an Event of Default. Dividends on the Series A-2 Convertible Preferred Stock began accruing on January 1, 2000, at the rate of 8.25% annually and were payable quarterly in cash or in shares of Common Stock. We paid no dividends on the Series A-2 Convertible Preferred Stock. The Convertible Notes matured in June 2000 and interest on the notes was due in cash. The Convertible Notes were secured by all of our significant assets. In June 2000, we recognized Infinity's conversion of 1,627 shares of its Series A-2 Convertible Preferred Stock into 2,398,714 shares of Edge's Common Stock and approved the issuance of those shares of Common Stock to Infinity as a result of such conversion. As part of the reorganization of Edge effective September 1, 2000, Infinity, Glacier Capital Limited and Summit Capital Limited, which were the holders of the Convertible Notes and shares of Series A-2 Convertible Preferred Stock issued by Edge, converted all their convertible securities and accrued interest and dividends - 9 - based on a formula of one (1) share of Common Stock for each $1.00 of principal and interest outstanding under the convertible notes and for each $1.00 of liquidation amount of the Series A-2 Convertible Preferred Stock and of unpaid dividends. The number of shares of Common Stock issued upon this conversion was 6,689,165. As a result of these actions, as of September 2000, , Edge had no shares of preferred stock outstanding and no outstanding convertible notes and was no longer in default under the documents governing the convertible notes and the Series A-2 Convertible Preferred Stock. In connection with these actions, we recognized a conversion loss and a provision for preferred stock dividends on the conversion of debt and preferred stock of $4,796,403 in 2000. 2000 Infinity Loans During 2000, 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. As of December 31, 2001, there was $219,000 in principal outstanding. Upon maturity, as of April 1, 2002, Infinity elected to convert the outstanding principal and interest totaling $258,464 into $.01 par value Common Stock at $.65 per share resulting in 397,637 shares issued by us. We claimed an exemption for this issuance under section 4(2) of the Securities Act of 1933. September 2000 Equity Issuance In September 2000, we issued to private accredited investors an aggregate of 1,458,667 shares of our Common Stock for an aggregate purchase price of $2,187,999 pursuant to Rule 506, Regulation D of the Securities Act of 1933. In April 2000, we also issued warrants to private accredited investors to purchase 729,333 shares of Common Stock at an exercise of $3.00 per share pursuant to Rule 506, Regulation D of the Securities Act of 1933. Effective September 1, 2000, we acquired from PurchasePooling, a related party, 9,593,824 shares of Series A Convertible Preferred Stock of PurchasePooling in exchange for 2,644,841 shares of Edge Common Stock. In 2000, we entered into an agreement to acquire from Odyssey Ventures Online Holdings S.A. 975,000 shares of Series A Convertible Preferred Stock of PurchasePooling in exchange for 268,789 shares of Edge Common Stock. In April 2001, the agreement was finalized and the shares of Common Stock were issued. Our President and CEO is also the interim President of PurchasePooling. No underwriting discounts were paid in connection with any of the above sales. We paid approximately $6,000 in commissions in connection with the above sales. For all of the above sales, we claimed an exemption from registration under Section 4(2) of the Securities Act of 1933. 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"). The Catalyst Loan was originally due on June 30, 2001, and bears interest at a rate equal to eight percent (8%) per annum. We used the proceeds of the Catalyst Loan to purchase 2,214,285 shares of Series C Convertible Preferred Stock of PurchasePooling. Catalyst Master Fund L.P. is a stockholder of ours and certain of our directors are officers of an entity that manages Catalyst Master Fund L.P. 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 have a need for funds, subject to our being in compliance with the covenants contained in that loan agreement. The amended loan agreement bears - 10 - interest at eight percent (8%) per annum and was due March 31, 2002. The additional amount available under the amended loan agreement is 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 31, 2000 and 2001, the principal balance outstanding on the Catalyst Loan was $620,000 and $1,420,000, respectively. 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. Subsequent to December 31, 2001, as part of the April 2002 Series A Convertible Preferred Stock financing described below, Sandera converted all outstanding principal and interest due on the loan (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 Convertible Preferred Stock. SUBSEQUENT EVENTS April 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. 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, and claimed an exemption from registration under Section 4(2) of the Securities Act of 1933. 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 in exchange for all the outstanding shares of Media Resolutions. The acquisition will be accounted for using the purchase method of accounting. As such, the assets and liabilities of Media Resolutions will be recorded at their estimated fair value and the results of operations will be included in our consolidated result of operations from the date of acquisition. Media Resolutions has four employees and generated revenues of approximately $283,000 and a net loss of approximately $9,800 in 2001. We will use Media Resolutions to develop and host websites and deliver the proprietary software products we intend to acquire as we further implement our business plan. Media Resolutions was established in February 1999, and specializes in application hosting while also - 11 - providing an array of other products and services including: HTML and Cold Fusion website development, graphic design, streaming video and custom scripting. Media Resolutions operates from a co-location site maintained by Allegiance Telecom, Inc. in Dallas, Texas under a short-term master service agreement. Media Resolutions is an important component of our business model. Using Media Resolutions, we plan to host both our own proprietary software, once acquired, as well as our partners' software. This will provide us with greater control over the security, cost and feasibility of providing solutions to middle market customers. It will also allow us to form tighter relationships with our technology partners, as we will be able to offer services that other software partners cannot. Additionally, Media Resolutions has developed several products for its customer base that we expect to be able to turn into products offered within the Business Application Software product group. Competitors of Media Resolutions include the hundreds of similarly situated privately owned ASP's located throughout the North Texas region. Marketing of Media Resolution's services is accomplished primarily through referral from its more than 500 established customers. In 2001, 88% of revenues were derived from hosting services provided on a month-to-month basis. Media Resolutions has no long-term non-cancelable leases and no debt. Acquisition of The Visionary Group, Inc. On April 8, 2002, we acquired The Visionary Group, Inc., a professional services firm providing IT consulting 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 will be accounted for using the purchase method of accounting. As such, the assets and liabilities of The Visionary Group will be recorded at their estimated fair value and the results of operations will be included in our consolidated result of operations from the date of acquisition. The Visionary Group has 14 employees and generated revenues of $3.4 million and break even net income in 2001. We intend to expand the operations of The Visionary Group through the introduction of the proprietary software products we intend to acquire as we further implement our business plan. Founded in March 1997, The Visionary Group is an e-Business consulting and integration services firm that specializes in implementing, customizing, upgrading and supporting the Oracle suite of business applications. The Visionary Group provides a full line of application development, system upgrades and integration of Oracle products. With a strong focus and understanding of middle market companies and client satisfaction and loyalty, The Visionary Group is able to provide its clients with a wide range of business solutions, products and services. The Visionary Group's IT consulting and integration services practice consists of Project Management, Full life-cycle development utilizing a broad range of Oracle's development tools, as well as Functional and Technical consulting for the Oracle CRM, Manufacturing and Financial applications. Additionally, The Visionary Group's consultants are recognized for their senior-level consulting expertise and knowledge. Further, The Visionary Group has developed PRISM (Planning Resource Implementing Solutions Methodology), a proprietary business methodology to aid in the understanding of each client's e-business strategy and to systematically perform packaged solution implementations. This technology provides a proven formula to help companies in accelerating the installation, integration, ramp-up and application of Oracle solutions. The Visionary Group's reputation in the business community, extensive Oracle partnerships and strong consulting experience makes it an excellent cornerstone for our IT Services business unit. The Visionary Group's focus on middle market companies aided by their proprietary PRISM business methodology further - 12 - differentiates it as a leading Oracle business solution provider. Competitors of The Visionary Group include the dozen or so similarly situated privately owned IT professional service firms located primarily throughout the North Texas region. Marketing of The Visionary Group's services is accomplished through an in-house sales staff of two and referral from its more than 50 established customers. Revenues are derived from providing IT Services on a project basis, and in 2001, approximately 15% of revenues were from repeat clients. The Visionary Group operates from an office in Dallas of 1,985 square feet under a lease through March 2006. 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. We received $600,000 during 2001 which was recorded as paid in capital. In March 2002, Infinity and Edge mutually agreed to terminate the option. CHANGES IN MANAGEMENT Thomas Peters, then President of Edge, was appointed to the additional office of Chief Executive Officer on July 12, 2000. On September 5, 2000, Mr. Peters became Executive Vice President then became a Vice President on January 23, 2001. In July 2001, Mr. Peters resigned as Vice President and entered into a separation agreement with us whereby we would pay him approximately $45,000 and grant him 75,000 warrants, exercise price of $1.50, in exchange for forgiveness of amounts due him and cancellation of all previously issued options. At April 12, 2002, we were in default on the separation agreement, but Mr. Peters had taken no action associated with the default. As part of our reorganization, on September 5, 2000, we entered into an employment agreement with Pierre Koshakji. Mr. Koshakji initially served as Edge's President from September 5, 2000, until January 23, 2001, when he began serving as Vice President. Mr. Koshakji resigned as Vice President in September 2001. From July 12, 2000 until September 5, 2000, the office of Chairman of the Board of Directors of Edge was vacant. On September 5, 2000, Johan Schotte became our Chairman of the Board of Directors. On January 18, 2001, Mr. Schotte resigned his position as Chairman of the Board of Directors. The Board of Directors of Edge is currently engaged in a search for a Chairman. On January 19, 2001, Mr. Peters and Mr. Koshakji resigned from their positions as members of the Board of Directors. On January 23, 2001, we entered into an employment agreement effective January 2, 2001, with Graham C. Beachum II for Mr. Beachum to serve as our President and Chief Executive Officer. On January 23, 2001, Mr. Beachum was also elected to our Board of Directors. On January 23, 2001, we entered into an employment agreement effective January 2, 2001, with Graham C. "Scooter" Beachum III for Mr. Beachum to serve as our Vice President and General Manager. Scooter is the son of our President and Chief Executive Officer. - 13 - On August 6, 2001, David N. Pilotte joined us as Executive Vice President and Chief Financial Officer. EMPLOYEES In March 2001, we reduced our workforce related to the One-on-One products business to three employees. Additional people were added throughout 2001 as we developed our new business plan. As of April 12, 2002, we employed two executive officers and eight employees. RISK FACTORS Readers of this annual report or any of our press releases should carefully consider the following risk factors, in addition to the other information contained herein. This annual report on Form 10-KSB and our press releases contain statements of a forward-looking nature relating to future events or the future financial performance of Edge within the meaning of Section 27A of the Securities Act of 1933, as amended, 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 differ substantially. In evaluating those statements, readers should specifically consider the various factors identified in this annual report, including the matters set forth below, which could cause actual results to differ substantially from those indicated by those forward-looking statements. We have experienced significant and continuing losses. As of December 31, 2001, we had an accumulated deficit of approximately $42.4 million. For each of the five years ended December 31, 2001, we have recorded an operating loss, in certain cases, a substantial operating loss. We incurred a net loss of approximately $9.2 million for the year ended December 31, 2001. We believe that we will continue to incur losses until we are able to generate sufficient revenues to offset the operating costs associated with executing our new business plan. These losses could limit our ability to grow and to raise new funds and could ultimately jeopardize our ability to remain in business. We are at a relatively early stage with our revised business plan and therefore our business and prospects are difficult to evaluate. Our corporate reorganization and related shift in our business strategy commenced in September 2000 and is ongoing. Since that time, we have been engaged principally in (1) assembling our senior management team, (2) managing our existing portfolio companies, (3) developing our revised business plan and (4) attempting to raise capital. We do not have any meaningful operating history on which to base an evaluation of our business and prospects. Our prospects must be considered in light of the many risks, uncertainties, expenses, delays, and difficulties frequently encountered by companies in their early states of development, particularly companies participating in new and rapidly evolving markets. Some of the risks and difficulties we expect to encounter include our ability to: . adapt and successfully execute our new business plan; . overcome the negative market stigma associated with certain over-the-counter technology companies; . manage and adapt to changing and expanding operations; . implement and improve operational, financial and management systems and processes; . locate, negotiate with, close and ultimately integrate additional attractive portfolio investments; . attract, retain and motivate qualified personnel; and . numerous other risks and difficulties experienced by early stage business models generally. - 14 - Because of our recent reorganization and our shift away from being a single product Company, we may have limited insight into trends and conditions that may exist or might emerge and effect our business. We cannot be certain that our revised business strategy will be successful or that we will successfully address these risks. We need additional financing. Although we just completed a preferred equity offering resulting in cash proceeds of approximately $2.7 million (see "April 2002 Series A Convertible Preferred Stock" and "Acquisitions" under Subsequent Events in the financial statements), most of that cash was immediately expended on the acquisitions of Media Resolutions and The Visionary Group and the related transaction costs. As such, we need additional financing to further implement our business plan. We do not currently maintain a credit facility with any bank or financial institution. We believe that our ability to raise additional financing, either as debt or equity, is further hindered by our continuing operating losses, the low market price of our Common Stock and the lack of a listing for our stock on a national exchange. The shares eligible for future sale may further decrease the price of our Common Stock. If our stockholders sell substantial amounts of their Common Stock in the public market, including shares issued upon the exercise of outstanding options, the market price of our Common Stock could fall. As of December 31, 2001, there were a substantial number of outstanding options and warrants to purchase shares of our Common Stock. The exercise of any of these options or warrants would also have a dilutive effect on our stockholders. Furthermore, holders of such options or warrants are more likely to exercise them at times when we could obtain additional equity capital on terms that are more favorable to us than those provided in the options or warrants. As a result, exercise of the options or warrants may adversely effect the terms of such financing and would require us to issue significant amounts of Common Stock at the time of exercise. The sale of a substantial number of our Common Stock may adversely effect the prevailing price of such Common Stock in the public market and may impair our ability to raise capital through the sale of our equity securities. Our common stock is subject to the "penny stock" rules which may make it a less attractive investment. Our Common Stock currently trades on the Over-the-Counter Bulletin Board. Although we intend to file an application to list our shares on one of the national exchanges at some point in the future (for example, American Stock Exchange or NASDAQ SmallCap), for any number of reasons, we may be unable to obtain such a listing. In addition, our Common Stock may at any time be subject to the "penny stock" rules. The Securities and Exchange Commission has adopted regulations that define a "penny stock" to be an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors. For transactions covered by the penny stock rules, a broker-dealer must make a suitability determination for the purchaser, must have received the purchaser's written consent to the transaction prior to the sale, must disclose the commissions payable to both the broker-dealer and the registered representative and must provide current quotations for the securities. Additionally, if the broker-dealer selling the securities as a market maker, the broker-dealer must disclose that fact and that the broker-dealer's is presumed to exercise control over the market. Finally, a monthly statement must be sent to the account holder disclosing recent price information and information on the limited market in the particular stock. Consequently, as a result of the additional suitability requirements, additional disclosure requirements and additional sales practices imposed by the penny stock rules, both the ability of a broker-dealer to sell our Common Stock and the ability of holders of our Common Stock to sell their securities in the secondary market may be adversely effected. We must be able to implement our business plan. - 15 - Our business plan will succeed only if we are able to identify, acquire and manage acquisitions in addition to Media Resolutions and The Visionary Group. There can be no assurance that we will be able to implement our business plan, and failure to effectively implement our business plan will have a material adverse effect on Edge. We may not be able to carry out our acquisition strategy. Our business strategy is dependant upon making additional acquisitions of software related technology companies. To be suitable for acquisition by us, these companies must be small enough to be affordable yet profitable. These candidates may be few in number and may attract offers from companies with greater financial resources than us. Acquisitions involve numerous risks, including, among others, loss of key personnel of the acquired company, difficulties associated with assimilating the personnel and operations of the acquired company, potential disruption of our ongoing business and the maintenance of uniform standards, controls, procedures and policies. While we believe the Media Resolutions and The Visionary Group acquisitions are compatible with our business plan, we can provide no assurance that we will be able to locate other suitable acquisition targets or that we will be able to complete additional acquisitions. Our current financial condition prevents us from financing an acquisition independently. Our current financial condition will not allow us to finance additional acquisitions independently. We cannot assure you that Edge will be able to obtain financing in addition to that secured in connection with the issuance of the Series A Preferred closed in April 2002, on acceptable terms or at all. If we cannot obtain additional financing, we will not be able to complete any future acquisitions and therefore, will not be able to successfully implement our business plan. We depend on our officers and key personnel. Our prospects depend on the personal efforts of Graham C. Beachum II, our President and Chief Executive Officer, Graham C. "Scooter" Beachum, our Vice President and General Manager, and other key personnel throughout Edge and its acquired companies to implement our acquisition and operating strategies. The loss of the services of these executives could have a material adverse effect on our business and prospects because of their knowledge and experience and contacts within the industry. Our success depends, to a significant extent, on the continued contributions, experience and knowledge of our senior management team and key technical and marketing personnel and the key personnel of our acquired companies. Our success also depends upon our ability to identify, attract, hire, train, retain and motivate highly skilled technical, managerial, sales and marketing personnel. No assurance can be given that we will be able to successfully attract, assimilate or retain a sufficient number of qualified personnel. The failure to do so could have a material adverse effect on our business, results of operation and financial condition. Our investments may not provide adequate returns. We have an unsecured loan to Hencie, Inc. in the principal amount of $1.4 million. The loan is in default and we have been countersued by Hencie (see related discussion under "Item 3. LEGAL PROCEEDINGS - Proceedings with Debtors"). Should we not collect the Hencie note, or should Hencie's counterclaim prove successful, it would have a material negative impact on our operations. If we fail to manage our growth and integrate our acquired businesses, our business will be adversely effected. If the reorganization and business strategy discussed in this Report results in significant growth of our operations, we will be required to implement and improve our operating and financial systems and controls, and - 16 - to expand, train and manage our employee base to manage this growth. To the extent that our management is unable to manage the growth and integration effectively, our business, results of operations and financial condition could be adversely effected. In addition, the integration of the acquired entities and their operations will require our management to make and implement a number of strategic operational decisions. The timing and manner of the implementation of these decisions could materially impact our business operations. A small number of stockholders could exercise control over Edge, which may raise conflicts of interest. A small number of stockholders, some of which comprise an affiliate group, own a sufficient amount of our Common Stock to exercise significant control over our business and its policies and affairs and, in general, determine the outcome of any corporate transaction or other matters submitted to the stockholders for approval, all in a manner that could conflict with the interests of other stockholders. Additionally, the holders of our Series A Preferred stock issued in April 2002 have certain voting rights. The interests of these holders could conflict with the interests of the holders of our Common Stock. Our right to issue preferred stock and anti-takeover provisions under Delaware law could make a third party acquisition of us difficult. Our certificate of incorporation provides that our Board of Directors may issue preferred stock without stockholder approval. The issuance of preferred stock could make it more difficult for a third party to acquire us without the approval of our Board of Directors. Additionally, Delaware corporate law imposes certain restrictions on corporate control transactions that could make it more difficult for a third party to acquire us without the approval of our Board of Directors. ITEM 2. DESCRIPTION OF PROPERTY We maintain our sole office in a shared space provided, without cost, by representatives of a significant stockholder. Such arrangement is expected to continue until additional financing can be arranged. ITEM 3. LEGAL PROCEEDINGS Proceedings with Stockholders In August 1999, Infinity, a related party, filed suit against Edge to recognize the conversion of 1,627 shares of Edge's Series A-2 Convertible Stock into 2,398,714 shares of Edge's common Stock. In June 2000, we recognized Infinity's conversion and approved the issuance of those shares of Common Stock, effective August 1999, to Infinity. Proceedings with Former Officers and Directors In September 1999, Earl F. Takefman and Richard Parker filed suit against Edge and certain other parties, asserting claims for breach of contract and other matters. In October 1999, we counter-sued Messrs. Takefman and Parker for, among other items, breach of fiduciary duty and breach of employment agreements. In April 2001, Edge, Messrs. Takefman and Parker, and the other individuals and entities named in the lawsuits, entered into a settlement agreement whereby we issued 100,000 shares of restricted Common Stock and paid a cash amount of $30,000 to Messrs. Takefman and Parker in satisfaction of any outstanding claims or claims to options. Proceedings with Debtors - 17 - 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. We simultaneously entered into agreements with Hencie giving us the right to purchase securities from Hencie and its stockholders that would have allowed us to own approximately 20% of Hencie. In November 2000, we elected not to make any additional investments in Hencie. The $1.4 million loan to Hencie matured November 22, 2001, and is in default. On January 8, 2002, we filed suit for collection against Hencie, Inc., as debtor, and its CEO Adil Kahn and Hencie Consulting Services, Inc., both as guarantors. The suit seeks to collect principal and interest due to us totaling approximately $1.6 million plus collections costs. Hencie responded to the suit with a general denial and filed a counterclaim against us and certain of our officers alleging misuse of confidential information, tortuous interference and business disparagement and slander. We believe the allegations made in the counterclaim are without merit and will both defend the matter and pursue collection efforts vigorously. Due to the uncertainty surrounding collection of the note, no interest was accrued in 2001, and the note has been fully reserved to reflect our estimate of its net realizable value. The expense of $1.4 million to reflect the reserve is included in the Statement of Operations at December 31, 2001. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. In December 2001, we filed an Information Statement Pursuant to Section 14-C of the Securities Exchange Act of 1934 notifying stockholders of an action taken without a meeting. Through the approval of its Board of Directors and the written consent of the holders of a majority of the outstanding shares of Edge's Common Stock that were entitled to vote on such action, we increased the number of authorized shares of its $.01 par value Common Stock from 22,500,000 to 100,000,000 shares. Following the increase, we have 100,000,000 shares of its $.01 par value Common Stock and 5,000,000 of its no par value Preferred Stock authorized. - 18 - PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET FOR COMMON STOCK Our Common Stock is traded on the Over-The-Counter (OTC) Bulletin Board under the symbol "EDGE." We completed our initial public offering (IPO) in July 1996 at an offering price of $5.00 per share for our Common Stock and $.10 per warrant. The IPO warrants expired in August 2000 at a time when our Common Stock was trading below the warrant exercise price. On September 2, 2000, we affected a four-for-one reverse stock split which had the effect of reducing the number of issued and outstanding shares by 75% without changing the relative ownership in Edge of any stockholder. For purposes of meaningful comparison, the stock prices in the table below set forth the stock prices that would have resulted had the four-for-one reverse stock split occurred before the dates listed in the table. The following table sets forth for the period from January 1, 2000, through December 31, 2001, the range of high and low closing bid prices for the Common Stock reported on the OTC Bulletin Board. The quotations from the OTC Bulletin Board reflect interdealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions. Common Stock High Low ---- --- Fiscal Year 2000 First Quarter $ 3.12 $ 0.26 Second Quarter 1.96 0.60 Third Quarter 3.32 1.52 Fourth Quarter 2.00 0.25 Fiscal Year 2001 First Quarter $ 2.06 $ 0.75 Second Quarter 1.56 0.53 Third Quarter 2.10 0.54 Fourth Quarter 0.75 0.41 Fiscal Year 2002 First Quarter $ 1.00 $ 0.50 HOLDERS OF COMMON STOCK At April 12, 2002, the last reported closing bid price of the common was $.63 per share, and there were 121 holders of record of our Common Stock. DIVIDENDS We have not paid cash dividends on our Common Stock since the inception of the Company, and we do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. Instead, we intend to retain our earnings, if any, to finance the further implementation of our business plan and for general corporate - 19 - purposes. Any payment of future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions and other factors that our Board of Directors deems relevant. In addition, the payment of cash dividends on our shares of Common Stock is prohibited by the terms of the Series A Preferred Stock issued in April 2002. In addition, we owe an 8% cumulative dividend to the holders of those shares. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATIONS PLANS 1996 Employee Stock Option Plan In April 1996, we adopted the 1996 Stock Option Plan (the "1996 Plan") and it was amended most recently in August 2000. The 1996 Plan provides for the granting to directors, officers, key employees and consultants of up to 500,000 shares of Common Stock in a year. Grants of options may be incentive stock options or non-qualified stock options and will be at such exercise prices, in such amounts, and upon such terms and conditions, as determined by the Board of Directors or the compensation committee of the Board of Directors. The term of any option may not exceed ten years. In August 2000, the 1996 Plan was amended to increase the number of shares reserved for issuance to 1,000,000 shares of Edge's Common Stock outstanding. The 1996 Plan also provides for the automatic grant of 5,000 non-qualified stock options upon commencement of service of a non-employee director and 2,500 options per year per director thereafter. The exercise price of the option may not be less than 100% of the market value of Edge's Common Stock at the time of grant. Such options vest one-third on the date of the grant and one-third on the first two anniversary dates and have a term of five years. Because of their relationship with a stockholder of Edge, each of our current non-employee directors has declined such option grants. During 2000 and 2001 stock option grants were made by the Board of Directors that would cause the number of options issued under the 1996 Plan to exceed the number authorized under the plan. Such grants were made subject to stockholder approval at the next annual meeting of stockholders. As of December 31, 2001, there were 3,860,000 option shares outstanding under the 1996 Employee Stock Option and none available for future grants. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion and analysis should be read in conjunction with the financial statements and notes thereto included as Item 7 of this Annual Report on Form 10-KSB. This discussion and analysis contains certain forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those discussed in the forward-looking statements as a result of certain factors including those set forth in our filings with the Securities and Exchange Commission, specifically including the risk factors set forth under Item 1 of this Annual Report on Form 10-KSB. -20- GENERAL Prior to our emphasis on IT Consulting Services and Integration, 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 a 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 2000, we had no operations other than those related to the business sold in September 2001. As such, the basic financial statements for 2000 include neither revenues nor operating expenses. Eliminating the results of operations generated by the assets sold presents the reader with a more meaningful understanding of the financial aspects of the remaining Company. RESULTS OF OPERATIONS 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 entity Visual Edge, Inc. The results of operations of the sold One-on-One business have been presented in the Statement of Operations as "discontinued operations" because the business represented a separate segment of our business. The presentation also presents the reader with a more meaningful understanding of the financial aspects of the remaining Company. 2001 Results of Operations Royalties -- Royalty revenue is comprised of amounts earned from Visual Edge, the buyer of our One-on-One assets. As part of the sale, we received cash, a note and future royalties stemming from the sale of the One-on-One product. General and Administrative expenses -- General and administrative expenses consists of approximately $800,000 of salary expense (including non-cash charges of approximately $260,000) and legal, accounting and other professional fees totaling approximately $700,000. The above amounts were offset by $240,000 of management fees from PurchasePooling. Bad Debt - Bad debt consists of the $1.4 million reserve of the Hencie note (see Item 3: LEGAL PROCEEDINGS - Proceedings with Debtors). Impairment of Assets -- Impairment charges relate solely to our investment in PurchasePooling. -21- LIQUIDITY AND CAPITAL RESOURCES At December 31, 2001, we had cash and cash equivalents of approximately $83,000, and a working capital deficit of approximately $589,000 as compared to cash and cash equivalents of approximately $170,000, and a working capital deficit of approximately $527,000 on December 31, 2000. During 2001, net cash used in operating activities was approximately $1.0 million, net cash used in investing activities was approximately $473,000 and net cash provided by financing activities was $1.4 million for a total decrease in cash and cash equivalents for the year of approximately $87,000. We do not maintain a bank credit facility. We expect our liquidity to remain tight throughout 2002. We will look to our current cash reserves, cash reserves created by our April 2002 Series A Convertible Preferred Stock financing and cash flows generated by our newly acquired companies (Media Resolutions and The Visionary Group) to meet liquidity requirements in the coming year. While we have a level of comfort as to the projected cash flows generated by our newly acquired companies, we are relying on projections based upon assumptions and forecasts, including factors beyond our control. Actual results could vary from our projections and such variance could have a significant adverse effect on our liquidity. We have historically financed our operations primarily through the sale of equity securities or instruments convertible into equity securities. Although we just completed such a financing as described below, there can be no assurance that future financings can be completed. April 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. 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, and claimed an exemption from registration under Section 4(2) of the Securities Act of 1933. SEASONALITY -22- Based upon our review of current acquisition candidates, the IT Service businesses experience a moderate level of seasonality. The first quarter trends to be the lowest, higher revenues are generally reflected in the second and third quarter and revenues in the fourth quarter declines from the mid-year levels. Revenues for Business Application Software and Application Services and Management do not reflect a discernable pattern of seasonality. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS 142, "Goodwill and Other Intangible Assets." The new standards require that all business combinations initiated after June 30, 2001, must be accounted for under the purchase method. In addition, all intangible assets that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged, shall be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives will no longer be subject to amortization, but will be subject to at least an annual assessment for impairment by applying a fair value based test. We will be required to adopt these standards as of January 1, 2002. As we do not have any recorded intangible assets currently, the adoption of these standards is not expected to have an impact on our operations. In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 144 retained substantially all of the requirements of SFAS No. 121 while resolving certain implementation issues. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. Management believes the impact of this pronouncement on its operations, if any, will not be material. 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, 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. -23- ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS PAGE Report of Independent Certified Public Accountants 25 Balance Sheets as of December 31, 2000 and 2001 26 Statements of Operations for the Years Ended December 31, 2000 and 2001 27 Statement of Changes in Stockholders' Equity (Deficit) for the Years Ended December 31, 2000 and 2001 28 Statements of Cash Flows for the Years Ended December 31, 2000 and 2001 29 Notes to Financial Statements 30-43 -24- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of Edge Technology Group, Inc. We have audited the accompanying balance sheets of Edge Technology Group, Inc. (the "Company"), as of December 31, 2001 and 2000, and the related statements of operations, stockholders' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Edge Technology Group, Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company incurred a net loss of $9,272,518 during the year ended December 31, 2001, and, as of that date, the Company's current liabilities exceeded its current assets by $588,576 and its total liabilities exceeded its total assets by $2,192,191. These factors, among others, as discussed in Note 2 to the financial statements, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. GRANT THORNTON LLP Miami, Florida March 25, 2002 -25- EDGE TECHNOLOGY GROUP, INC. BALANCE SHEETS
December 31, 2000 2001 ---- ---- CURRENT ASSETS Cash and Cash Equivalents $ 169,846 $ 82,567 Accounts Receivable 13,504 - Inventories 9,096 - Prepaid Expenses - Advance Royalties 5,024 - Other Current Assets 85,390 20,339 ------------ ------------ Total Current Assets 282,860 102,906 NON-CURRENT ASSETS Fixed Assets, net 67,394 35,385 Investment - Related Party 4,587,262 - Note Receivable, net of allowance of $0 and $1,400,000 as of December 31, 2000 and 2001, respectively 1,400,000 - ------------ ------------ TOTAL ASSETS $ 6,337,516 $ 138,291 ============ ============ CURRENT LIABILITIES Accounts Payable $ 390,991 $ 451,993 Accrued Expenses 345,011 239,489 Other Current Liabilities 73,496 - ------------ ------------ Total Current Liabilities 809,498 691,482 NOTES PAYABLE - RELATED PARTIES 839,000 1,639,000 ------------ ------------ TOTAL LIABILITIES 1,648,498 2,330,482 Commitments and Contingencies - - STOCKHOLDERS' EQUITY (DEFICIT) Series A Convertible Preferred Stock, no par value 5,000,000 shares authorized, none issued or outstanding at December 31, 2000 and 2001 - - Common Stock, $.01 par value, 22,500,000 shares authorized, 16,016,335 issued and outstanding at December 31, 2000; and 100,000,000 shares authorized, 16,488,139 issued and outstanding at December 31, 2001 160,163 164,881 Additional Paid in Capital 37,978,720 40,048,615 Deferred Stock Option Compensation (316,696) - Accumulated Deficit (33,133,169) (42,405,687) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 4,689,018 (2,192,191) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,337,516 $ 138,291 ============ ============
The accompanying notes are an integral part of these financial statements. -26- EDGE TECHNOLOGY GROUP, INC. STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2000 2001 ---- ---- Royalties $ - $ 8,672 Cost of Sales - - ------------- ------------ Gross Profit 8,672 - Operating Expenses General and Administrative - 1,317,656 Bad Debt Expense - 1,400,000 Impairment of Assets - 5,175,954 ------------- ------------ Total Operating Expenses - 7,893,610 ------------- ------------ Operating Loss - (7,884,938) Other Income (Expense) Interest Income 13,818 3,111 Interest Expense (6,392) (118,245) Loss on Sale of Fixed Assets - (10,415) Taxes - Other - (2,848) Amortization of Deferred Financing Fees (85,866) (8,225) ------------- ------------ Total Other Income (Expense) (78,440) (136,622) ------------- ------------ Loss from Continuing Operations (78,440) (8,021,560) Loss from Discontinued Operations (8,881,185) (680,671) Loss on Sale from Discontinued Operations - (570,287) ------------- ------------ Loss from Discontinued Operations Attributed to Common Stockholders (8,881,185) (1,250,958) ------------- ------------ ------------- ------------ Net Loss Attributed to Common Stockholders $ (8,959,625) $ (9,272,518) ============= ============ Basic and Diluted Loss Per Share From Continuing Operations $ (0.01) $ (0.49) From Discontinued Operations (1.15) (0.08) ------------- ------------ Net Loss Per Share $ (1.16) $ (0.57) ============= ============ Weighted Average Common Shares Outstanding 7,695,198 16,279,316 ============= ============
The accompanying notes are an integral part of these financial statements. -27- EDGE TECHNOLOGY GROUP, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2000 AND 2001 (In Thousands except Shares of Common Stock)
Common Stock Additional Deferred Total ------------ Preferred Paid-in Compensation Accumulated Stockholders Shares Amount Stock Capital Expense Deficit Equity(Deficit) ------------------------------------------------------------------------------------------------ Balance December 31, 1999 2,599,610 $ 26 $ 6,000 $ 17,844 $ - $(24,174) $ (304) Conversion of Preferred Shares- Infinity 2,398,714 24 (1,627) 1,603 - - - September 2000 Corporate Reorganization 6,689,165 67 (4,373) 11,472 - - 7,166 Settlement of Accounts Payable 225,338 2 - 366 - - 368 Investment in PurchasePooling 2,644,841 26 - 3,941 - - 3,967 September 2000 Equity Issuance 1,458,667 15 - 2,173 - - 2,188 Issuance of Options - - - 580 (317) - 263 Net Loss - - - - - (8,960) (8,960) --------------------------------------------------------------------------------------------- Balance December 31, 2000 16,016,335 160 - 37,979 (317) (33,133) 4,689 Investment in PurchasePooling 268,789 3 - 185 - - 188 Settlement with former Officer and Directors 100,000 1 - 53 - - 54 Issuance of Infinity Option - - - 600 - - 600 Amortization of Deferred Compensation - - - - 317 - 317 Amortization of Compensatory Stock Options - - - 1,119 - - 1,119 Issuance of Shares for Services 11,920 23 23 September 2000 Corporate Reorganization - adjustment 91,095 1 - 90 - - 91 Net Loss - - - - - (9,273) (9,273) ---------------------------------------------------------------------------------------------- Balance December 31, 2001 16,488,139 $ 165 $ - $ 40,049 $ - $(42,406) $(2,192) ==============================================================================================
The accompanying notes are an integral part of this financial statement. -28- EDGE TECHNOLOGY GROUP, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 2001
2000 2001 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (8,959,625) ($9,272,518) Adjustments to reconcile net loss to net cash used in operating activities: Discontinued Operations, net 8,881,185 1,250,958 Bad Debt Expense - 1,400,000 Amortization of Deferred Compensation - 316,696 Noncash stock and stock option compensation expense 263,417 479,653 Depreciation and amortization - 41,226 Amortization of deferred financing fees 53,196 - Impairment of assets 0 5,175,954 Change in assets and liabilities: Decrease in accounts receivable 19,260 13,504 Decrease in inventory 8,003 9,096 Decrease in prepaid expenses - advance royalties 63,135 5,024 Increase (decrease) in accounts payable (577,004) 61,002 (Decrease) in accrued expenses (476,229) (486,193) (Decrease) in other current liabilities (4,655) (73,496) (Increase) decrease in other current assets (33,254) 65,050 ------------ ----------- Net cash used in operating activities (762,571) (1,014,044) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (39,529) (87,929) Proceeds from sale of fixed assets - 14,694 Loan to Hencie, Inc. (1,400,000) - Investment in related party (620,000) (400,000) Loan to related party - (75,000) Repayment of loan to related party - 75,000 ------------ ----------- Net cash used in investing activities (2,059,529) (473,235) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of common stock 2,187,999 - Proceeds from note payable, net 959,000 800,000 Repayment of borrowings (174,777) - Contributed Capital - 600,000 ------------ ----------- Net cash provided by financing activities 2,972,222 1,400,000 ------------ ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS 150,122 (87,279) Cash and Cash Equivalents, beginning of period 19,724 169,846 ------------ ----------- Cash and Cash Equivalents, end of period $ 169,846 $ 82,567 ============ =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ - $ 1,388 (a) ============ =========== Cash paid for taxes $ - $ 2,848 ============ =========== (a) D&O insurance financed.
The accompanying notes are an integral part of these financial statements. - 29 - EDGE TECHNOLOGY GROUP, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 2001 1. COMPANY OPERATIONS Edge Technology Group, Inc. ("Edge" or "Company"), formerly known as Visual Edge Systems Inc., was incorporated in Delaware in July 1994 and commenced operations in January 1995. We changed the name of our company in September 2000 to Edge Technology Group, Inc. to better reflect our current business operations and business strategy. We are in the early stage of revamping our business model beyond our historical golf training technology products. Our new business model is to acquire software related technology companies that deliver software products and related information technology services to middle market companies. See Note 16, "Subsequent Events." Prior to our current emphasis on IT consulting services, software applications and application services, the business consisted primarily of developing, marketing and selling personalized videotape golf lessons featuring One-on-One golf video instruction ("One-on-One") by leading professional golfer Greg Norman, sold under the name "One-on-One with Greg Norman." We developed video production technology that digitally combined actual video footage of a golfer's swing with a synchronized "split-screen" comparison to Greg Norman's golf swing to produce a One-on-One golf lesson. The assets of the One-on-One business were sold to members of its prior management in September 2001. 2. GOING CONCERN The accompanying financial statements have been prepared assuming that the Edge will continue as a going concern. We incurred a net loss of $9,272,518 during the year ended December 31, 2001, and, as of that date, our current liabilities exceeded our current assets by $588,576 and our total liabilities exceeded our total assets by $2,192,191. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our plans in this regard are to continue fundraising efforts and to implement our new business plan as described in our public filings with the Securities and Exchange Commission and in recent press releases. We expect our liquidity to remain tight throughout 2002. We will look to our current cash reserves, cash reserves created by our April 2002 Series A Convertible Preferred Stock financing and cash flows generated by our newly acquired companies (Media Resolutions and The Visionary Group) to meet liquidity requirements in the coming year. While we have a level of comfort as to the projected cash flows generated by our newly acquired companies, we are relying on projections based upon assumptions and forecasts, including factors beyond our control. Actual results could vary from our projections and such variance could have a significant adverse effect on our liquidity. We have historically financed our operations primarily through the sale of equity securities or instruments convertible into equity securities. Although we just completed such a financing as described below, there can be no assurance that future financings can be completed. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets amounts or amounts and classification of liabilities that might be necessary should we be unable - 30 - to continue in existence. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reclassifications Certain prior period balances have been reclassified to conform to the current period presentation. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the Unites States of America requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Cash and Cash Equivalents For purposes of the statements of cash flows, we consider all highly liquid investments purchased with a maturity of three months or less at the date of purchase to be cash equivalents. At December 31, 2000 and 2001, substantially all cash and cash equivalents are interest-bearing deposits. Reverse Stock Split In September 2000, we affected a four-for-one reverse stock split. All share and per share amounts have been restated accordingly. Inventories At December 31, 2000, our inventories consisted of videotapes, which are stated at the lower of weighted average cost or market. All such inventories were sold on September 10, 2001, with the One-on-One business. Fixed and Intangible Assets Fixed assets are stated at cost, net of accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets that range from 3 to 5 years. We have adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Under the provisions of this statement, we have evaluated our long-lived assets for financial impairment, and will continue to evaluate them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. We evaluate the recoverability of long-lived assets and certain identifiable intangibles to be held and used by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. At the time such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values, less cost to sell. - 31 - As of December 31, 2000, we recorded an impairment charge of $464,000 to write down the value of certain of our production video equipment to its estimated fair value, which is reflected in loss from discontinued operations for the year ended December 31, 2000. All such equipment was sold on September 10, 2001, with the One-on-One business. Revenue Recognition We recognize revenue when the product is shipped or the service is performed. Deposits received in advance of shipment or performance are recorded as a customer deposit or deferred revenue, respectively, and included in "other current liabilities" in the Balance Sheet. Income Taxes In accordance with SFAS No. 109, "Accounting for Income Taxes," deferred tax assets or liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expense or benefit is based on the changes in the asset or liability from period to period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is established to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance would be included in the provision for deferred income taxes in the period of change. Due to the continuing losses experienced by Edge, we continue to record "net operating losses" but fully reserve the tax benefit on these losses due to the uncertainty surrounding their recoverability. At December 31, 2001, we had net operating loss carryforwards of approximately $26.9 million to offset future taxable earnings, if any. However, as we continue to raise additional financing through the issuance of equity, the utilization of such amount could be limited by futures changes of ownership. Management Fees - Related Party We have entered into a management agreement with PurchasePooling in which PurchasePooling pays us a management fee of $20,000 per month in return for the services provided by our President and other employees of ours. We collected $240,000 and $20,000 in management fees from PurchasePooling during 2001 and 2000 respectively. Such amounts are reflected as a reduction in "General and Administrative" expenses in the Statements of Operations. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, investments, note receivable, notes payable, accounts receivable and accounts payable as reflected in the accompanying Balance Sheets approximate fair value due to the short-term maturity of these instruments. Loss per Share Basic loss per share is calculated by dividing loss attributed to common stockholders by the weighted average number of shares of common stock outstanding during each period. As of December 31, 2001 and 2000, due to our net losses, shares of Common Stock issuable upon conversion of convertible debt and the exercise of outstanding options and, for both periods, warrants totaling 729,333 shares have been excluded from the computation of diluted loss per share in the accompanying statements of operations as their impact would be antidilutive. - 32 - Stock Option Plan Under the provisions of, "Accounting for Stock-Based Compensation("SFAS 123")," companies can either measure the compensation cost of equity instruments issued to employees using a fair value based method, or can continue to recognize compensation cost using the intrinsic value method under the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"). We recognize compensation costs, where appropriate, under the provisions of APB 25, and have provided the expanded disclosure required under SFAS 123 (see Note 13). Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS 142, "Goodwill and Other Intangible Assets." The new standards require that all business combinations initiated after June 30, 2001, must be accounted for under the purchase method. In addition, all intangible assets that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged, shall be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives will no longer be subject to amortization, but will be subject to at least an annual assessment for impairment by applying a fair value based test. We will be required to adopt these standards as of January 1, 2002. As we do not have any recorded intangible assets currently, the adoption of these standards is not expected to have an impact on our operations. In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 144 retained substantially all of the requirements of SFAS No. 121 while resolving certain implementation issues. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. Management believes the impact of this pronouncement on its operations, if any, will not be material. 4. 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 entity Visual Edge, Inc. Visual Edge is not a related party; however, the President of Visual Edge is a former CEO of our Company. Accordingly, results of this operation have been classified as discontinued and prior periods have been restated. In the sale, we received (a) an initial cash payment of $300,000 (offset by $53,000 by Visual Edge for One-on-One Business expenses paid); (b) a promissory note in the amount of $250,000 payable October 24, 2001, and bearing an interest rate of 8% per annum, secured by all of the assets of Visual Edge; and (c) future royalties not to exceed $3,000,000, payable as an increasing percentage of revenues. We recognized $8,672 in royalties in 2001. The loss of the sale of the One-on-One business was $570,287. The operating results of the discontinued operation are as follows: For the Year Ended December 31, 2000 2001 ---- ---- Sales $1,222,331 $ 403,526 =========== ========= Loss from discontinued operations (4,896,801) (680,671) Provision for Preferred Stock Dividends (3,984,384) - ----------- --------- Net loss from Discontinued Operations Attributed to Common Stockholders ($8,881,185) ($680,671) =========== ========= - 33 - For the 2000 presentation of discontinued operations, we have reclassified $3,459,624 which was originally recorded as loss on debt conversion to provision for preferred stock dividends. As of October 24, 2001, the promissory note and royalty payments were in default. The note and royalty payments were renegotiated in December 2001, to extend payment terms, and as of April 12, 2002, all payments are in default under the renegotiated terms. The note was written off in its entirety and was recorded as part of the loss on sale of the One-on-One assets as of September 30, 2001. 5. CORPORATE REORGANIZATION In September 2000, we completed our corporate reorganization announced in July 2000. Infinity, Glacier Capital Limited and Summit Capital Limited, which were the holders of the convertible notes and shares of Series A-2 Convertible Preferred Stock issued by Edge, converted all the convertible securities based on a formula of one (1) share of Common Stock for each $1.00 of principal and interest outstanding under the convertible notes and for each $1.00 of liquidation amount of the Series A-2 Convertible Preferred Stock and of unpaid dividends. The number of shares of Common Stock issued upon this conversion was 6,689,165. As a result of this corporate reorganization, we recorded a loss and a provision for preferred stock dividends related to the conversion of the preferred stock, accrued dividends, convertible debt and accrued interest of $4,796,403 and have no shares of preferred stock outstanding and no outstanding convertible notes as of December 31, 2000 or 2001. In December 2001, the Company learned that $91,095 in preferred dividends and interest were not paid in the September 2000 reorganization. As a result, 91,095 common shares of Edge were issued, as of December 31, 2001, to Infinity, Glacier Capital Limited and Summit Capital Limited on the original terms of one share of Common Stock for each $1.00 of principal and interest converted in satisfaction of the obligation. Such amount was recorded in "General and Administrative" expense in the Statement of Operations. 6. FIXED ASSETS, NET Fixed assets, including equipment and mobile production units acquired under capital leases, consist of the following: December 31, Lives 2000 2001 (Years) ----------- ---------- ------ Mobile Videotape Product Units $ 923,770 $ - 5 Product Development Equipment 346,794 - 3-5 Training and Processing Equipment 54,934 - 5 Office Furniture and Equipment $ 337,293 45,061 5 ----------- ---------- 1,662,791 45,061 Less: Accumulated Depreciation (1,595,397) (9,676) ----------- ---------- Fixed Assets, net $ 67,394 $ 35,385 =========== ========== - 34 - 7. INVESTMENT - RELATED PARTY In September 2000, we issued 2,644,841 shares of Edge Common Stock to PurchasePooling Investment Fund in return for 9,593,824 shares of Series A Convertible Preferred Stock of PurchasePooling Solutions, Inc. ("PurchasePooling"). In December 2000, we invested an additional $620,000 in PurchasePooling in return for 2,214,285 shares of its Series C Convertible Preferred Stock. As a result, at December 31, 2000, we had an approximately 18% ownership interest in PurchasePooling, a start up Web-based demand aggregator working toward enabling government and educational entities to save significantly on large-ticket capital items by combining their purchasing power nationwide and globally. We are accounting for this investment under the cost method of accounting. Our President and CEO is also the interim CEO of PurchasePooling. In 2000, we entered into an agreement to acquire from Odyssey Ventures Online S.A. 975,000 shares of Series A Convertible Preferred Stock of PurchasePooling in exchange for 268,808 shares of Edge Common Stock. In April 2001, the agreement was finalized and the shares of Common Stock were issued. Based on a valuation obtained on PurchasePooling in July 2001, we determined that the investment was impaired. Accordingly, we recorded an impairment charge of $ 2,495,954 that is included in "Impairment of Assets" in the Statement of Operations. In October 2001, we participated to the amount of $400,000 in a syndicated loan to PurchasePooling in the amount of $1,600,000. The loan, structured as a Convertible Note with Warrants, bears interest at 15% per annum, and if not converted earlier, matures in October 2003. Because PurchasePooling is in its development stage and is not generating any cash flows, we have no expectation for repayment of the loan. As such, we considered the investment to be an equity investment and we carried the loan as a part of our Investment - Related Party in the Balance Sheet. We did not accrue interest on the note. Based upon the ongoing evaluation of our investment in PurchasePooling, we determined in April 2002, that our investment was not recoverable. As a result, we wrote off the remaining $2,680,000 of our investment in PurchasePooling as of December 31, 2001. The write off for the year 2001 was $5,175,954 and such amount is included in "Impairment of Assets" in the Statement of Operations. 8. 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. We simultaneously entered into agreements with Hencie giving us the right to purchase securities from Hencie and its stockholders that would have allowed us to own approximately 20% of Hencie. In November 2000, we elected not to make any additional investments in Hencie. The $1.4 million loan to Hencie matured November 22, 2001, and is in default. See Note 14 "Legal Proceedings." Due to the uncertainty surrounding collection of the note, no interest was accrued in 2001 and, during the fourth quarter of 2001, the note has been fully reserved to reflect our estimate of its net realizable value. The expense of $1.4 million to reflect the reserve is included in the Statement of Operations for the year ended December 31, 2001. 9. ACCRUED EXPENSES Accrued expenses are summarized as follows: - 35 - December 31, 2000 2001 ---- ---- Professional Fees $155,758 $ 58,000 Legal Settlement 84,000 - Royalties 45,472 - Interest - 115,805 Salaries and Bonuses 54,359 65,684 Other 5,422 - -------- -------- $345,011 $239,489 ======== ======== 10. FINANCING TRANSACTIONS Infinity Financing and Conversion On June 13, 1997, we arranged a three-year $7.5 million debt and convertible equity facility (the "Infinity Financing") with a group of investment funds led by Infinity, a related party, which resulted in net proceeds to us of approximately $7.2 million. Under the Securities Purchase Agreement dated June 13, 1997, including the amendments that have since been made to this agreement, we issued to the investment funds 1,039,388 shares of our Common Stock, 6,000 shares of Series A-2 Convertible Preferred Stock with a liquidation preference of $1,000 per share and 8.25% Convertible Notes in the original principal amount of $1.5 million. Under the terms of the investment agreements, the investment funds were granted the right to convert their Series A-2 Convertible Preferred Stock and Convertible Notes into additional shares of our Common Stock, subject to our right to prepay or redeem any of those convertible instruments at any time. Because our Common Stock was delisted from the Nasdaq SmallCap Market, an Event of Default existed under the Infinity Financing. As a result, the investment funds attained the rights to convert each share of Series A-2 Convertible Preferred Stock into a number of shares of Common Stock based on a formula using a percentage of the market price of the Common Stock. On August 30, 1999, one of the investment funds delivered a notice to us to convert 1,627 of its 4,400 shares of our Series A-2 Convertible Preferred Stock into 2,398,714 shares of our Common Stock. The conversion was disputed, and litigation ensued in the Delaware Court of Chancery. In January 2000, the court dismissed the action stating that the claim relating to the conversion was moot because parties to the dispute had resigned from their positions with Edge. In addition, because of the existence of an Event of Default under the Infinity Financing, the investment funds also attained the rights to convert the Convertible Notes into Common Stock based on the same formula used to convert the Series A-2 Convertible Preferred Stock into shares of Common Stock during an Event of Default. Dividends on the Series A-2 Convertible Preferred Stock began accruing on January 1, 2000, at the rate of 8.25% annually and were payable quarterly in cash or in shares of Common Stock. We paid no dividends on the Series A-2 Convertible Preferred Stock. The Convertible Notes matured in June 2000 and interest on the notes was due in cash. The Convertible Notes were secured by all of our significant assets. In June 2000, we recognized Infinity's conversion of 1,627 shares of its Series A-2 Convertible Preferred Stock into 2,398,714 shares of Edge's Common Stock and approved the issuance of those shares of Common Stock to Infinity as a result of such conversion. As part of the reorganization of Edge effective September 1, 2000, Infinity, Glacier Capital Limited and Summit Capital Limited, which were the holders of the Convertible Notes and shares of Series A-2 Convertible Preferred Stock issued by Edge, converted all their convertible securities and accrued interest and dividends based on a formula of one (1) share of Common Stock for each $1.00 of principal and interest outstanding under the convertible notes and for each $1.00 of liquidation amount of the Series A-2 Convertible Preferred Stock and of unpaid dividends. The number of shares of Common Stock issued upon this conversion was 6,689,165. As a result of these actions, as of September 2000, Edge had no shares of preferred stock outstanding and no - 36 - outstanding convertible notes and was no longer in default under the documents governing the convertible notes and the Series A-2 Convertible Preferred Stock. In connection with these actions, we recognized a conversion loss and a provision for preferred stock dividends on the conversion of debt and preferred stock of $4,796,403 in 2000. 2000 Infinity Loans During 2000, 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. As of December 31, 2001, there was $219,000 in principal outstanding. See Note 16, "Subsequent Events." 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"). The Catalyst Loan was originally due on June 30, 2001, and bears interest at a rate equal to eight percent (8%) per annum. We used the proceeds of the Catalyst Loan to purchase 2,214,285 shares of Series C Convertible Preferred Stock of PurchasePooling. Catalyst Master Fund L.P. is a stockholder of ours and certain of our directors are officers of an entity that manages Catalyst Master Fund L.P. 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 have 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 is 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 31, 2000 and 2001, the principal balance outstanding on the Catalyst Loan was $620,000 and $1,420,000, respectively. 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. See Note 16, "Subsequent Events." 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. We received $600,000 during 2001 which was recorded as paid in capital. In March 2002, Infinity and Edge mutually agreed to terminate the option. - 37 - 11. COMMON STOCK In July 1996, we sold 1,395,000 shares of Common Stock for $5.00 per share. On August 30, 1999, Infinity, a related party, delivered a notice of conversion to us to convert 1,627 of its 4,400 shares of our Series A-2 Cumulative Convertible and Redeemable Preferred Stock into 2,398,714 shares of Edge's Common Stock. In June 2000, we recognized Infinity's conversion of 1,627 shares of its Series A-2 Convertible Preferred Stock into 2,398,714 shares of Edge's Common Stock and approved the issuance of those shares of Common Stock to Infinity as a result of such conversion. In September 2000, we issued and sold an aggregate of 1,458,667 shares of our Common Stock to private accredited investors for an aggregate purchase price of approximately $2,188,000 in a private offering. In connection with the private offering, we issued warrants to purchase 729,333 shares of our Common Stock to private accredited investors at an exercise price of $3.00 per share. These warrants expire on September 1, 2005. As of December 31, 2001, none of the warrants have been exercised. We also issued 83,333 shares of Common Stock to Marion Interglobal, Ltd. as a result of the conversion by Marion of $125,000 of indebtedness owed to Marion, and 142,005 shares of Common Stock to Great White Shark Enterprises, Inc. upon its conversion of approximately $284,009 of indebtedness owed to Great White Shark Enterprises. In September 2000, we issued 2,644,841 shares of our Common Stock to PurchasePooling, a related party, in return for 9,593,824 shares of PurchasePooling Series A Convertible Preferred Stock. In December 2000, we invested an additional $620,000 with PurchasePooling, a related party, in return for 2,214,285 shares of Series C Convertible Preferred Stock. As a result, at December 31, 2000 we had an approximate 18% ownership interest in PurchasePooling. Our President and CEO is also the interim CEO of PurchasePooling. In 2000, we entered into an agreement to acquire from Odyssey Ventures Online S.A. 975,000 shares of Series A Convertible Preferred Stock of PurchasePooling in exchange for 268,789 shares of Edge's Common Stock. In April 2001, the agreement was finalized and the shares of Common Stock were issued. 12. INCOME TAXES As of December 31, 2001 and 2000, we had approximately $11.2 million and $7.6 million, respectively, of net deferred tax assets resulting primarily from net operating loss carryforwards. Due to the uncertainty of our ability to generate sufficient taxable income in the future to utilize such loss carryforwards, the net deferred assets have been fully reserved as of December 31, 2001 and 2000. Additionally, as we continue to raise additional financing through the issuance of equity, the utilization of such amount could be limited by future changes of ownership. As of December 31, 2001 our net operating loss carryforwards and their expiration are as follows: NOL Carryforward Expires In ----------------- ------------------- $ 3,101,000 2012 8,461,000 2013 7,055,000 2019 3,207,000 2020 5,116,000 2021 ----------------- $26,940,000 ================= 13. STOCK OPTION PLAN -38 - In April 1996, we adopted the 1996 Stock Option Plan (the "1996 Plan") and it was amended most recently in August 2000. The 1996 Plan provides for the granting to directors, officers, key employees and consultants of up to 500,000 shares of Common Stock in a year. Grants of options may be incentive stock options or non-qualified stock options and will be at such exercise prices, in such amounts, and upon such terms and conditions, as determined by the Board of Directors or the compensation committee of the Board of Directors. The term of any option may not exceed ten years. In August 2000, the 1996 Plan was amended to increase the number of shares reserved for issuance to 1,000,000 shares of Edge's Common Stock outstanding. The 1996 Plan also provides for the automatic grant of 5,000 non-qualified stock options upon commencement of service of a non-employee director and 2,500 options per year per director thereafter. The exercise price of the option may not be less than 100% of the market value of Edge's Common Stock at the time of grant. Such options vest one-third on the date of the grant and one-third on the first two anniversary dates and have a term of five years. Because of their relationship with a stockholder of Edge, each of our current non-employee directors has declined such option grants. We apply APB Opinion No. 25 in accounting for our Plan. Had we determined compensation cost based on fair value at the grant date for its stock options under SFAS No. 123, our net loss and net loss per share for the year ended December 31, 2001 and 2000, would have increased to $10,217,096 and $9,040,468 and $.63 and $1.17, respectively, based upon an estimated holding period of five years and an estimated volatility of 110%. In July 2000, we granted 850,000 options to purchase Edge's Common Stock to a consultant of ours at an exercise price of $2.31 per share. The fair value of the options were $1,343,000, of which $223,833 was recorded as expense in both 2000 and 2001 and the remaining $895,334 of expense was recorded as a part of the discontinued operations in 2001. In September 2000, in accordance with the execution of an employment agreement, we granted options to one of our officers to purchase 300,000 shares of Edge's Common Stock at an exercise price of $2.00 per share. As the exercise price of the options was less than the market value of Edge's Common Stock at the date of issuance, we recorded $356,280 of deferred compensation expense. We were amortizing the expense on a straight- line basis over 36 months. The officer resigned in September 2001, and as a result, the remaining amount of $316,696 was recognized as compensation expense in 2001. Stock option grants approved in 2000 and 2001 that would cause the number of issued options to exceed authorized amounts were approved by the Board of Directors, subject to approval by the stockholders at the next annual meeting of stockholders, in order to increase the number of options available under the Plan. Stock option activity during the periods is indicated as follows: Weighted Number of Average Shares Exercise Price --------------------- ----------------- Balance at January 1, 2000 468,510 $5.04 Granted 1,457,000 $2.25 Exercised - Forfeited (394,907) $4.65 ------------- Balance at December 31, 2000 1,530,603 $2.32 Granted 3,420,000 $1.50 Exercised - Forfeited (1,090,603) $2.19 ------------- Balance at December 31, 2001 3,860,000 $1.70 ============= - 39 - The weighted average fair value of options granted during 2000 and 2001 was $1.58 and $.79 respectively. At December 31, 2000 and 2001, there were 660,103 and 1,056,800 options exercisable, respectively. At December 31, 2001, the weighted-average exercise price and weighted-average remaining contractual life of outstanding options was as follows:
Outstanding Exercisable --------------------------------------------------------------- --------------------------------- Weighted Weighted Weighted Average Average Remaining Average Exercise Exercise Contractual Exercise Price Shares Price Life Shares Price - --------------------------------------------------------------------------------- --------------------------------- $1.50 2,910,000 $1.50 9.1 673,500 $1.50 $2.00-2.31 950,000 $2.28 8.6 383,333 $2.23 --------- --------- 3,860,000 $1.69 1,056,800 $1.76 ========= =========
At December 31, 2001, we had 729,333 warrants outstanding at an exercise price of $3.00 (see Note 11 - COMMON STOCK). In July 2001, our Vice President resigned and entered into a separation agreement with us whereby we would pay him approximately $45,000 and grant him 75,000 warrants, exercise price of $1.50, in exchange for forgiveness of amounts due him and cancellation of all previously issued options. At April 12, 2002, neither the $45,000 had been paid nor the warrants been issued, but the individual had taken no action associated with the default. 14. COMMITMENTS AND CONTINGENCIES Operating Leases At December 31, 2001, we have no long-term non-cancelable leases. We maintain our sole office in a shared space provided, without cost, by representatives of a significant stockholder. Such arrangement is expected to continue until additional financing can be arranged. Legal Proceedings Proceedings with Stockholders In August 1999, Infinity, a related party, filed suit against Edge to recognize the conversion of 1,627 shares of Edge's Series A-2 Convertible Stock into 2,398,714 shares of Edge's common Stock. In June 2000, we recognized Infinity's conversion and approved the issuance of those shares of Common Stock, effective August 1999, to Infinity. Proceedings with Former Officers and Directors In September 1999, Earl F. Takefman and Richard Parker filed suit against Edge and certain other parties, asserting claims for breach of contract and other matters. In October 1999, we counter-sued Messrs. Takefman and Parker for, among other items, breach of fiduciary duty and breach of employment agreements. In April 2001, Edge, Messrs. Takefman and Parker, and the other individuals and entities named in the lawsuits, entered into a settlement agreement whereby we issued 100,000 shares of restricted Common Stock and paid a cash amount of $30,000 to Messrs. Takefman and Parker in satisfaction of any outstanding claims or claims to options. The related expense of $84,000 was recognized in 2000. - 40 - Proceedings with Debtors See Note 8 "NOTE RECEIVABLE." The $1.4 million loan to Hencie matured November 22, 2001, and is in default. On January 8, 2002, we filed suit for collection against Hencie, Inc., as debtor, and its CEO Adil Kahn and Hencie Consulting Services, Inc., both as guarantors. The suit seeks to collect principal and interest due to us totaling approximately $1.6 million plus collections costs. Hencie responded to the suit with a general denial and filed a counterclaim against us and certain of our officers alleging misuse of confidential information, tortuous interference and business disparagement and slander. We believe the allegations made in the counterclaim are without merit and will both defend the matter and pursue collection efforts vigorously. Employment Agreements In January 2001, we entered into an employment agreement with Mr. Graham C. Beachum II to serve as our President and Chief Executive Officer. Mr. Beachum has assembled other personnel to develop and expand our business plan. The Agreement expires on January 2, 2005, unless terminated earlier. Under the Agreement, Mr. Beachum is entitled to receive an annual base salary of $100,000 that shall be increased to $240,000 upon the successful conclusion of an equity offering by Edge of at least $10 million. The annual base salary shall be increased by 5% each fiscal year. In addition, Mr. Beachum was granted options to purchase 1,500,000 shares of Edge's Common Stock at an exercise price of $1.50 per share, of which 25% vested upon the grant date and the remainder vesting at the rate of 18.75% on January 2 of each successive year. Pursuant to the agreement, Mr. Beachum will also be eligible to receive a bonus based on our performance, as determined by the Board of Directors or its Compensation Committee. In the event that Mr. Beachum is terminated without cause, including a change of control (as defined in the Agreement), he will be entitled to receive as severance the amount of his base salary for (i) the remainder of his term of employment, or (ii) six months, whichever period is shorter. The Agreement also contains customary nondisclosure and non-competition covenants, as well as an assignment of inventions. We were not required to record any compensation expense in 2001 as a result of the grant of these options. In January 2001, we entered into an employment agreement with Mr. Graham C. "Scooter" Beachum III to serve as our Vice President and General Manager. The Agreement expires on January 2, 2005, unless terminated earlier. Under the Agreement, Scooter Beachum is entitled to receive an annual base salary of $95,000 that shall be increased to $165,000 upon the successful conclusion of an equity offering by Edge of at least $10 million. The annual base salary shall be increased by 5% each fiscal year. In addition, Scooter Beachum was granted options to purchase 750,000 shares of Edge's Common Stock at an exercise price of $1.50 per share, of which 25% vested upon the grant date and the remainder vesting at the rate of 18.75% on January 2 of each successive year. Pursuant to the agreement, Scooter Beachum will also be eligible to receive a bonus based on our performance, as determined by the Board of Directors or its Compensation Committee. In the event that Scooter Beachum is terminated without cause, including a change of control (as defined in the Agreement), he will be entitled to receive as severance the amount of his base salary for (i) the remainder of his term of employment, or (ii) six months, whichever period is shorter. The Agreement also contains customary nondisclosure and non-competition covenants, as well as an assignment of inventions. We were not required to record any compensation expense in 2001 as a result of the grant of these options. Scooter Beachum is the son of our Chief Executive Officer, Graham C. Beachum II. 15. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES In June 2000, we recognized Infinity's conversion and approved the issuance of 2,398,715 shares of Common Stock for $1,627,000 of preferred stock. Infinity is a related party. - 41 - In September 2000, we issued 2,644,841 shares of our Common Stock to PurchasePooling, a related party, in return for 9,593,824 shares of PurchasePooling Series A Convertible Preferred Stock. The cost of this investment in PurchasePooling was $3,967,262. In September 2000, we completed our corporate reorganization announced in July 2000. Infinity, Glacier Capital Limited and Summit Capital Limited, which were the holders of the convertible notes and shares of Series A-2 Convertible Preferred Stock issued by Edge, converted all the convertible securities based on a formula of one (1) share of Common Stock for each $1.00 of principal and interest outstanding under the convertible notes and for each $1.00 of liquidation amount of the Series A-2 Convertible Preferred Stock and of unpaid dividends. Accordingly, we issued 6,689,165 shares of our Common Stock in return for the conversion of $4,373,000 of preferred stock and $1.5 million of convertible debt. In September 2000, we issued 83,333 shares of Common Stock to Marion Interglobal, Ltd. as a result of the conversion by Marion of $125,000 of indebtedness owed to Marion by Edge, and 142,005 shares of Common Stock to Great White Shark Enterprises, Inc. upon its conversion of approximately $284,000 of indebtedness owed to Great White Shark Enterprises by us. In 2000, we entered into an agreement with Odyssey Ventures, an unrelated party, to purchase an additional 975,000 shares of Series A Convertible Preferred Stock of PuchasePooling in exchange for 268,789 shares of Edge's common stock. The stock, valued at $188,000, was issued in April 2001. In December 2001, we learned that $91,095 in preferred dividends and interest were not paid in the September 2000 corporate reorganization. As a result, 91,095 common shares of Edge were issued, as of December 31, 2001, to Infinity, Glacier Capital Limited and Summit Capital Limited on the original terms of one share of Common Stock for each $1.00 of principal and interest converted in satisfaction of the obligation. This was recorded in General and Administrative expense in the Statement of Operations. 16. SUBSEQUENT EVENTS (unaudited) 2000 Infinity Loans Upon maturity, as of April 1, 2002, Infinity elected to convert the outstanding principal and interest totaling $258,464 into $.01 par value Common Stock at $.65 per share resulting in 397,637 shares issued by us. We claimed an exemption for this issuance under section 4(2) of the Securities Act of 1933. Catalyst Loan 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. Subsequent to December 31, 2001, as part of the April 2002 Series A Convertible Preferred Stock financing described below, Sandera converted all outstanding principal and interest due on the loan (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 Convertible Preferred Stock. April 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- - 42 - 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. 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. 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 in exchange for all the outstanding shares of Media Resolutions. The acquisition will be accounted for using the purchase method of accounting. As such, the assets and liabilities of Media Resolutions will be recorded at their estimated fair value and the results of operations will be included in our consolidated result of operations from the date of acquisition. Media Resolutions has four employees and generated revenues of approximately $283,000 and net loss of approximately $9,800 in 2001. We will use Media Resolutions to develop and host websites and deliver the proprietary software products we intend to acquire as we further implement our business plan. Media Resolutions was established in February 1999, and specializes in application hosting while also providing an array of other products and services including: HTML and Cold Fusion website development, graphic design, streaming video and custom scripting. Media Resolutions operates from a co-location site maintained by Allegiance Telecom, Inc. in Dallas, Texas under a short-term master service agreement. Due to the recent nature of the acquisition, it was not practicable to provide further disclosure under SFAS 141, "Business Combinations." Acquisition of The Visionary Group, Inc. On April 8, 2002, we acquired The Visionary Group, Inc., a professional services firm providing IT consulting 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 will be accounted for using the purchase method of accounting. As such, the assets and liabilities of The Visionary Group will be recorded at their estimated fair value and the results of operations will be included in our consolidated result of operations from the date of acquisition. The Visionary Group has 14 employees and generated revenues of $3.4 million and break even net income in 2001. We intend to expand the operations of The Visionary Group through the introduction of the proprietary software products wet intend to acquire as we further implement our business plan. Founded in March 1997, The Visionary Group is an e-Business consulting and integration services firm that specializes in implementing, customizing, upgrading and supporting the Oracle suite of business applications. The Visionary Group provides a full line of application development, system upgrades and integration of Oracle products. With a strong focus and understanding of middle market companies and client satisfaction and loyalty, The Visionary Group is able to provide its clients with a wide range of business solutions, products and - 43 - services. Due to the recent nature of the acquisition, it was not practicable to provide further disclosure under SFAS 141, "Business Combinations." ITEM 8. CHANGES IN AND DISAGREEMENTS WTH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Our former accountants, Arthur Andersen LLP, resigned on June 16, 2000. Arthur Andersen's report on our financial statements as of and for the fiscal year ended December 31, 1998, did not contain any adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope, or accounting principles. Arthur Andersen's report on our financial statements as of and for the fiscal year ended December 31, 1999, contained an explanatory fourth paragraph that expressed substantial doubt about our ability to continue as a going concern. Our Board of Directors approved the resignation of Arthur Andersen LLP as our accountants on June 23, 2000. During the fiscal years ended December 31, 1998 and December 31, 1999, and all subsequent interim periods through March 31, 2000, there were no reportable events or disagreements with our former accountants, Arthur Andersen, on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Arthur Andersen, would have caused Arthur Andersen to make a reference to the subject matter of the disagreement in connection with Arthur Andersen's reports. - 44 - PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. Your Board of Directors Below are the names and ages of the directors of Edge Technology Group, Inc., the years they became directors, their principal occupations or employment for at least the past five years and certain of their other directorships, if any. Graham C. Beachum II Age 54, a director since January 2001. Mr. Beachum has been the President and Chief Executive Officer of Edge since January 2001. From January 2000 to December 2000, Mr. Beachum was a private investor. From September 1996 to January 2000, Mr. Beachum was the Chairman and Chief Executive Officer of Axtive Corporation, a maker of customer relationship management software which was sold to Remedy Corporation in 2000. From March 1991 to September 1996, Mr. Beachum was a private investor. On May 28, 1998 Mr. Beachum filed a voluntary petition under Chapter 7 of the Federal Bankruptcy Code and was discharged in September 1998 from certain tax liens arising from business interests during the time from 1991 to 1996 in which he was primarily a private investor. From 1988 to 1991, Mr. Beachum was an executive officer of or consultant to personal computer start-up companies such as Wang Microsystems, Northgate Computers, Gateway 2000 and Digital Equipment. From 1985 to 1988, Mr. Beachum was Executive Vice President of Sales and Operations for PC's Limited and its successor Dell Computer Systems. From 1984 to 1985, Mr. Beachum was the Vice President and General Manager of the Business Products Division of Tandy Corporation. From 1968 to 1984, Mr. Beachum held a variety of positions with International Business Machines Corporation including his final position as Director of Worldwide Sales and Marketing for the personal computer division of IBM. J. Keith Benedict Age 30, a director since August 1999. Mr. Benedict has been Vice President of the general partner of HW Capital, L.P., the investment manager for several affiliated investment funds that are stockholders of Edge, since April 1999. From September 1996 to March 1999, Mr. Benedict served as an attorney in the corporate and securities section at the law firm of Bracewell & Patterson, L.L.P. Mr. Benedict received a J.D. degree from the Washington & Lee University School of Law in May 1996. John A. Wagner Age 45, a director since August 1999. Mr. Wagner serves as President of the Hunt Sports Group, L.L.C., and has been an officer of Hunt Sports Group, L.L.C. since January 1997. Mr. Wagner has been a Vice President of the general partner of HW Capital, L.P., the investment manager for several affiliated investment funds which are stockholders of Edge, since July 1999. Prior to January 1997, Mr. Wagner was a CPA and served 12 years in the public accounting industry, predominantly with Coopers and Lybrand, L.L.P. His area of expertise was federal and state tax issues for entrepreneurial and sports related interests. Named Executive Officers - 45 - Below are the names and ages of the named executive officers of Edge Technology Group, Inc. as of April 12, 2002, and a brief description of their prior experience and qualifications. Graham C. Beachum II Age 54, President and Chief Executive Officer and Director Since January 2001. See the biography of Mr. Beachum under "Your Board of Directors" above. David N. Pilotte Age 43, Executive Vice President and Chief Financial Officer since July 2001 Mr. Pilotte's business and consulting career spans more than 20 years of successful financial management. From June 1998 until after its sale in November 2000, Mr. Pilotte was Vice President and Corporate Controller of American Pad & Paper Company, a publicly held converter of paper products with revenues approaching $700 million annually. From April 1997 to April 1998 and prior to its sale to National Semiconductor, Mr. Pilotte was Corporate Controller of Cyrix Corporation, a publicly held company designing microprocessors for personal computers. From February 1992 to October 1996 Mr. Pilotte had Treasurer responsibilities for Baldor Electric Company, a publicly held manufacturer of industrial electric motors and drives. In the intervening months between positions listed above, Mr. Pilotte served as an advisor to small and mid-sized businesses effecting financial and operational restructurings, raising private capital and serving as interim CFO. Significant Employees Below is an additional significant employee of ours as of April 12, 2002, and a brief description of his prior experience and qualifications. Graham C. "Scooter" Age 32, Vice President and General Manager since Beachum III January 2001 Mr. Beachum began his career as the founder of "StreetSmart," a technology product and pricing report that provided competitive intelligence to Dell Computer Corporation, IBM Corporation, Digital Equipment Corporation and other personal computer companies. In 1993 he sold his first entrepreneurial venture and shortly thereafter founded Axtive Software Corporation, with the development of "ART," an embedded customer relationship solution that captures customer registration data and initiates ongoing licensing, marketing and service relationships. The "ART" product line was followed by "e.Monogram," an E-business personalization application suite for business-to-business enterprises. After supporting client organizations such as IBM and Lotus Development, Axtive's technology and development operations were acquired by Remedy Corporation in 2000. Mr. Beachum earned a BS in MIS and a BS in Marketing from Southern Methodist University and a - 46 - MBA from the McLaren Business School at the University of San Francisco. Section 16(a) Beneficial Ownership Reporting Compliance Under U.S. securities laws, directors, certain executive officers and persons holding more than 10% of our Common Stock must report their initial ownership of the Common Stock, and any changes in that ownership, to the SEC. The SEC has designated specific due dates for these reports. Based solely on our review of copies of the reports filed with the SEC and written representations of our directors and executive offers, we believe that all persons subject to reporting filed the required reports on time in 2001. ITEM 10. EXECUTIVE COMPENSATION Summary compensation. The following table provides summary information concerning compensation paid by us to our Chief Executive Officer and other named executive officers, if any, who earned more than $100,000 in salary and bonus for all services rendered in all capacities during the fiscal year ended December 31, 2001. For a list of our current executive officers, see "ITEM 9 - -Named Executive Officers."
Long-term compensation Annual awards Compensation ------------------------- All other ---------------------- Securities underlying compen- Name and Principal Position(s) Year Salary options (#) sation - -------------------------------------------------------------------------------------------------------------------- Graham C. Beachum II(1) 2001 95,833 1,500,000 - President and Chief Executive 2000 - - - Officer (Since January 2001) 1999 - - -
In accordance with the rules of the SEC, other compensation in the form of perquisites and other personal benefits has been omitted for the named executive officer because the aggregate amount of these perquisites and other personal benefits was less than the lesser of $50,000 or 10% of the total of annual salary and bonuses for the named executive officer in 2001. (1) Mr. Beachum's principal positions are described above under "Your Board of Directors." Stock options granted during the year ended December 31, 2001. The following table provides information regarding the grant of stock options during fiscal 2001 to the named executive officer.
Individual Grants ----------------------------------------------------- % of total Number of options securities granted to underlying employees Exercise options in fiscal price per Expiration Name granted year share date - ------------------------------------------------------------------------------------------------------------ Graham C. Beachum II 1,500,000 44% $ 1.50 January 23, 2011
- 47 - Year-end option values. None of the named executive officers exercised any stock options during the year ended December 31, 2001. The following table provides information regarding the number of shares covered by both exercisable and unexercisable stock options as of December 31, 2001, and the values of "in-the-money" options, which values represent the positive spread between the exercise price of any such option and the fiscal year end value of our Common Stock.
Number of securities underlying Value of the unexercised unexercised options at fiscal in-the-money options at fiscal year-end year-end ---------------------------------------------------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ------------------------------------------------------------------------------------------------- Graham C. Beachum II 375,000 1,125,000 -- --
Employment Contracts and Change-in-Control Arrangements As of April 12, 2002, we had entered into the following employment contracts with our executive officer(s): Graham C. Beachum II. In January 2001, we entered into an employment agreement with Mr. Beachum to serve as our President and Chief Executive Officer. Mr. Beachum has assembled other personnel to develop and expand our business plan. The Agreement expires on January 2, 2005, unless terminated earlier. Under the Agreement, Mr. Beachum is entitled to receive an annual base salary of $100,000 that shall be increased to $240,000 upon the successful conclusion of an equity offering by Edge of at least $10 million. The annual base salary shall be increased by 5% each fiscal year. In addition, Mr. Beachum was granted options to purchase 1,500,000 shares of Edge's Common Stock at an exercise price of $1.50 per share, of which 25% vested upon the grant date and the remainder vesting at the rate of 18.75% on January 2 of each successive year. Pursuant to the agreement, Mr. Beachum will also be eligible to receive a bonus based on our performance, as determined by the Board of Directors or its Compensation Committee. In the event that Mr. Beachum is terminated without cause, including a change of control (as defined in the Agreement), he will be entitled to receive as severance the amount of his base salary for (i) the remainder of his term of employment, or (ii) six months, whichever period is shorter. The Agreement also contains customary nondisclosure and non-competition covenants, as well as an assignment of inventions. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Beneficial Ownership of Certain Stockholders, Directors and Executive Officers The following table sets forth information as of April 12, 2002 with respect to the beneficial ownership of our Common Stock and our Series A Convertible Preferred Stock by: - 48 - * each of our named executive officers and directors; * all of our executive officers and directors as a group; and * each person or group of affiliated persons, known to us to own beneficially more than 5% of our Common Stock or our Series A Convertible Preferred Stock. In accordance with the rules of the SEC, the table gives effect to the shares of Common Stock that could be issued upon the exercise of outstanding options and Common Stock purchase warrants within 60 days of April 12, 2002. Unless otherwise noted in the footnotes to the table, and subject to community property laws where applicable, the following individuals have sole voting and investment control with respect to the shares beneficially owned by them. The address of each executive officer and director is c/o Edge Technology Group, Inc., 6611 Hillcrest Avenue, Suite 223, Dallas, Texas 75205. We have calculated the percentages of shares beneficially owned based on 17,385,776 shares of Common Stock and 4,200 shares of Series A Convertible Preferred Stock outstanding at April 12 2002.
Percentage Shares of Series A of All Shares of Common Stock Convertible Preferred Stock Voting Person or Group beneficially owned (1) beneficially owned (1) Securities (2) - --------------------------------------------------------- ----------------------- --------------------------- -------------- Number Percent Number Percent --------- --------- -------- --------- Named Executive Officers and Directors: Graham C. Beachum II (3)................................. 656,250 3.6% -- -- 2.8% J. Keith Benedict (4)(5)................................. -- -- -- -- -- John Wagner (4)(5)....................................... -- -- -- -- -- All executive officers and directors as a group (4 persons)................................................. 731,250 4.0% -- -- 3.1% Beneficial Owners of 5% or More of Our Outstanding Common Stock or our Series A Convertible Preferred Stock: Glacier Capital Limited (4)(5)........................... 1,156,679 6.6% -- -- 5.0% Summit Capital Limited (4)(5)............................ 1,156,679 6.6% -- -- 5.0% Sandera Partners, L.P. (4)(5)............................ 2,380,357 13.7% 2,000 47.6% 22.0% Global Capital Funding Group, L.P.; Strategic Investment Fund Limited (6)....................................... -- -- 1,250 29.8% 7.2% Infinity Investors Limited (7)........................... 7,327,786 42.1% -- -- 31.9% GCA Strategic Investment Fund Limited (8)................ -- -- 750 17.9% 4.3%
- -------------- (1) Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of the Common Stock and Series A Convertible Preferred Stock beneficially owned by them. A person is deemed to be the beneficial owner of securities that may be acquired by such person within 60 days from the record date upon the exercise of options, warrants or convertible securities. Each beneficial owner's percentage ownership is determined by assuming that (a) options that are held by such person (but not those held by any other person) and which are exercisable within 60 days of April 12, 2002, have been exercised and (b) securities convertible into shares of Common Stock that are held by such person (but not those held by any other person) and which are convertible within 60 days of record date have been converted. (2) Holders of Common Stock are entitled to one vote per share. Holders of Series A Convertible Preferred Stock are entitled to vote on an "as converted" basis. Since the "initial conversion price" has been set at $0.75 per share, each share of Series A Convertible Preferred Stock is considered to be convertible into 1,333.33 shares of Common Stock as of April 12, 2002. Therefore, for purposes of calculating the percentage of voting power held by any person or entity identified in the chart above, the total votes outstanding are equal to 22,985,762, being the result of the addition of the total votes attributable to the Common Stock as of April 12, 2002 (17,385,776) plus the total votes attributable to the Series A Convertible Preferred Stock as of April 12, 2002 (5,599,986). (3) Includes options to purchase 656,250 shares of Common Stock which are exercisable within 60 days from April 12, 2002. (4) J. Keith Benedict and John A. Wagner are representatives of the investment manager (or its affiliates) of Glacier Capital Limited, Summit Capital Limited and Sandera Partners, L.P. (5) Summit Capital Limited, Glacier Capital Limited, and Sandera Partners, L.P. have affirmed the existence of a "group" as such term is used in Rule 13d-5 promulgated under the Securities Exchange Act of 1934, as amended. Information regarding these entities has been obtained from the Schedule 13D/A, filed January 7, 2002, with respect to the "group" in which these entities are - 49 - included. J. Keith Benedict and John A. Wagner are representatives of the investment manager (or its affiliates) of the other funds in the group. The address of each of the entities in this group is 1601 Elm Street, Suite 4000, Dallas, Texas 75201. (6) The address of Global Capital Funding Group, L.P; Strategic Investment Fund Limited is 106 Colony Park Drive, Suite 900 Cummings, GA 30040. (7) The address of for Infinity Investors Limited is Hunkins Waterfront Plaza, Main Street, P.O. Box 556, Charlestown, Nevis, West Indies. (8) The address of GCA Strategic Investment Fund Limited is c/o Prince Management Limited Mechanics Building 12 Church Street Hamilton Bermuda, HMII. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Financings Infinity Financing and Conversion On June 13, 1997, we arranged a three-year $7.5 million debt and convertible equity facility (the "Infinity Financing") with a group of investment funds led by Infinity, a related party, which resulted in net proceeds to us of approximately $7.2 million. Under the Securities Purchase Agreement dated June 13, 1997, including the amendments that have since been made to this agreement, we issued to the investment funds 1,039,388 shares of our Common Stock, 6,000 shares of Series A-2 Convertible Preferred Stock with a liquidation preference of $1,000 per share and 8.25% Convertible Notes in the original principal amount of $1.5 million. Under the terms of the investment agreements, the investment funds were granted the right to convert their Series A-2 Convertible Preferred Stock and Convertible Notes into additional shares of our Common Stock, subject to our right to prepay or redeem any of those convertible instruments at any time. Because our Common Stock was delisted from the Nasdaq SmallCap Market, an Event of Default existed under the Infinity Financing. As a result, the investment funds attained the rights to convert each share of Series A-2 Convertible Preferred Stock into a number of shares of Common Stock based on a formula using a percentage of the market price of the Common Stock. On August 30, 1999, one of the investment funds delivered a notice to us to convert 1,627 of its 4,400 shares of our Series A-2 Convertible Preferred Stock into 2,398,714 shares of our Common Stock. The conversion was disputed, and litigation ensued in the Delaware Court of Chancery. In January 2000, the court dismissed the action stating that the claim relating to the conversion was moot because parties to the dispute had resigned from their positions with Edge. In addition, because of the existence of an Event of Default under the Infinity Financing, the investment funds also attained the rights to convert the Convertible Notes into Common Stock based on the same formula used to convert the Series A-2 Convertible Preferred Stock into shares of Common Stock during an Event of Default. Dividends on the Series A-2 Convertible Preferred Stock began accruing on January 1, 2000, at the rate of 8.25% annually and were payable quarterly in cash or in shares of Common Stock. We paid no dividends on the Series A-2 Convertible Preferred Stock. The Convertible Notes matured in June 2000 and interest on the notes was due in cash. The Convertible Notes were secured by all of our significant assets. In June 2000, we recognized Infinity's conversion of 1,627 shares of its Series A-2 Convertible Preferred Stock into 2,398,714 shares of Edge's Common Stock and approved the issuance of those shares of Common Stock to Infinity as a result of such conversion. See "Item 3. - Legal Proceedings - Proceedings with Stockholders." As part of the reorganization of Edge effective September 1, 2000, Infinity, Glacier Capital Limited and Summit Capital Limited, which were the holders of the Convertible Notes and shares of Series A-2 Convertible Preferred Stock issued by Edge, converted all their convertible securities and accrued interest and dividends based on a formula of one (1) share of Common Stock for each $1.00 of principal and interest outstanding under the convertible notes and for each $1.00 of liquidation amount of the Series A-2 Convertible Preferred Stock and of unpaid dividends. The number of shares of Common Stock issued upon this conversion was 6,689,165. As a result of these actions, as of September 2000, , Edge had no shares of preferred stock outstanding and no - 50 - outstanding convertible notes and was no longer in default under the documents governing the convertible notes and the Series A-2 Convertible Preferred Stock. In connection with these actions, we recognized a conversion loss and a provision for preferred stock dividends on the conversion of debt and preferred stock of $4,796,403 in 2000. In December 2001, we learned that $91,095 in preferred dividends and interest were not paid in the September 2000 corporate reorganization. As a result, 91,095 common shares of Edge were issued, as of December 31, 2001, to Infinity, Glacier Capital Limited and Summit Capital Limited on the original terms of one share of Common Stock for each $1.00 of principal and interest converted in satisfaction of the obligation. 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. We received $600,000 during 2001 which was recorded as paid in capital. In March 2002, Infinity and Edge mutually agreed to terminate the option. 2000 Infinity Loans During 2000, 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. As of December 31, 2001, there was $219,000 in principal outstanding. Upon maturity, as of April 1, 2002, Infinity elected to convert the outstanding principal and interest totaling $258,464 into $.01 par value Common Stock at $.65 per share resulting in 397,637 shares issued by us. We claimed an exemption for this issuance under section 4(2) of the Securities Act of 1933. PurchasePooling Investment In September 2000, we issued 2,644,841 shares of Edge Common Stock to PurchasePooling Investment Fund in return for 9,593,824 shares of Series A Convertible Preferred Stock of PurchasePooling Solutions, Inc. ("PurchasePooling"). In December 2000, we invested an additional $620,000 in PurchasePooling in return for 2,214,285 shares of its Series C Convertible Preferred Stock. As a result, at December 31, 2000, we had an approximately 18% ownership interest in PurchasePooling, a start up Web-based demand aggregator working toward enabling government and educational entities to save significantly on large-ticket capital items by combining their purchasing power nationwide and globally. We are accounting for this investment under the cost method of accounting. Our President and CEO is also the interim CEO of PurchasePooling. In 2000, we entered into an agreement to acquire from Odyssey Ventures Online S.A. 975,000 shares of Series A Convertible Preferred Stock of PurchasePooling in exchange for 268,808 shares of Edge Common Stock. In April 2001, the agreement was finalized and the shares of Common Stock were issued. Based on valuation obtained on PurchasePooling in July 2001, we determined that the investment was impaired. Accordingly, we recorded an impairment charge of $ 2,495,954 that is included in "Impairment of Assets" in the Statement of Operations. In October 2001, we participated to the amount of $400,000 in a syndicated loan to PurchasePooling in the amount of $1,600,000. The loan, structured as Convertible Note with Warrants, bears interest at 15% per -51- annum, and if not converted earlier, matures in October 2003. Because PurchasePooling is in its development stage and is not generating any cash flows, we have no expectation for repayment of the loan. As such, we considered the investment to be an equity investment and we carried the loan as a part of our Investment - Related Party in the Balance Sheet. We did not accrue interest on the note. Based upon the ongoing evaluation of our investment in PurchasePooling, we determined in April 2002, that our investment was not recoverable. As a result, we wrote off the balance of our investment in PurchasePooling as of December 31, 2001. The write off for the year 2001 was $5,175,954 and such amount is included in Impairment Charges in the Statement of Operations. Management Fee We have entered into a management agreement with PurchasePooling in which PurchasePooling pays us a management fee of $20,000 per month in return for the services provided by our President and other employees of ours. We collected $240,000 and $20,000 in management fees from PurchasePooling during 2001 and 2000 respectively. Such amounts are reflected as a reduction in "General and Administrative" expenses in the Statements of Operations. 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"). The Catalyst Loan was originally due on June 30, 2001, and bears interest at a rate equal to eight percent (8%) per annum. We used the proceeds of the Catalyst Loan to purchase 2,214,285 shares of Series C Convertible Preferred Stock of PurchasePooling. Catalyst Master Fund L.P. is a stockholder of ours and certain of our directors are officers of an entity that manages Catalyst Master Fund L.P. 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 have 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 is 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 31, 2000 and 2001, the principal balance outstanding on the Catalyst Loan was $620,000 and $1,420,000, respectively. 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. Subsequent to December 31, 2001, as part of the April 2002 Series A Convertible Preferred Stock financing described below, Sandera converted all outstanding principal and interest due on the loan (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 Convertible Preferred Stock. Affiliate Relationships of Financing Transactions J. Keith Benedict and John A. Wagner are representatives of the investment manager (or its affiliates) of H.W. Capital L.P. In addition, Graham C. Beachum II is interim Chief Executive Officer of PurchasePooling. -52- Employment Relationships We have entered into employment agreements with Mr. Graham C. Beachum II and Mr. Graham C. "Scooter" Beachum III as described above. ITEM 13. 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 - ------- ----------- 3.1 Certificate of Incorporation of Edge, as amended (Incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 3.2 Amended and Restated By-Laws of Edge (Incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.1 Form of Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.2 Form of Specimen Redeemable Warrant Certificate (Incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.3 Form of Warrant Agreement between Edge and Whale Securities Co., L.P. (Incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.4 Form of Warrant among American Stock Transfer & Trust Company, Edge and Whale Securities Co., L.P. (Incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.7 Form of Convertible Note issued to investors in the Infinity Bridge Financing (Incorporated by reference to Exhibit 99.5 to the Registrant's Current Report on Form 8-K filed June 23, 1997) 4.8 Form of Common Stock Purchase Warrant issued to Vision Financial Group, Inc. (Incorporated by reference to Exhibit 4.8 to the Registrant's Quarterly Report on Form 10-QSB filed November 14, 1997) 4.9 Form of Subscription and Securities Purchase Agreement dated April 1, 2002, between Edge Technology Group, Inc. and Purchasers as named therein. (filed herewith) 4.10 Certificate of Designation, Preference and Rights of Series A Convertible Preferred Stock of Edge Technology Group, Inc. dated April 1, 2002. (filed herewith) 4.11 Form of Common Stock Purchase Warrant dated April 1, 2002, issued to lpurchasers of Series A Convertible Preferred Stock. (filed herewith) -53- 4.12 Registration Rights Agreement dated April 1, 2002 pertaining to Series A Convertible Preferred Stock (filed herewith) 4.13 Letter Agreement dated April 1, 2002 pertaining to conversion of Infinity Note into shares of Common Stock (filed herewith). 10.1 License Agreement, dated March 1, 1995, between Great White Shark Enterprises, Inc. and Edge, as supplemented (Incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.2 Amendment to License Agreement, dated as of June 3, 1997, by and among Edge, Greg Norman and Great White Shark Enterprises, Inc. (Incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K/A filed June 27, 1997) 10.3 Amendment to License Agreement, dated as of January 1, 2000, by and among Edge, Greg Norman and Great White Shark Enterprises, Inc. (Previously filed on April 14, 2000 with Registrant's Report on Form 10-K for fiscal year ended December 31, 1999) *10.4 Employment Agreement, dated as of May 1, 1996, between Thomas S. Peters and Edge, as amended (Incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form SB-2 Registration No. 333-5193) effective July 24, 1996) *10.5 Amended and Restated 1996 Stock Option Plan (Incorporated by reference to our 1996 definitive Proxy Statement filed on April 7, 1997) 10.6 Lease Agreement by and between Fairfax Boca 92, L.P., a Georgia limited partnership, and Visual Edge Systems, Inc. for offices located at 901 Yamato Road, Boca Raton, Florida (Previously filed on April 14, 2000 with Registrant's Report on Form 10-K for fiscal year ended December 31, 1999) 10.7 Assignment, dated April 19, 1996 from Thomas S. Peters to Visual Edge (Incorporated by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.8 Share and Warrant Purchase Agreement, dated as of February 27, 1997, between Edge and Status-One Investments Inc. (Incorporated by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-24675) filed April 7, 1997) 10.10 Registration Rights Agreement, dated as of June 13, 1997, among Edge and the Funds (Incorporated by reference to Exhibit 99.2 to the Registrant's Current Report on Form 8-K filed June 23, 1997) 10.12 Purchase Agreement, dated as of March 27, 1998, among Edge and Marion Interglobal, Ltd. (Incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997) 10.13 Registration Rights Agreement, dated as of March 27, 1998, among Edge and Marion Interglobal, Ltd. (Incorporated by reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997) 10.18 Form of Warrant Certificate. (Incorporated by reference to Exhibit 99.3 to the Registrant's Current Report on Form 8-K filed February 9, 1998) -54- 10.19 Amendment, dated as of December 31, 1998, to License Agreement dated as of March 1, 1995, by and between Greg Norman and Great White Shark Enterprises, Inc. and Edge, as amended on April 19, 1996, October 18, 1996 and June 3, 1997 (Incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998) 10.21 Sublease Agreement, dated as of September 29, 1999, by and between Edge and Sensormatic Electronics Corporation (Previously filed on April 14, 2000 with Registrant's Report on Form 10-K for fiscal year ended December 31, 1999) 10.22 Note and Security Agreement dated as of December 14, 2000 between Edge and Catalyst Master Fund, L.P. (Previously filed on April 17, 2001, with the Registrant's Report of Form 10-KSB for the year ended December 31, 2000.) 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. (filed herewith) 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. (filed herewith) 16.1 Letter, dated November 14, 1997, from KPMG Peat Marwick LLP to the Securities and Exchange (Incorporated by reference to Exhibit 1 to the Registrant's Current Report on Form 8-K/A filed November 19, 1997) 24.1 Power of Attorney (included with the signature page hereof) *Indicates management contract or compensatory plan or arrangement. (b) Reports on Form 8-K On October 6, 2000 we filed a report on Form 8-K disclosing under Item 2 that on September 22, 2000, Edge completed the investment transaction with Hencie. On September 24, 2001, we filed a report on Form 8-K disclosing under Item 2 that on September 10, 2001, Edge had closed the previously announced sale of assets related to our One-on-One business to Visual Edge, Inc. under an Asset Purchase and Assignment and Assumption Agreement dated as of July 24, 2001. SIGNATURES In accordance with the Section 13 or 15(d) of the Securities Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EDGE TECHNOLOGY GROUP, INC. /s/ Graham C. Beachum II - ------------------------ Graham C. Beachum II Chief Executive Officer (Principal Executive Officer) April 16, 2002 /s/ David N. Pilotte - -------------------- David N. Pilotte Executive Vice President and Chief Financial Officer, Secretary (Principal Financial and Accounting Officer) April 16, 2002 POWER OF ATTORNEY Each person whose signature appears below hereby authorizes and constitutes Graham C. Beachum II, J. Keith Benedict and John A. Wagner, and each of them singly, his, her or its true and lawful attorneys-in-fact with full power of substitution and resubstitution, for him, her or its and in his, her or its name, place and stead, in any and all capacities to sign and file any and all amendments to this report with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and he, she or it hereby ratifies and confirms all that said attorneys-in-fact or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. SIGNATURES TITLE DATE /s/ Graham C. Beachum II Chief Executive Officer, April 16, 2002 - ------------------------ President and Director (Principal Executive Officer) /s/ J. Keith Benedict Director April 16, 2002 - --------------------- /s/ John A. Wagner Director April 16, 2002 - ------------------ EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------ ----------- 3.1 Certificate of Incorporation of Edge, as amended (Incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 3.2 Amended and Restated By-Laws of Edge (Incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.1 Form of Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.2 Form of Specimen Redeemable Warrant Certificate (Incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.3 Form of Warrant Agreement between Edge and Whale Securities Co., L.P. (Incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.4 Form of Warrant among American Stock Transfer & Trust Company, Edge and Whale Securities Co., L.P. (Incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.7 Form of Convertible Note issued to investors in the Infinity Bridge Financing (Incorporated by reference to Exhibit 99.5 to the Registrant's Current Report on Form 8-K filed June 23, 1997) 4.8 Form of Common Stock Purchase Warrant issued to Vision Financial Group, Inc. (Incorporated by reference to Exhibit 4.8 to the Registrant's Quarterly Report on Form 10-QSB filed November 14, 1997) 4.9 Form of Subscription and Securities Purchase Agreement dated April 1, 2002, between Edge Technology Group, Inc. and Purchasers as named therein. (filed herewith) 4.10 Certificate of Designation, Preference and Rights of Series A Convertible Preferred Stock of Edge Technology Group, Inc. dated April 1, 2002. (filed herewith) 4.11 Form of Common Stock Purchase Warrant dated April 1, 2002, issued to purchasers of Series A Convertible Preferred Stock. (filed herewith) 4.12 Registration Rights Agreement dated April 1, 2002 pertaining to Series A Convertible Preferred Stock (filed herewith) 4.13 Letter Agreement dated April 1, 2002 pertaining to conversion of Infinity Note into shares of Common Stock (filed herewith). - 57 - 10.1 License Agreement, dated March 1, 1995, between Great White Shark Enterprises, Inc. and Edge, as supplemented (Incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.2 Amendment to License Agreement, dated as of June 3, 1997, by and among Edge, Greg Norman and Great White Shark Enterprises, Inc. (Incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K/A filed June 27, 1997) 10.3 Amendment to License Agreement, dated as of January 1, 2000, by and among Edge, Greg Norman and Great White Shark Enterprises, Inc. (Previously filed on April 14, 2000 with Registrant's Report on Form 10-K for fiscal year ended December 31, 1999) *10.4 Employment Agreement, dated as of May 1, 1996, between Thomas S. Peters and Edge, as amended (Incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) *10.5 Amended and Restated 1996 Stock Option Plan (Incorporated by reference to our 1996 definitive Proxy Statement filed on April 7, 1997) 10.6 Lease Agreement by and between Fairfax Boca 92, L.P., a Georgia limited partnership, and Visual Edge Systems, Inc. for offices located at 901 Yamato Road, Boca Raton, Florida (Previously filed on April 14, 2000 with Registrant's Report on Form 10-K for fiscal year ended December 31, 1999) 10.7 Assignment, dated April 19, 1996 from Thomas S. Peters to Visual Edge (Incorporated by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.8 Share and Warrant Purchase Agreement, dated as of February 27, 1997, between Edge and Status-One Investments Inc. (Incorporated by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-24675) filed April 7, 1997) 10.12 Purchase Agreement, dated as of March 27, 1998, among Edge and Marion Interglobal, Ltd. (Incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997) 10.13 Registration Rights Agreement, dated as of March 27, 1998, among Edge and Marion Interglobal, Ltd. (Incorporated by reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997) 10.18 Form of Warrant Certificate. (Incorporated by reference to Exhibit 99.3 to the Registrant's Current Report on Form 8-K filed February 9, 1998) 10.19 Amendment, dated as of December 31, 1998, to License Agreement dated as of March 1, 1995, by and between Greg Norman and Great White Shark Enterprises, Inc. and Edge, as amended on April 19, 1996, October 18, 1996 and June 3, 1997 (Incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998) 10.21 Sublease Agreement, dated as of September 29, 1999, by and between Edge and Sensormatic Electronics Corporation (Previously filed on April 14, 2000 with Registrant's Report on Form 10-K for fiscal year ended December 31, 1999) - 58 - 10.22 Note and Security Agreement dated as of December 14, 2000 between Edge and Catalyst Master Fund, L.P. (Previously filed on April 17, 2001, with the Registrant's Report of Form 10-KSB for the year ended December 31, 2000.) 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. (filed herewith) 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. (filed herewith) 16.1 Letter, dated November 14, 1997, from KPMG Peat Marwick LLP to the Securities and Exchange (Incorporated by reference to Exhibit 1 to the Registrant's Current Report on Form 8-K/A filed November 19, 1997) 24.1 Power of Attorney (included with the signature page hereof) * Indicates management contract or compensatory plan or arrangement - 59 - EX-4.9 3 dex49.txt FORM OF SUBSCRIPTION AND SECURITIES PURCHASE AGREE EXHIBIT 4.9 SUBSCRIPTION AND SECURITIES PURCHASE AGREEMENT dated as of April 1, 2002 by and between Edge Technology Group, Inc. as the Issuer, and The Several Purchasers Named in Schedule I SUBSCRIPTION AND SECURITIES PURCHASE AGREEMENT AGREEMENT, dated as of April 1, 2002, between Edge Technology Group, Inc. (the "Company") and the several purchasers named in the attached Schedule I ---------- (individually a "Purchaser" and collectively the "Purchasers"). R E C I T A L S: WHEREAS, the Company wishes to issue and sell to the Purchasers, for a purchase price of $1,000 per share, an aggregate of 4,500 preferred shares of the aggregate 15,000 authorized but unissued Series A Preferred Stock, $0.01 par value per share, of the Company (the "Preferred Shares" or "Preferred Stock"); and WHEREAS, the Purchasers, severally, wish to purchase the Preferred Shares on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing premises and the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS 1.1 Definitions. The following terms, as used herein, have the following meanings: "Affiliate" means, with respect to any Person (the "Subject Person"), (i) any other Person (a "Controlling Person") that directly, or indirectly through one or more intermediaries, Controls the Subject Person or (ii) any other Person (other than the Subject Person or a Consolidated Subsidiary of the Subject Person) which is Controlled by or is under common Control with a Controlling Person. "Agreement" means this Subscription and Securities Purchase Agreement, as amended, supplemented or otherwise modified from time to time in accordance with its terms. "Balance Sheet Date" has the meaning set forth in Section 3.7. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to close. "Closing Bid Price" shall mean for any security as of any date, the lowest closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the principal securities exchange or trading market where such security is listed or traded or, if the foregoing does not apply, the lowest closing bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no lowest trading price is reported for such security by Bloomberg, then the average of the bid prices of any market makers for such securities as reported in the "Pink Sheets" by the National Quotation Bureau, Inc. If the lowest closing bid price cannot be calculated for such security on such date on any of the foregoing bases, the lowest closing bid price of such security on such date shall be the fair market value as mutually determined by Purchaser and the Company for which the calculation of the closing bid price requires, and in the absence of such mutual determination, as determined by the Board of Directors of the Company in good faith. "Closing" and "Closing Date" means the date of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission or any entity succeeding to all of its material functions. "Common Stock" means common stock, $.01 par value per share, of the Company. "Company" means Edge Technology Group, Inc., a Delaware corporation, and its successors. "Company Corporate Documents" means the articles of incorporation and bylaws of the Company. "Control" (including, with correlative meanings, the terms "Controlling," "Controlled by" and under "common Control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract or otherwise. "Conversion Date" shall mean the date of delivery (including delivery via telecopy) of a Notice of Conversion for all or a portion of the shares of Preferred Stock by the holder thereof to the Company. "Conversion Price" has the meaning set forth in the terms of the Preferred Stock. "Conversion Shares" means the shares of common stock issuable upon conversion of the Preferred Shares and the exercise of the Warrants. "Derivative Securities" has the meaning set forth in Section 7.2. "Directors" means the individuals then serving on the Board of Directors or similar such management council of the Company. "Disclosure Letter" has the meaning set forth in the preamble to Article 3. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment, 2 including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the cleanup or other remediation thereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" has the meaning set forth in Section 1.2. "Hazardous Materials" means any hazardous materials, hazardous wastes, hazardous constituents, hazardous or toxic substances or petroleum products (including crude oil or any derivative or fraction thereof), defined or regulated as such in or under any Environmental Laws. "Intellectual Property" has the meaning set forth in Section 3.17. "Lien" means any lien, mechanic's lien, materialmen's lien, lease, easement, charge, encumbrance, mortgage, conditional sale agreement, title retention agreement, agreement to sell or convey, option, claim, title imperfection, encroachment or other survey defect, pledge, restriction, security interest or other adverse claim, whether arising by contract or under law or otherwise (including, without limitation, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). "Majority Holders" means at any time after the Closing, the holders of more than 50% of the outstanding shares of Preferred Stock at such time. "Market Price" shall mean the Closing Bid Price of the Common Stock preceding the date of determination. "Nasdaq Stock Market" means the Nasdaq Stock Market's National Market System. "National Market" means the Nasdaq Stock Market, the Nasdaq Small Cap Market, the New York Stock Exchange, Inc. or the American Stock Exchange, Inc. "Notice of Conversion" means the notice to be delivered by a holder of Preferred Shares upon conversion of all or a portion thereof to the Company. "Notice of Exercise" means the notice to be delivered by a holder of the Warrant upon exercise of all or a portion thereof to the Company. "Officer's Certificate" shall mean a certificate executed by the President, chief executive officer or chief financial officer of the Company as contemplated by Section 5.1 hereof. "OTC Bulletin Board" means the over-the-counter bulletin board operated by the NASD. 3 "Permits" means all domestic and foreign licenses, franchises, grants, authorizations, permits, easements, variances, exemptions, consents, certificates, orders and approvals necessary to own, lease and operate the properties of, and to carry on the business of the Company and the Subsidiaries. "Person" means an individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock Company, government (or any agency or political subdivision thereof) or other entity of any kind. "Preferred Shares" or "Preferred Stock" means the Company's Series A Convertible Preferred Stock issuable pursuant to this Agreement. "Purchase Price" means the purchase price for the Securities set forth on Schedule I. "Purchasers" means the entities listed on the signature page hereto and their successors and assigns, including holders from time to time of the Preferred Shares. "Registration Rights Agreement" means the agreement between the Company and Purchaser dated the date hereof substantially in the form set forth in Exhibit C attached hereto. - --------- "SEC Reports" has the meaning set forth in Section 3.2. "Securities" means the Preferred Shares, the Warrants, the Warrant Shares and the Conversion Shares. "Securities Act" means the Securities Act of 1933, as amended. "Subsidiary" means, with respect to any Person, any corporation or other entity of which (x) a majority of the capital stock or other ownership interests having ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions are at the time directly or indirectly owned by such Person or (y) the results of operations, the assets and the liabilities of which are consolidated with such Person under GAAP. "Subsidiary Corporate Documents" means the certificates of incorporation and bylaws of each Subsidiary. "Taxes" has the meaning set forth in Section 3.10. "Trading Day" shall mean any Business Day in which the OTC Bulletin Board, National Market or other automated quotation system or exchange on which the Common Stock is then traded is open for trading for at least four (4) hours. "Transfer" means any disposition of Securities that would constitute a sale thereof under the Securities Act. "Warrant" shall have the meaning set forth in Section 2.4. 4 "Warrant Shares" shares of Common Stock of the Company issued upon conversion of the Warrant. 1.2 Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles as in effect from time to time, applied on a consistent basis (except for changes concurred in by the Company's independent public accountants) ("GAAP"). All references to "dollars," "Dollars" or "$" are to United States dollars unless otherwise indicated. 2. PURCHASE AND SALE OF SECURITIES 2.1 Purchase and Sale of Preferred Shares. The Company agrees to issue and sell to each Purchaser, and each Purchaser hereby agrees to purchase from the Company, the number of Preferred Shares, at a purchase price of one thousand dollars ($1,000.00) per share, set forth opposite the name of such Purchaser under the heading "Number of Preferred Shares to be Purchased" on Schedule I, at ---------- the aggregate purchase price set forth opposite the name of such Purchaser under the heading "Aggregate Purchase Price for Preferred Shares" on Schedule I. ---------- 2.2 Minimum Closing. The Company covenants that no subscriptions for Preferred Shares will be accepted unless proceeds from total subscriptions exceed four million four hundred thousand dollars ($4,400,000) (the "Minimum Offering Amount"). Subject to the satisfaction of this condition, each Purchaser shall be required to fund to the Company its portion of the purchase price for the Preferred Shares within two (2) days of the date of this Agreement. 2.3 Further Closings. From and after the Closing described in Section 2.2 above, the Company contemplates continuing its efforts to issue additional Preferred Shares up to a maximum of $15 million, inclusive of the amount paid for the Preferred Shares at the Closing (each a "Future Closing"). 2.4 Warrant. In consideration for, and as an inducement to, the Purchaser's purchase of the Preferred Shares, the Company will issue, in connection with and in addition to the Preferred Shares, a Warrant (in the form attached hereto as Exhibit A, the "Warrant") to purchase the number of shares of --------- the Company's common stock, par value $0.01 per share (the "Common Stock") set forth opposite each Purchaser's name under the heading "Number of Warrants" on Schedule I. - ---------- 2.5 Exchange of Debt at Closing. (a) The Minimum Offering Amount will include not more than $1,800,000 of consideration resulting from the exchange at the Closing of the Company's outstanding convertible notes for shares of Preferred Stock and a Warrant (the actual amount so exchanged being referred to as the "Debt Exchange Amount"). Accordingly, the cash consideration received by the Company upon obtaining the Minimum Offering Amount 5 will be less than the Minimum Offering Amount by the amount of the Debt Exchange Amount. (b) On the Closing Date, each Purchaser will submit the funds representing the Purchase Price by wire transfer to an account of the Company designated by the Company. Certificates representing such appropriate number of Preferred Shares to be issued to each respective subscriber in the amount of their respective accepted subscriptions together with the Warrant shall promptly be delivered thereafter to each Purchaser. 2.6 Adoption of Certificate of Designation. The Company shall adopt and file the Certificate of Designation attached hereto as Exhibit B with the --------- Secretary of State of the State of Delaware on or before the acceptance of the Purchaser's subscription for the Preferred Shares. The terms of the Certificate of Designation provide that upon the consummation of a "Qualified Future Financing" (including without limitation, shares of Preferred Stock which may be issued at one or more Future Closings) which contains a "Superior Right" (as those terms are defined in the Certificate of Designation), the terms and conditions of such Superior Right shall be automatically incorporated into the rights contained in the Certificate of Designation and will supersede any provisions in the Certificate of Designation relating to such Superior Right that would conflict with the exercise of application of such Superior Right. The Company will provide notice of the incorporation of any Superior Right to all holders of the Preferred Stock, and the holders of two-thirds (2/3) of the voting power of the then outstanding Preferred Stock may waive the incorporation of the Superior Right by providing written notice to the Company. If the Company provides any consideration to the holders of the equity or convertible debt instrument issued in connection with such Qualified Future Financing that is in addition to the consideration provided to the holders of the Preferred Stock (such as, for purposes of illustration, a warrant agreement other than a warrant substantially identical to the Warrant offered in this Agreement and issued in similar denominations and for substantially identical consideration provided or a registration rights agreement providing additional registration rights), then the Company will take all steps necessary to ensure that the holders of the Preferred Stock also receive such additional consideration. 3. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to Purchaser, on the date hereof and again as of the Closing Date, except as set forth in the disclosure letter ("Disclosure Letter") dated the date hereof and delivered supplementally to the Purchasers with this Agreement, the following: 3.1 Organization and Authority. The Company is a corporation or other entity duly incorporated or organized, validly existing and in good standing under the laws of Delaware. The Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The Company is qualified to conduct business as a foreign corporation and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except where such failure would not have a Material Adverse Effect. A "Material Adverse Effect" means any material adverse effect on the operations, results of operations, properties, assets or condition (financial 6 or otherwise) of the Company or the Company and its Subsidiaries, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. The execution and delivery by the Company of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the board of directors of the Company and no further consent or authorization of the Company, its board of directors or its shareholders is required. This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against it in accordance with its terms. 3.2 SEC Filings. The Company makes periodic filings with the Securities and Exchange Commission (the "SEC") available at www.sec.gov. All such forms, reports and other documents filed by the Company, including those that may be filed between the execution of this Agreement until the Closing but not including filings made by third parties relating to the Company, are referred to herein as the "SEC Reports." Except to the extent the SEC Reports have been modified by the non-public information delivered to the Purchasers included within the Offering Materials (as such term is defined in Section 4.7), all of the SEC Reports (a) were or will be filed on a timely basis (except where noted in the SEC Reports), (b) were or will be prepared in compliance in all material respects with the applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Reports, and (c) did not or will not at the time they were or are filed contain any untrue statement of a material fact or omit to state a material fact required to be stated in such SEC Reports or necessary in order to make the statements in such SEC Reports, in the light of the circumstance under which they were made, not misleading. 3.3 Capitalization. As of the date hereof, the authorized, issued and outstanding capital stock of the Company is as set forth in the Offering Materials and except as set forth therein no other shares of capital stock of the Company will be outstanding as of the Closing Date. All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and nonassessable. No shares of capital stock of the Company are subject to preemptive rights or similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. Other than as set forth in the Disclosure Letter, as of the date hereof, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, and (ii) except for the Registration Rights Agreement, there are no agreements or arrangements under which the Company or any of its Subsidiaries are obligated to register the sale of any of its or their securities under the Securities Act and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Securities. The Company has furnished to Purchaser true and correct copies of the Company's Corporate Documents, and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. 7 3.4 Governmental Authorization. The execution and delivery by the Company of this Agreement does not and will not, the issuance and sale by the Company of the Securities does not and will not, and the consummation of the transactions contemplated hereby will not, require any action by or in respect of, or filing with, any governmental body, agency or governmental official except (a) such actions or filings that have been undertaken or made prior to the date hereof and that will be in full force and effect (or as to which all applicable waiting periods have expired) on and as of the date hereof or which are not required to be filed on or prior to the Closing Date, (b) such actions or filings that, if not obtained, would not result in a Material Adverse Effect and (c) the filing of a "Form D" in connection with the issuance of the Preferred Shares and Warrants. 3.5 Issuance of Common Stock; Reservation of Preferred Shares. Upon conversion in accordance with the terms of the Preferred Shares and exercise of the Warrant, the Conversion Shares shall be duly and validly issued and outstanding, fully paid and nonassessable, free and clear of any Taxes, Liens and charges with respect to issuance and shall not be subject to preemptive rights or similar rights of any other shareholders of the Company. Assuming the representations and warranties of Purchaser herein are true and correct in all material respects, each of the Securities will have been issued in material compliance with all applicable U.S. federal and state securities laws. For as long as the Securities are outstanding, the Company shall at all times have a sufficient number of shares of Common Stock authorized and reserved to provide for the conversion of the Preferred Shares into the Company's Common Stock and for the exercise of the Warrant. 3.6 No Conflicts. The execution and delivery by the Company of this Agreement and the Registration Rights Agreement to which it is a party did not and will not, the issuance and sale by the Company of the Securities did not and will not and the consummation of the transactions contemplated hereby will not, contravene or constitute a default under or violation of (i) any provision of applicable law or regulation, (ii) the Company Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or any Subsidiary or any of their respective assets, or result in the creation or imposition of any Lien on any asset of the Company or any Subsidiary. The Company and each Subsidiary is in compliance with and conforms to all statutes, laws, ordinances, rules, regulations, orders, restrictions and all other legal requirements of any domestic or foreign government or any instrumentality thereof having jurisdiction over the conduct of its businesses or the ownership of its properties, except where such failure would not have a Material Adverse Effect. 3.7 Financial Information. Except as disclosed in either the Disclosure Letter or the Offering Materials, since September 30, 2001 (the "Balance Sheet Date"), there has been (x) no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations or prospects, of the Company and its Subsidiaries, whether as a result of any legislative or regulatory change, revocation of any license or rights to do business, fire, explosion, accident, casualty, labor trouble, flood, drought, riot, storm, condemnation, act of God, public force or otherwise and (y) no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of 8 operations or prospects, of the Company and its subsidiaries except in the ordinary course of business; and no fact or condition exists or is contemplated or threatened which might cause such a change in the future. The audited and unaudited consolidated balance sheets of the Company and its Subsidiaries as set forth in the SEC Reports, and the related consolidated statements of income, changes in shareholders' equity and changes in cash flows as set forth in the SEC Reports for the respective periods referenced therein, including the footnotes thereto, except as indicated therein, (i) complied in all material respects with applicable accounting requirements and (ii) have been prepared in accordance with GAAP consistently applied throughout the periods indicated, except that the unaudited financial statements do not contain notes and may be subject to normal audit adjustments and normal annual adjustments. Such financial statements fairly present the financial condition of the Company and its Subsidiaries at the dates indicated and the consolidated results of their operations and cash flows for the periods then ended and, except as indicated therein, reflect all claims against and all Debts and liabilities of the Company and its Subsidiaries, fixed or contingent. 3.8 Litigation. Except as set forth in the Disclosure Letter, there is no action, suit or proceeding pending or, to the knowledge of the Company, threatened against the Company or any Subsidiary, before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or which challenges the validity of this Agreement. 3.9 Environmental Matters. The costs and liabilities associated with Environmental Laws (including the cost of compliance therewith) are unlikely to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or any Subsidiary. Each of the Company and the Subsidiaries conducts its businesses in compliance in all material respects with all applicable Environmental Laws. 3.10 Taxes. Except as set forth in the Disclosure Letter, all United States federal, state, county, municipality, local or foreign income tax returns and all other material tax returns (including foreign tax returns) which are required to be filed by or on behalf of the Company and each Subsidiary have been filed and all material taxes due pursuant to such returns or pursuant to any assessment received by the Company and each Subsidiary have been paid except those being disputed in good faith and for which adequate reserves have been established. The charges, accruals and reserves on the books of the Company and each Subsidiary in respect of taxes and other governmental charges have been established in accordance with GAAP. 3.11 Not an Investment Company. Neither the Company nor any Subsidiary is an "Investment Company" within the meaning of Investment Company Act of 1940, as amended. 3.12 Full Disclosure. The information heretofore furnished by the Company to Purchaser for purposes of or in connection with this Agreement or any transaction contemplated hereby does not, and all such information hereafter furnished by the Company or any Subsidiary to Purchaser will not (in each case taken together and on the date as of which such information is furnished), contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they are made, not misleading. 3.13 No Solicitation; No Integration with Other Offerings. Except as set forth in this Disclosure Letter, no form of general solicitation or general advertising was used by the Company or, to the best of its actual knowledge, any other Person acting on behalf of the Company, in connection with the offer and sale of the Securities. Neither the Company, nor, to its knowledge, any Person acting on behalf of the Company, has, either directly or indirectly, sold or offered for sale to any Person (other than Purchasers) any of the Securities or, within the six months prior to the date hereof, any other similar security of the Company except as contemplated by this Agreement, and the Company represents that neither itself nor any Person authorized to act on its behalf (except that the Company makes no representation as to Purchaser and their Affiliates) will sell or offer for sale any such security to, or solicit any offers to buy any such security from, or otherwise approach or negotiate in respect thereof with, any Person or Persons so as thereby to cause the issuance or sale of any of the Securities to be in violation of any of the provisions of Section 5 of the Securities Act. 3.14 Permits. (a) Each of the Company and its Subsidiaries has all material Permits; (b) all such Permits are in full force and effect, and each of the Company and its Subsidiaries has fulfilled and performed all material obligations with respect to such Permits; (c) no event has occurred which allows, or after notice of lapse of time would allow, revocation or termination by the issuer thereof or which results in any other material impairment of the rights of the holder of any such Permit; and (d) the Company has no reason to believe that any governmental body or agency is considering limiting, suspending or revoking any such Permit. 3.15 Absence of Any Undisclosed Liabilities or Capital Calls. There are no liabilities of the Company or any Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing condition, situation or set of circumstances which would reasonably be expected to result in such a liability, other than (i) those liabilities provided for in the Offering Materials, (ii) liabilities and obligations incurred in the ordinary course of business since the Balance Sheet Date and (iii) other undisclosed liabilities which, individually or in the aggregate, would not have a Material Adverse Effect. 3.16 Proprietary Information of Third Parties. Except as set forth in the Disclosure Letter, to the best of the Company's knowledge, no third party has claimed or has reason to claim that any person employed by or affiliated with the Company has (a) violated or may be violating any of the terms or conditions of his employment, non-competition or non-disclosure agreement with such third party, (b) disclosed or may be disclosing or utilized or may be utilizing any trade secret or proprietary information or documentation of such third party or (c) interfered or may be interfering in the employment relationship between such third party and any of its present or former employees. No third party has requested information from the Company which suggests that such a claim might be contemplated. To the best of the Company's knowledge, no person employed by or affiliated with the Company has employed or proposes to employ any trade secret or any information of documentation proprietary to any former employer, and to the best of 10 the Company's knowledge, no person employed by or affiliated with the Company has violated any confidential relationship which such person may have had with any third party, in connection with the development or sale of any service or proposed service of the Company, and the Company has no reason to believe there will be any such employment or violation. To the best of the Company's knowledge, none of the execution or delivery of this Agreement, or the carrying on of the business of the Company as officer, employees or agents by any officer, director or key employee of the Company, or the conduct or proposed conduct of the business of the Company, will conflict with or result in a breach of the terms, conditions or provisions of or constitute a default under any contract, covenant or instrument under which any such person is obligated. 3.17 Intellectual Property Rights. Each of the Company and its Subsidiaries owns, or is licensed under, and has the rights to use, all patents, patent applications, trademarks, trademark applications, trade names, copyrights, technology, know-how and processes, service marks, service mark applications, trade secrets, and customer lists (collectively, "Intellectual Property") used in, necessary for or proposed to be used in the conduct of its business; no claims have been asserted by any Person to the use of any such Intellectual Property or challenging or questioning the validity or effectiveness of any license or agreement related thereto. To the best of Company's and its Subsidiaries' knowledge, there is no valid basis for any such claim and the use of such Intellectual Property by the Company and its Subsidiaries will not infringe upon the rights of any Person. 3.18 Insurance. The Company and its Subsidiaries maintain, with financially sound and reputable insurance companies, insurance in at least such amounts and against such risks such that any uninsured loss would not have a Material Adverse Effect. All insurance coverages of the Company and its Subsidiaries are in full force and effect and there are no past due premiums in respect of any such insurance. 3.19 Title to Properties. The Company and its Subsidiaries have good and marketable title to all their respective properties reflected in the Offering Materials, free and clear of all Liens, other than as disclosed in the Offering Materials. 3.20 Internal Accounting Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company's Board of Directors, to provide reasonable assurance that (i) transactions are executed in accordance with managements' general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 3.21 Foreign Practices. Neither the Company nor any of its Subsidiaries nor, to the Company's knowledge, any employee or agent of the Company or any Subsidiary has made any payments of funds of the Company or Subsidiary, or received or retained any funds, in each case in violation of any law, rule or regulation. 11 3.22 Brokers. The Company has no contract, arrangement or understanding with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement. 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER Each Purchaser, severally but not jointly, represents and warrants to the Company, on the date hereof and as of the Closing Date, the following: 4.1 Shares for Account of Purchaser. The Securities are being acquired for the account of the Purchaser (or if the Purchaser is a trust or other entity, solely for the beneficiaries thereof) for investment purposes only, and are not being purchased with a view to or for the resale, distribution or fractionalization thereof, and the Purchaser has no contract, undertaking, agreement or arrangement with, and has no present plan to enter into any contract, undertaking, agreement or arrangement with any person to sell, transfer or pledge the Securities or any portion thereof. 4.2 Securities Not Registered Under Securities Laws. The Purchaser has been informed and understands that: (a) THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES OR OTHER REGULATORY AUTHORITY, NOR HAS ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OF SUCH SECURITIES OR THE ACCURACY OR ADEQUACY OF ANY DISCLOSURES RELATED THERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE; and (b) the Securities have not been, and Purchasers in such Securities have no right, other than as provided for in the Registration Rights Agreement, to require that they be, registered under the Securities Act or any applicable state securities laws, and such securities are being offered and sold in reliance upon exemptions available under such laws. 4.3 Limitation on Transferability of Securities. The Purchaser has been informed and understands and agrees that: (a) THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR EXEMPTIONS THEREFROM. A LEGEND RESTRICTING THE TRANSFER OF SUCH SECURITIES SHALL BE PLACED ON THE CERTIFICATES REPRESENTING THE SECURITIES. (b) The Purchaser is aware that the Purchaser must bear the economic risk of the investment in the Securities for an indefinite period of time, because the Securities 12 have not been registered under the Securities Act, or the securities laws of any state and, therefore, cannot be sold unless they are subsequently registered under the Securities Act and any applicable state securities laws or unless an exemption from registration is available. The Purchaser further understands that only the Company can take action to register the Securities. (c) No offer, sale, transfer or other disposition of the Securities may be made unless such Securities have theretofore been effectively registered under the Securities Act and applicable state securities laws, or the Company has received the written opinion of counsel satisfactory to the Company that the transaction will not violate or require registration under such laws and obtains warranties similar to those set forth herein from the proposed transferee. (d) The Purchaser shall pay all expenses and costs, if any, incurred by the Company for legal or accounting services in connection with reviewing any proposed sale or other transfer of the Securities and issuing opinions in connection therewith. (e) In the event of any sale or other transfer of any Securities, the Purchaser shall be required and it shall be the sole responsibility of the Purchaser to comply with the restrictions of the transferability of such Securities imposed under applicable federal and state securities laws and regulations. 4.4 Status of Purchaser. The Purchaser (check applicable blanks, if any): _____ (a) is a natural person who has an individual net worth, or joint net worth with that person's spouse, of more than $1,000,000; or _____ (b) is a natural person who individually had actual income in excess of $200,000 in each of the two most recent years and who reasonably expects income in excess of $200,000 in the current year; or is a natural person who, jointly with such person's spouse, had income in excess of $300,000 in each of the two most recent years and who reasonably expects joint income in excess of $300,000 in the current year; or _____ (c) is a director, executive officer or general partner of the Company; or _____ (d) is a trust, with total assets in excess of $5.0 million, not formed for the specific purpose of acquiring the Securities, whose purchase is directed by a sophisticated person as described in the Securities Act; or _____ (e) is a corporation or partnership, not formed for the specific purpose of acquiring the Securities, with total assets in excess of $5.0 million; or _____ (f) is otherwise an Accredited Purchaser as defined in Section 501(a) of Regulation D as adopted by the Securities and Exchange Commission. 13 4.5 Financial Ability of Purchaser. The Purchaser (a) has the financial ability to bear the economic risk of his or her investment in the Securities (including the possible loss of the entire amount thereof), (b) has adequate means for providing for his or her current and future needs and personal contingencies notwithstanding (i) the Purchaser's investment in the Securities, (ii) the unavailability of any tax, financial or other benefits from the Purchaser's investment in or ownership of the Securities, or (iii) the complete loss of the Purchaser's entire investment in the Securities, and (c) has no need for liquidity with respect to his or her investment in the Securities. 4.6 Purchaser Sophistication. The Purchaser has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Securities and has obtained sufficient information from the Company to enable him or her to evaluate the risks of an investment in the Securities. 4.7 Receipt of Other Information. The Purchaser: (a) has been furnished with copies of certain non-public information of the Company under a written confidentiality agreement (together with the SEC Reports available to the Purchaser via the world-wide web, the "Offering Materials"), has carefully read the Offering Materials and has evaluated and understands the risks of an investment in the Securities, and, except as indicated in subsections (b) and (c), has relied solely upon the information contained in the Offering Materials; (b) has been provided an opportunity to obtain any additional information concerning the Offering, to the extent the Company or its authorized representatives possess the same or could acquire it without unreasonable effort or expense; and (c) has had the opportunity to ask questions of, and receive answers from, the Company or its authorized representatives concerning the terms and conditions of the Offering and other matters pertaining to an investment in the Securities and, to the extent the Company or its authorized representatives possess the same or could acquire it without unreasonable effort or expense, to obtain such additional information as the Purchaser considers necessary to verify the accuracy of the information contained in the Offering Materials or that which was otherwise provided in order for him or her to evaluate the merits or risks of an investment in the Securities, and has not been furnished any other offering literature or prospectus except as mentioned herein or in the Offering Materials. 4.8 Suitability of Investment. The Purchaser has determined that the Securities are a suitable investment for him or her and that, at this time, he or she is able to bear a complete loss of his or her investment in the Securities. 4.9 Independent Investment Decision. In making a decision to invest in the Securities, the Purchaser has relied solely upon independent investigations made by him or her and is not relying on the Company or its authorized representatives or any references in the 14 Offering Materials to any legal opinion with respect to tax or other economic considerations involved in an investment in the Securities. 4.10 Authority. The execution, delivery, and performance of this Agreement have been duly authorized by the Purchaser. The execution and delivery of this Agreement and the purchase of the Securities do not conflict with or breach any provision of the organizational documents of the Purchaser or any law, ruling, regulation, statute or agreement to which it is subject. 4.11 No Brokers or Finders. No agent, broker, investment banker, financial advisor or other firm or person is or will be entitled to any broker's or finder's fee or any other similar commission or fee in connection with any of the transactions contemplated by this Agreement as a result of arrangements entered into by the Purchaser. 4.12 Reliance on Representations and Warranties. It is understood and agreed that Company has relied and will rely upon the representations and warranties of the Purchaser contained in this Agreement for purposes of determining whether the Purchaser meets the Purchaser suitability standards imposed under state and federal securities laws and regulations in order to enable the Company to decide whether the offer and sale of the Securities may he made without registration under applicable federal and state securities laws and regulations in reliance upon exemptions provided thereunder. 5. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES 5.1 Conditions Precedent to Purchaser's Obligations to Purchase. The obligation of each Purchaser hereunder to purchase the Preferred Shares at the Closing is subject to the satisfaction, on or before the Closing Date of each of the following conditions: (a) The Company shall have duly executed this Agreement, the Warrants and the Registration Rights Agreement and delivered the same to Purchasers; (b) The Company shall have delivered to Purchasers duly executed certificates representing the Preferred Shares and the Warrants; (c) Each Purchaser shall have purchased and paid for the Preferred Shares being purchased by it on the Closing Date, and the aggregate purchase price paid by all of the Purchasers for the Preferred Shares being purchased by them on the Closing Date (including the Debt Exchange) shall be at least $4,400,000.00; (d) The representations and warranties of the Company contained herein shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specified date) and the Company shall have performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by it at or prior to the Closing Date. Purchasers shall have received an Officer's Certificate executed by the chief executive officer of the Company, 15 dated as of the Closing Date, to the foregoing effect, including but not limited to certificates with respect to the Company Corporate Documents, resolutions relating to the transactions contemplated hereby and the incumbencies of certain officers and Directors of the Company; (e) The Company shall have received all governmental, board of directors, shareholders and third party consents and approvals necessary or desirable in connection with the issuance and sale of the Securities and the consummation of the transactions contemplated by this Agreement; (f) Purchasers shall have received an opinion, dated the Closing Date, of counsel to the Company, reasonably satisfactory to Purchasers; (g) The Company Corporate Documents and the Subsidiary Corporate Documents, if any, shall be in full force and effect and no term or condition thereof shall have been amended, waived or otherwise modified without the prior written consent of Purchaser and the Company shall have delivered to Purchasers the Certificate of Designation of the Preferred Stock certified by the Secretary of State of Delaware; and (h) Purchasers shall have received all other opinions, resolutions, certificates, instruments, agreements or other documents as required by this Agreement; (i) The Company shall have delivered to Purchasers a copy of the executed employment/non-competition agreement between the Company and Graham Beachum II. 5.2 Conditions to the Company's Obligations. The obligations of the Company to issue and sell the Securities to the Purchasers pursuant to this Agreement are subject to the satisfaction, at or prior to the Closing Date, of the following conditions: (a) The representations and warranties of each Purchaser contained herein shall be true and correct in all material respects on the date first made and on the Closing Date and each Purchaser shall have performed and complied in all material respects with all agreements required by this Agreement to be performed or complied with by each Purchaser at or prior to the Closing Date; (b) The issue and sale of the Securities by the Company shall not be prohibited by any applicable law, court order or governmental regulation; (c) The receipt by the Company of duly executed counterparts of this Agreement and the Registration Rights Agreement signed by each Purchaser; and (d) The Company shall have received payment of the Purchase Price. 6. AFFIRMATIVE COVENANTS Unless such obligation is waived by the holders of at least two-thirds of the then outstanding Preferred Shares, the Company, hereby agrees that, from and after the date hereof: 16 6.1 Information. The Company will make available to each holder of the Preferred Shares: (a) promptly upon the filing thereof, copies of (i) all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent), and (ii) all SEC Reports; (b) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed and any other document generally distributed to shareholders. (c) promptly following the commencement thereof, notice and a description in reasonable detail of any litigation or proceeding to which the Company or any Subsidiary is a party in which the amount involved is $250,000 or more and not covered by insurance or in which injunctive or similar relief is sought. 6.2 Payment of Obligations. The Company will, and will cause each Subsidiary to, pay and discharge, at or before maturity, all their respective material obligations, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings and will maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same. 6.3 Maintenance of Property; Insurance. The Company will, and will cause each Subsidiary to, keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. In addition, the Company and each Subsidiary will maintain insurance in at least such amounts and against such risks as it has insured against as of the Closing Date. 6.4 Maintenance of Existence. The Company will, and will cause each Subsidiary to, continue to engage in business of the same general type as now conducted by the Company and such Subsidiaries, and will preserve, renew and keep in full force and effect its respective corporate existence and their respective material rights, privileges and franchises necessary or desirable in the normal conduct of business. 6.5 Compliance with Laws. The Company will, and will cause each Subsidiary to, comply, in all material respects, with all federal, state, municipal, local or foreign applicable laws, ordinances, rules, regulations, municipal by-laws, codes and requirements of governmental authorities except (i) where compliance therewith is contested in good faith by appropriate proceedings or (ii) where non-compliance therewith could not reasonably be expected, in the aggregate, to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or such Subsidiary. 6.6 Inspection of Property, Books and Records. The Company will, and will cause each Subsidiary to, keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to their respective businesses and activities; and will permit, during normal business hours, a representative of each Purchaser or an 17 affiliate thereof, as representatives of Purchaser, to visit and inspect any of their respective properties, upon reasonable prior notice, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective executive officers and independent public accountants (and by this provision the Company authorizes its independent public accountants to disclose and discuss with Purchaser the affairs, finances and accounts of the Company and its Subsidiaries in the presence of a representative of the Company; provided, however, that such discussions will not result in any unreasonable expense to the Company, without Company consent), all at such reasonable times. 6.7 Investment Company Act. The Company will not be or become an open-end investment trust, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act of 1940, as amended. 6.8 Use of Proceeds. The proceeds from the issuance and sale of the Preferred Shares by the Company shall be used as set forth in the Officer's Certificate to be delivered at Closing, as described in Section 8.4 below and a copy of which is attached hereto. None of the proceeds from the issuance and sale of the Preferred Shares by the Company pursuant to this Agreement will be used directly or indirectly for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any "margin stock" within the meaning of Regulation G of the Board of Governors of the Federal Reserve System. 6.9 Compliance with Terms and Conditions of Material Contracts. The Company will, and will cause each Subsidiary to, comply, in all respects, with all terms and conditions of all material contracts to which it is subject. 6.10 Reserved Shares and Listings. (a) The Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion of the outstanding Preferred Shares and exercise of the Warrants (based on the conversion price of the Preferred Shares in effect from time to time and the exercise price of the Warrant). If at any time the number of shares of Common Stock authorized and reserved for issuance is below the number of Conversion Shares issued or issuable upon conversion of the Preferred Shares and exercise of the Warrant, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares. The Company will obtain any authorization, consent, approval or other action by or make any filing with any court or administrative body that may be required under applicable state securities laws in connection with the issuance of shares of Common Stock upon conversion of the Preferred Shares. (b) The Company will use its best lawful efforts to maintain the listing and trading of its Common Stock on a National Market or the OTC Bulletin Board. To the extent applicable, the Company will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers, Inc. (the "NASD") and such exchanges, as applicable. The Company shall promptly provide to each Purchaser copies of any notices it receives regarding the 18 continued eligibility of the Common Stock for listing on any National Market or the OTC Bulletin Board. 6.11 Transfer Agent Instructions. Upon receipt of a Notice of Conversion or Notice of Exercise, as applicable, the Company shall immediately direct the Company's transfer agent to issue certificates, registered in the name of Purchaser or its nominee, for the Conversion Shares, in such amounts as specified from time to time by Purchaser to the Company upon proper conversion of the Preferred Shares or exercise of the Warrant. Upon conversion of any Preferred Shares in accordance with their terms and/or exercise of any Warrant in accordance with their terms, the Company will, and will use its best lawful efforts to cause its transfer agent to, issue as promptly and reasonably practicable one or more certificates representing shares of Common Stock in such name or names and in such denominations specified by a Purchaser in a Notice of Conversion or Notice of Exercise, as the case may be (which certificates shall contain a restrictive legend substantially similar to the legend set forth in Section 4.3(a) above). 6.12 Maintenance of Reporting Status; Supplemental Information. So long as any of the Securities are outstanding, the Company shall use its best lawful efforts to timely file all reports required to be filed with the Commission pursuant to the Exchange Act. The Company shall not terminate its status as an issuer required to file reports under the Exchange Act, even if the Exchange Act or the rules and regulations thereunder would permit such termination. If at anytime the Company is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish at its expense, upon request, for the benefit of the holders from time to time of Securities, and prospective purchasers of Securities, information satisfying the information requirements of Rule 144 under the Securities Act. 6.13 Form D; Blue Sky Laws. The Company agrees to file a "Form D" with respect to the Securities as required under Regulation D of the Securities Act and to provide a copy thereof to Purchaser promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to Purchaser at the Closing pursuant to this Agreement under applicable securities or "blue sky" laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to Purchaser on or prior to the Closing Date. 7. NEGATIVE COVENANTS Without the prior written consent of the holders of at least two-thirds of the then outstanding Preferred Shares, the Company agrees that after the date hereof and for the benefit of each Purchaser: 7.1 Transactions with Affiliates. The Company and each Subsidiary will not enter into any material transactions with any Affiliate, except where such transaction is on terms which are, to the Company or such Subsidiary, no less favorable than terms that could be obtained by the Company or such Subsidiary from a Person that is not an Affiliate of the Company upon negotiation at arm's length, as determined in good faith by the Board of Directors of the Company. 19 7.2 Prohibition on Floating Conversion Rate Equity Offerings; Registration Rights. (a) Except with respect to equity securities that may be issuable upon the exercise or conversion of Derivative Securities (as defined below) outstanding as of the date hereof, the Company agrees that it will not issue any of its equity securities (or securities convertible into or exchangeable or exercisable for equity securities (the "Derivative Securities")) for which the conversion price at the time of conversion is based on a floating rate (such as a percentage of the Company's Closing Bid Price over a Trading Day average calculated from time to time). (b) Except with respect to equity securities that may be issuable upon the exercise or conversion of Derivative Securities outstanding as of the date hereof, the Company agrees it will not issue any of its equity securities (or Derivative Securities), unless such securities are "restricted securities." As used herein, "restricted securities" shall mean securities that may not be sold publicly or otherwise transferred (except in a private transaction) prior to twelve (12) months following the date of issuance of such securities. (c) The restrictions contained in this Section 7.2 shall not apply to the issuance by the Company of (or the agreement to issue) Common Stock or Derivative Securities in connection with (i) the acquisition (including by merger) of a business or of assets otherwise permitted under this Agreement, or (ii) stock option or other compensatory plans. 7.3 Limitation on Stock Repurchases. Except as otherwise set forth in the Preferred Shares and the Warrants, the Company shall not redeem, repurchase or otherwise repurchase (whether for cash or in exchange for property or other securities or otherwise) any shares of capital stock of the Company or any warrants, rights or options to purchase or acquire any such shares, except that the Company may redeem, repurchase or otherwise acquires any shares of capital stock of the Company from (i) any terminated employee or consultant of the Company; or (ii) any future investors acquiring Derivative Securities ("Future Investors") which have redemption rights (provided, if any such rights are so granted to such Future Investors, then the Purchasers shall automatically, and without further action, be deemed to have been granted identical redemption rights as the Future Investors, on a pari passu basis, with respect to the Purchasers' shares of Preferred Stock). 8. OTHER AGREEMENTS 8.1 Registration Rights. The Preferred Shares shall have the registration rights set forth in the Registration Rights Agreement, attached as Exhibit C --------- hereto. 8.2 Board Seats. As contemplated by the Certificate of Designation, the Majority Holders of the Preferred Shares shall have the right on the Closing Date or thereafter to designate one (1) individual to serve on the Board of Directors of the Company. 20 8.3 Reverse Stock Split. The Purchasers and the Company acknowledge that the Company is contemplating a potential reverse stock split at a future date. The Purchasers, by act of the Majority Holders voting separately as a class, shall have the right to approve any reverse stock split of the Company that is approved and authorized by the Board of Directors and thereafter submitted to the stockholders of the Company for a vote (whether at a meeting, by proxy or by written consent). 8.4 Use of Proceeds. The Company shall use the proceeds received from the issuance of the Preferred Shares for working capital and other general corporate purposes as determined in the discretion of the Board of Directors of the Company, including, without limitation, to repay certain existing indebtedness of the Company reflected in the SEC Reports (other than the convertible notes exchanged for Preferred Shares at the Closing), transaction costs and expenses, accounts payable of the Company, and future potential acquisitions and related transactions as described in the Offering Materials and as set forth on Schedule -------- 8.4 attached hereto. - --- 8.5 Right of First Offer. The Company shall offer to the holders of Preferred Shares, from time to time, exercisable by the Majority Holders thereof, a right of first offer to participate in any Qualified Future Financing (as contemplated by Section 2.6 above), in addition to, and not in lieu of, the rights afforded to the Purchaser under Section 2.6 above and in the Certificate of Designation associated with such Qualified Future Financing. In addition thereto, and not in lieu thereof, such right of first offer shall also apply in the event the Company offers to consummate any debt or equity financing (including the issuance of securities exercisable or convertible into securities of the Company) from and after the expiration of the Qualified Future Financing (i.e., after the Company raises $15,000,000 in capital in the aggregate, including the Preferred Shares issued at the Closing), which, by its terms, would result in the Purchasers being afforded a reduction to their Conversion Price as contemplated by Section 4(g) of the Certificate of Designation (i.e., issuances below the seventy-five cent ($0.75) Conversion Price as specified in the Certificate of Designation) (and any exercise of such right shall not otherwise diminish the Purchaser's rights to adjust the Conversion Price under the Certificate of Designation). Such right of first offer shall be exercisable by vote of the Majority Holders within twenty (20) days of the delivery of a written summary, containing the substantial terms of, the proposed transaction. The Majority Holders may waive the right (or shorten the 20-day time period) with respect to any particular transaction, by written notice to the Company. 21 9. MISCELLANEOUS 9.1 Notices. All notices, demands and other communications to any party hereunder shall be in writing (including telecopier or similar writing) and shall be given to such party at its address set forth on the signature pages hereof, or such other address as such party may hereafter specify for the purpose to the other parties. Each such notice, demand or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified on the signature page hereof, (ii) if given by mail, four days after such communication is deposited in the mail with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in or pursuant to this Section. 9.2 No Waivers; Amendments. (a) No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. (b) Unless specifically noted to the contrary, any provision of this Agreement may be amended, supplemented or waived if, but only if, such amendment, supplement or waiver is in writing and is signed by the Company and the Majority Holders. 9.3 Indemnification. (a) The Company agrees to indemnify and hold harmless Purchaser, its Affiliates, and each Person, if any, who controls Purchaser, or any of its Affiliates, and the respective partners, agents, employees, officers and Directors of Purchaser, their Affiliates and any such Controlling Person (each an "Indemnified Party") and collectively, the "Indemnified Parties"), from and against any and all losses, claims, damages, liabilities and expenses (including, without limitation and as incurred, reasonable costs of investigating, preparing or defending any such claim or action, whether or not such Indemnified Party is a party thereto, provided that the Company shall not be obligated to advance such costs to any Indemnified Party unless it has received from such Indemnified Party an undertaking to repay to the Company the costs so advanced if it should be determined by final judgment of a court of competent jurisdiction that such Indemnified Party was not entitled to indemnification hereunder with respect to such costs) which may be incurred by such Indemnified Party in connection with any administrative or judicial proceeding brought or threatened that relates to or arises out of, or is in connection with a breach of any of the Company's representations and warranties or covenants contained herein; provided that -------- the Company will not be responsible for any claims, liabilities, losses, damages or expenses that are determined by final judgment of a court of competent jurisdiction to result from such Indemnified Party's gross negligence, willful misconduct or bad faith. 23 (b) If any action shall be brought against an Indemnified Party with respect to which indemnity may be sought against the Company under this Agreement, such Indemnified Party shall promptly notify the Company in writing and the Company, at its option, may, assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party and payment of all reasonable fees and expenses. The failure to so notify the Company shall not affect any obligations the Company may have to such Indemnified Party under this Agreement or otherwise unless the Company is materially adversely affected by such failure. Such Indemnified Party shall have the right to employ separate counsel in such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party, unless (i) the Company has failed to assume the defense and employ counsel or (ii) the named parties to any such action (including any impleaded parties) include such Indemnified Party and the Company, and such Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Company, in which case, if such Indemnified Party notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, the Company shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Party, provided, however, that the Company shall not, in -------- ------- connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be responsible hereunder for the reasonable fees and expenses of more than one such firm of separate counsel, in addition to any local counsel, which counsel shall be designated by Purchaser. The Company shall not be liable for any settlement of any such action effected without the written consent of the Company (which shall not be unreasonably withheld) and the Company agrees to indemnify and hold harmless each Indemnified Party from and against any loss or liability by reason of settlement of any action effected with the consent of the Company. In addition, the Company will not, without the prior written consent of Purchaser, settle or compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action, claim, suit or proceeding in respect to which indemnification or contribution may be sought hereunder (whether or not any Indemnified Party is a party thereto) unless such settlement, compromise, consent or termination includes an express unconditional release of Purchaser and the other Indemnified Parties, satisfactory in form and substance to Purchaser, from all liability arising out of such action, claim, suit or proceeding. (c) The indemnification, contribution and expense reimbursement obligations set forth in this Section 8.3 (i) shall be in addition to any liability the Company may have to any Indemnified Party at common law or otherwise; (ii) shall survive the termination of this Agreement and the payment in full of the Preferred Shares and (iii) shall remain operative and in full force and effect regardless of any investigation made by or on behalf of Purchaser or any other Indemnified Party. (d) The Purchaser acknowledges the Purchaser's understanding of the representations, warranties and covenants set forth herein and that the Company relied 23 upon such representations, covenants and warranties and the Purchaser agrees to indemnify, defend and save harmless the Company, its directors, officers, agents and employees, and each of them, from and against any and all loss, liability, claim, damage and expense (including, but not limited to, any and all expenses reasonably incurred in investigating, preparing or defending against any litigation commenced or threatened or any claim whatsoever), arising out of or based upon any false representation or warranty or breach or failure by the Purchaser to comply with any covenant or agreement made by the Purchaser herein or in any other document furnished by the Purchaser to any of the foregoing in connection with the Purchaser's investment in the Securities. 9.4 Expenses. The parties hereto shall each bear their own legal, financial and other expenses incurred in relation to the execution of this Agreement and the related transactions thereto; provided, however, to the extent any Purchaser utilizes outside legal counsel (and not individuals who are employed by such Purchaser) in connection with the negotiation and execution of this Agreement and the related transactions hereto, the Company shall reimburse such Purchaser for its reasonable attorneys fees associated with such Purchaser's acquisition of Preferred Shares. 9.5 Successors and Assigns. This Agreement shall be binding upon the Company and each Purchaser and its respective successors and assigns; neither the Company nor Purchasers may transfer or assign this Agreement or any right, title or interest in, to or under this Agreement without the prior written consent of the other party, and any attempted assignment without such consent shall be void and without further force or effect. 9.6 Governing Law. This Agreement shall be governed by and controlled in accordance with the laws substantive of the State of Texas without regard to conflict of law provisions. 9.7 Entire Agreement. This Agreement, the Exhibits or Schedules hereto, which include, but are not limited to the Certificate of Designation and the Registration Rights Agreement set forth the entire agreement and understanding of the parties relating to the subject matter hereof and supercedes all prior and contemporaneous agreements, negotiations and understandings between the parties, both oral and written relating to the subject matter hereof. The terms and conditions of all Exhibits and Schedules to this Agreement are incorporated herein by this reference and shall constitute part of this Agreement as is fully set forth herein. 9.8 Survival; Severability. All representations, warranties, covenants, acknowledgments and agreements contained herein shall survive (a) changes in the transactions, documents and instruments described in the Offering Materials, (b) the acceptance of this Agreement and the Closing and the delivery of the Securities and the Conversion Shares, and (c) the death, disability, incompetency, termination, bankruptcy, insolvency or dissolution of the Purchaser. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that such severability shall be ineffective if it materially changes the economic benefit of this Agreement to any party. 24 9.9 Title and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 9.10 Reporting Entity for the Common Stock. The reporting entity relied upon for the determination of the trading price or trading volume of the Common Stock on any given Trading Day for the purposes of this Agreement and all Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of the Purchaser and the Company shall be required to employ any other reporting entity. 9.11 Confidentiality. The Purchaser acknowledges that certain of the information provided to the Purchaser is confidential and non-public and agrees that all such information shall be kept in confidence by Purchaser and neither used by Purchaser to Purchaser's personal benefit (other than in connection with this Agreement) nor disclosed to any third party for any reason; provided, that this obligation shall not apply to any such information which (i) is or becomes part of the public knowledge or literature and readily accessible (except as a result of violation of any confidentiality agreements); or (ii) is received from third parties (except third parties who disclose such information in violation of any confidentiality agreements including, but not limited to, any Agreement they may have with the Company). 9.12 Powers and Remedies Cumulative. No right or remedy herein conferred upon or reserved to Purchaser is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Every power and remedy given by the Preferred Shares or by law may be exercised from time to time, and as often as shall be deemed expedient, by Purchaser. (Signature page follows) 25 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers, as of the date first above written. EDGE TECHNOLOGY GROUP, INC. By: _____________________________________________ Name: _____________________________________________ Title: _____________________________________________ Address: ____________________________________________________ ____________________________________________________ Fax: _____________________________________________ Tel.: _____________________________________________ PURCHASERS: SANDERA PARTNERS, L.P., a Texas limited partnership By: Sandera Capital Management, L.P., it sole general partner By: Sandera Capital, L.L.C., its sole general partner By: ________________________________ Name: ________________________________ Title: ________________________________ Address: ____________________________________________________ ____________________________________________________ Fax: _____________________________________________ Tel.: _____________________________________________ 26 GCA STRATEGIC INVESTMENT FUND LIMITED By: ____________________________ Name: ____________________________ Title: ____________________________ Address: ___________________________________ ___________________________________ Fax: ____________________________ Tel.: ____________________________ GLOBAL CAPITAL FUNDING GROUP, L.P. By: _______________________________ its general partner By: ____________________________ Name: ____________________________ Title: ____________________________ Address: ___________________________________ ___________________________________ Fax: ____________________________ Tel.: ____________________________ 27 PAUL MORRIS ____________________________________ Paul Morris Address: _________________________________________ _________________________________________ Fax: __________________________________ Tel.: __________________________________ 28 JACK E. BROWN __________________________________ Jack E. Brown Address: _________________________________________ _________________________________________ Fax: __________________________________ Tel.: __________________________________ 29 LIST OF EXHIBITS Exhibit A - Warrant Exhibit B - Certificate of Designation Exhibit C - Registration Rights Agreement SCHEDULE I
- --------------------------------------------------------------------------------------------------------------------- Name and Address of Purchaser Number of Aggregate Number of Warrant Preferred Shares Purchase Price Shares to be Purchased - --------------------------------------------------------------------------------------------------------------------- Sandera Partners, L.P. 2,000 $2,000,000 533,333 1601 Elm Street, Suite 4000 Dallas, TX 75201 - --------------------------------------------------------------------------------------------------------------------- GCA Strategic Investment Fund Limited 750 $ 750,000 200,000 c/o Prince Management Limited Mechanics Building 12 Church Street Hamilton Bermuda, HMII - --------------------------------------------------------------------------------------------------------------------- Global Capital Funding Group, L.P. 1,250 $1,250,000 333,333 106 Colony Park Drive, Suite 900 Cummings, GA 30040 - --------------------------------------------------------------------------------------------------------------------- Infinity Investors Limited (a) $ 258,464 (a) Hunkins Waterfront Plaza Main Street P.O. Box 556 Charlestown, Nevis West Indies - --------------------------------------------------------------------------------------------------------------------- Paul L. Morris 100 $ 100,000 26,666 The Summit, Suite 1100 300 N. Marienfeld Midland, TX 79701 - --------------------------------------------------------------------------------------------------------------------- Jack E. Brown 100 $ 100,000 26,666 The Summit, Suite 1100 300 N. Marienfeld Midland, TX 79701 - --------------------------------------------------------------------------------------------------------------------- Totals $4,200 $4,458,464 1,119,998 - ---------------------------------------------------------------------------------------------------------------------
(a) Represents the conversion of $258,464.03 of existing debt into 397,637 of $.01 Common Stock of Edge Technology Group, Inc. Though included herein and counting toward Minimum Offering Amount per section 2.2 of the Subscription and Securities Purchase Agreement, such conversion does not entitle the holder to preferred shares, warrants or other rights and privileges under the Agreement EX-4.10 4 dex410.txt CERTIFICATE OF DESIGNATION EXHIBIT 4.10 CERTIFICATE OF DESIGNATION, PREFERENCE AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK OF EDGE TECHNOLOGY GROUP, INC. (A) Classes of Stock. The Corporation is authorized to issue two ---------------- classes of stock to be designated, respectively, "Common Stock" and "Preferred ------------ --------- Stock." The total number of shares which the Corporation is authorized to issue - ----- is one hundred and five million (105,000,000) shares, one hundred million (100,000,000) shares of which shall be Common Stock and five million (5,000,000) shares of which shall be Preferred Stock, which may be issued from time to time in one or more series which such rights, privileges, preferences, and restrictions as shall be stated and expressed in this Certificate of Designation or in any amendment thereto, or in a resolution duly adopted by the Board of Directors of the Corporation. (B) Rights, Preferences and Restrictions of Series A Convertible ------------------------------------------------------------ Preferred Stock. The first series of Preferred Stock shall be designated "Series - --------------- ------ A Convertible Preferred Stock" and shall consist of Fifteen Thousand (15,000) - ----------------------------- shares, $0.01 par value per share, issued at a price of one thousand dollars ($1,000) per share (the "Issuance Price"). The rights, preferences, privileges, and restrictions granted to and imposed on the Series A Convertible Preferred Stock are as set forth below: SERIES A CONVERTIBLE PREFERRED STOCK 1. Cumulative Dividend Provisions. The holders of shares of Series A ------------------------------ Convertible Preferred Stock shall be entitled to receive cumulative dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Corporation) on the Common Stock of the Corporation, at the rate of eight percent (8%) per share (as adjusted for stock splits, stock dividends, reclassification and the like) per annum on each outstanding share of Series A Convertible Preferred Stock, payable quarterly as declared by the Board of Directors in accordance with applicable law, and such dividends shall be cumulative. 2. Liquidation. ----------- (a) Preference. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Convertible Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the Issuance Price (as adjusted for stock splits, stock dividends, reclassification of the Series A Convertible Preferred Stock and the like) for each share of Series A Convertible Preferred Stock then held by them, plus accrued but unpaid dividends (the "Liquidation Preference"). If, upon the ---------------------- occurrence of such event, the assets and funds thus distributed among the holders of the Series A Convertible Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A Convertible Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. (b) Remaining Assets. Upon the completion of the distribution ---------------- required by Section 2(a) above, if assets remain in the Corporation, the holders of the Common Stock of the Corporation shall receive all of the remaining assets of the Corporation. (c) Certain Acquisitions. -------------------- (i) Deemed Liquidation. For purposes of this Section 2, a liquidation, dissolution or winding up of the Corporation shall be deemed to occur if the Corporation shall sell, convey, or otherwise dispose of all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Corporation will not, immediately after such acquisition or transaction be held by the Corporation's stockholders of record as constituted immediately prior to such acquisition or transaction, provided that this Section 2(c)(i) shall not -------- apply to a merger effected exclusively for the purpose of changing the domicile of the Corporation. (ii) Valuation of Consideration. In the event of a deemed liquidation as described in Section 2(c)(i) above, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability: (1) If traded on a securities exchange or The Nasdaq Stock Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty-day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty-day period ending three (3) days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Corporation. (B) The method of valuation of securities subject to investment letter or other on free marketability (other than restrictions arising solely by virtue of a stockholder's status as -2- an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in Section 2(c)(ii)(A) to reflect the approximate fair market value thereof, as determined in good faith by the Corporation. (iii) Notice of Transaction. The Corporation shall give each holder of record of Series A Convertible Preferred Stock written notice of a deemed liquidation transaction as described in Section 2(c)(i) above (a "Notice of Liquidation Event") not later than ten (10) --------------------------- days prior to the stockholders' meeting called to approve such transaction, or ten (10) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2, and the Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than ten (10) days after the Corporation has given the first notice provided for herein or sooner than ten (10) days after the Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Series A Convertible Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least two-thirds (2/3) of the voting power of all then outstanding shares of such Series A Convertible Preferred Stock. (iv) Effect of Noncompliance. In the event the requirements of this Section 2(c) are not complied with, the Corporation shall forthwith either cause the closing of the transaction to be postponed until such requirements have been complied with, or cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series A Convertible Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the Notice of Liquidation Event. (v) Conversion. Upon receipt of a Notice of Liquidation Event, each holder of Series A Convertible Preferred Stock shall have the right to elect to convert any or all of such holder's shares of Series A Convertible Preferred Stock as provided for in Section 4 below in lieu of receiving the Liquidation Preference the holder is otherwise entitled to receive. The right to convert the shares of Series A Convertible Preferred provided for in this Section 2(c)(v) may be exercised irrespective of the prohibition on conversion prior to the first anniversary of the Issuance Date provided for in Section 4, below. 3. Voting Rights. ------------- -3- (a) General Voting Rights. The holder of each share of Series A --------------------- Convertible Preferred Stock shall have the right to one vote for each share of Common Stock into which such Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote, together with the holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional vote shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series A Convertible Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). Accordingly, the holders of shares of Series A Convertible Preferred Stock shall not be entitled to vote on any matter as a class except as expressly set forth in this instrument. (b) Voting for Election of Directors. So long as Series A -------------------------------- Convertible Preferred Stock with a Liquidation Preference in the aggregate of at least $2,000,000 remains outstanding, the holders of Series A Convertible Preferred Stock shall, separately as a class, be entitled by majority vote of such holders to elect one (1) individual to serve as a Director of the Corporation (with such holders, by majority vote, having the right to remove and replace, with or without cause, such individual by written notice to the Corporation). 4. Conversion. The holders of the Series A Convertible Preferred Stock ---------- shall have conversion rights as follows (the "Conversion Rights"): ----------------- (a) Right to Convert. Subject to Section 4(c), each share of Series A ---------------- Convertible Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the first anniversary of the date the first shares of Series A Convertible Preferred Stock have been issued (the "Issuance Date"), at the office of the Corporation or any transfer agent for such stock, into that number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Liquidation Preference by the Conversion Price applicable to such shares, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial Conversion Price per share of Series A Convertible Preferred Stock shall be seventy-five cents ($0.75). Such initial Conversion Price shall be subject to adjustment as set forth in Section 4(d). (b) Automatic Conversion. Each share of Series A Convertible Preferred -------------------- Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such share immediately upon the date specified by written consent or agreement of the holders of two-thirds (2/3) of the voting power of the then outstanding shares of Series A Convertible Preferred Stock. (c) Mechanics of Conversion. Before any holder of Series A Convertible ----------------------- Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for Series A Convertible Preferred Stock, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall -4- state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Convertible Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Convertible Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. (d) Conversion Price Adjustments for Certain Issuances, Splits and -------------------------------------------------------------- Combinations. The Conversion Price of the Series A Convertible Preferred Stock - ------------ shall be subject to adjustment from time to time as follows: (i) Stock Splits and Dividends. In the event the Corporation should at any time or from time to time after the Issuance Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration ------------------------ by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series A Convertible Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time as provided in Section 4(d)(iii) below. (ii) Reverse Stock Splits. If the number of shares of Common Stock outstanding at any time after the Issuance Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series A Convertible Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares. (iii) The following provisions shall apply for purposes of this Section 4(d): -5- (A) The aggregate maximum number of shares of Common Stock deliverable upon conversion or exercise of Common Stock Equivalents (assuming the satisfaction of any conditions to convertibility or exercisability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) shall be deemed to have been issued at the time such Common Stock Equivalents were issued. (B) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon conversion or exercise of such Common Stock Equivalents including, but not limited to, a change resulting from the antidilution provisions thereof, the Conversion Price of the Series A Convertible Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities. (C) Upon the termination or expiration of the convertibility or exercisability of any such Common Stock Equivalents, the Conversion Price of the Series A Convertible Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and Common Stock Equivalents which remain convertible or exercisable) actually issued upon the conversion or exercise of such Common Stock Equivalents. (e) Other Distributions. In the event the Corporation shall declare a ------------------- distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 4(d)(i), then, in each such case for the purpose of this Section 4(e), the holders of Series A Convertible Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Series A Convertible Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. (f) Recapitalizations. If at any time or from time to time there shall be a ----------------- recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 4 or Section 2) provision shall be made so that the holders of the Series A Convertible Preferred Stock shall thereafter be entitled to receive upon conversion of such Series A Convertible Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. -6- In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of such Series A Convertible Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of such Series A Convertible Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable. (g) Conversion Price Adjustments; Below Conversion Price Issuances. In case -------------------------------------------------------------- at any time the Corporation issues any shares of Common Stock or debt or equity securities convertible into or exchangeable or exercisable for shares of Common Stock (hereinafter "Derivative Securities and the number of shares so issued, or issuable upon conversion or exercise of such Derivative Securities, as applicable, being referred to as "Additional Shares of Common Stock") for consideration less than the Conversion Price then in effect at the date of issuance of such shares of Common Stock or such Derivative Securities, in each such case the Conversion Price shall, concurrently with such issuance, be adjusted by multiplying the Conversion Price immediately prior to such event by a fraction: (i) the numerator of which shall be the number of shares of Common Stock calculated on a fully diluted basis giving effect to all derivative securities outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of shares of Common Stock that the aggregate consideration received by the Corporation for the total number of such Additional Shares of Common Stock so issued would purchase at the then current Conversion Price and (ii) the denominator of which shall be the number of shares of Common Stock calculated on a fully diluted basis giving effect to all derivative securities outstanding immediately prior to the issuance of Additional Shares of Common Stock plus the number of such Additional Shares of Common Stock so issued or sold. Notwithstanding the foregoing, no adjustment to the Conversion Price shall be made under the terms of this Section 4(g) for the following issuances: (i) any issuance of Additional Shares to employees, officers, contractors, consultants and directors pursuant to option grants, employment or consulting agreements or similar agreements pursuant to terms and conditions approved by the Board of Directors; (ii) any issuance of a warrant or warrants representing less than one percent 1% of the issued and outstanding Common Stock of the Corporation issued to lenders, financing sources or bona fide vendors of the corporation; or (iii) any issuance of Additional Shares as consideration of the acquisition by the Corporation of a target company, whether by merger, stock purchase, or a purchase of all or substantially all of the assets of such acquisition target. (h) Conversion Price Adjustment Rules for Below Conversion Price Issuances. ---------------------------------------------------------------------- The following terms and procedures shall be applicable to adjustments to the Conversion Price made pursuant to this Section 4: CERTIFICATE OF DESIGNATION.doc -7- (i) no adjustment in the applicable Conversion Price shall be required unless such adjustment would result in a change of at least 1% in the applicable Conversion Price then in effect, provided, however, that any adjustments which, but for the provisions of this clause would otherwise have been required to be made, shall be carried forward and taken into account in any subsequent adjustment; (ii) if any event occurs of the type contemplated by the adjustment provisions of this Paragraph 4 but not expressly provided for by such provisions, the Corporation will give notice of such event as provided herein, and the Corporation's board of directors will make an appropriate adjustment in the Conversion Price so that the rights of the holders of the applicable Security shall not be diminished by such event; and (a) (iii) if a dispute shall at any time arise with respect to any adjustment of the applicable Conversion Price, such dispute shall be conclusively determined by the auditors of the Corporation or, if they are unable or unwilling to act, by a firm of independent public accountants selected by the Directors and any such determination shall be binding upon the Corporation and the holders of the Series A Convertible Preferred Stock. (i) No Impairment. The Corporation will not, by amendment of its -------------- Certificate of Incorporation (except in accordance with Section 5 hereof and applicable law) or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Series A Convertible Preferred Stock against impairment. (j) No Fractional Shares and Certificate as to Adjustments. ------------------------------------------------------ (i) No fractional shares shall be issued upon the conversion of any share or shares of the Series A Convertible Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. The number of shares issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Convertible Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series A Convertible Preferred Stock pursuant to this Section 4, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such Series A Convertible Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Convertible Preferred Stock, furnish CERTIFICATE OF DESIGNATION.doc -8- or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for the Series A Convertible Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of the Series A Convertible Preferred Stock. (k) Notices of Record Date. In the event of any taking by the ---------------------- Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series A Convertible Preferred Stock, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (l) Reservation of Stock Issuable Upon Conversion. The Corporation --------------------------------------------- shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Convertible Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series A Convertible Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series A Convertible Preferred Stock, in addition to such other remedies as shall be available to the holder of such Series A Convertible Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate of Incorporation. (m) Notices. Any notice required by the provisions of this Section 4 ------- to be given to the holders of shares of Series A Convertible Preferred Stock shall be deemed given if deposited in the United States mail, first class postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation. 5. Protective Provisions. So long as Series A Convertible Preferred --------------------- Stock with a Liquidation Preference in the aggregate of at least $2,000,000 remains outstanding, the Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least two-thirds (2/3) of the voting power of the then outstanding shares of Series A Convertible Preferred Stock, voting together as a class: (a) amend or repeal any provisions of the Corporation's Certificate of Incorporation or Bylaws that would adversely affect the rights, preferences, or privileges of the Series A Convertible Preferred Stock (the issuance of an equity or derivative security which does not have a preference as to dividends or assets, whether in liquidation or otherwise, superior to CERTIFICATE OF DESIGNATION.doc -9- the Series A Convertible Preferred Stock would not be deemed to adversely affect the rights, preferences, or privileges of the Series A Convertible Preferred Stock; or (b) redeem, purchase or otherwise acquire (or pay into or set funds aside for a sinking fund for such purpose) any share or shares of Common Stock; provided, however, that this restriction shall not -------- ------- apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary pursuant to agreements under which the Corporation has the option to repurchase such shares at cost upon the occurrence of certain events, such as the termination of employment, or through the exercise of any right of first refusal. (c) In the event holders of at least two-thirds (2/3) of the then outstanding shares of Series A Convertible Preferred Stock agree to allow the Corporation to alter or change the rights, preferences or privileges of the shares of Series A Convertible Preferred Stock, pursuant to subsection (a) above, so as to adversely affect the Series A Convertible Preferred Stock, then the Corporation will deliver notice of such approved change to the holders of the Series A Convertible Preferred Stock that did not agree to such alteration or change (the "Dissenting Holders") and Dissenting Holders shall have the right for a period of ten (10) days to either (i) convert into Common Stock any and all shares of then held Series A Convertible Preferred Stock pursuant to the terms of this Certificate of Designation as in effect prior to such alteration or change, or (ii) continue to hold their shares of Series A Convertible Preferred Stock upon such amended terms following such amendment. 6. No Redemption. The Corporation shall have no right to redeem the ------------- Series A Convertible Preferred Stock and the holders of Series A Convertible Preferred Stock shall have no right to require the Corporation to redeem such shares. 7. Status of Converted Stock. In the event any shares of Series A ------------------------- Convertible Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so converted shall be cancelled and shall not be issuable by the Corporation. The Certificate of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. 8. Effect of a Qualified Future Financing. -------------------------------------- (a) Any transaction or series of transactions that the Corporation enters into whereby the Corporation raises capital through the issuance of additional Preferred Stock or a convertible debt instrument (each a "Financing Transaction"), until such time as the proceeds from all Financing Transactions entered into from the time of the filing of this Certificate of Designation, including the proceeds from all issuances of the Series A Convertible Preferred Stock, equals or exceeds, in the aggregate, fifteen million dollars ($15,000,000) shall be referred to hereafter as a "Qualified Future Financing." (b) Any provision included in the terms of a Qualified Future Financing that grants rights to the holders of the instruments issued in connection with such Qualified Future Financing that are in addition to or superior to those granted to the holders of the Series A CERTIFICATE OF DESIGNATION.doc -10- Convertible Preferred Stock, as evidenced by this Certificate of Designation or any subsequent amendment hereto, shall be referred to as a "Superior Right;" provided, however, that any terms which provide for a conversion price that is, whether expressly stated or calculated as a result of a formula, greater than or equal to the Conversion Price then in place for the Series A Convertible Preferred stock shall not be deemed to be a Superior Right. (c) Upon the consummation of any Qualified Future Financing which contains a Superior Right, the terms and conditions of such Superior Right shall be automatically incorporated into the rights contained herein and shall supersede any provisions contained herein relating to such Superior Right that conflict with the exercise or application of such Superior Right, and the Corporation shall provide written notice thereof to all holders of record of the Series A Convertible Preferred Stock; provided, however, that the holders of -------- ------- two-thirds of the then outstanding Series A Convertible Preferred Stock may waive the incorporation of any such Superior Right by providing written notice of such waiver to the Corporation. (d) The provisions of this Section 8 will terminate as such time the proceeds from all Financing Transactions entered into from the time of the filing of this Certificate of Designation, including the proceeds from all issuances of the Series A Convertible Preferred Stock, equals or exceeds, in the aggregate, fifteen million dollars ($15,000,000) (the "Superior Right Termination Date"). 9. Closing of Books. The Corporation will at no time close its ---------------- transfer books against the transfer of any Series A Convertible Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series A Convertible Preferred Stock in any manner which interferes with the timely conversion of such Series A Convertible Preferred Stock, except as may otherwise be required to comply with applicable securities laws. (a) 10. Loss, Theft, Destruction of Preferred Stock. Upon receipt of ------------------------------------------- evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of certificates representing shares of Series A Convertible Preferred Stock and, in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (which shall not include the posting of any bond), or, in the case of any such mutilation, upon surrender and cancellation of the Series A Convertible Preferred Stock certificate, the Corporation shall make, issue and deliver, in lieu of such lost, stolen, destroyed or mutilated certificates for Series A Convertible Preferred Stock, new certificates for Series A Convertible Preferred Stock of like tenor. certificate of designation.doc -11- EX-4.11 5 dex411.txt FORM OF COMMON STOCK PURCHASE WARRANT EXHIBIT 4.11 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAW, AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF REGISTRATION THEREUNDER OR AN EXEMPTION THEREFROM. WARRANT To Purchase Common Stock of EDGE TECHNOLOGY GROUP, INC. 1. Issuance. This Warrant, dated as of April 1, 2002 (the "Issuance Date"), -------- is issued to______________________________ by Edge Technology Group, Inc., a Delaware corporation (hereinafter with its successors called the "Company"). The term Warrant as used herein shall include this Warrant and any warrants delivered in substitution or exchange herefor or therefor as provided herein. 2. Exercise of Warrant. ------------------- (a) Exercise Price; Number of Shares. This Warrant represents the -------------------------------- right to purchase from the Company __________________________________________________ (_______) shares (the "Warrant Shares") of the Company's common stock, $0.01 par value ("Common Stock") at an initial exercise price of One Dollar and Fifteen Cents ($1.15) per share (the "Exercise Price"). Until such time as this Warrant is exercised in full or expires, the Exercise Price and the Warrant Shares are subject to adjustments pursuant to the procedures described in Section below. (b) Exercise Procedure. Subject to the terms and conditions of this ------------------ Warrant, the registered holder of this Warrant (the "Holder"), is entitled to exercise this Warrant during the Exercise Period, in whole or in part, upon surrender of this Warrant together with payment of the Exercise Price and delivery of the subscription form (as annexed hereto, the "Subscription Form") duly executed, to be presented at the office of the Company, 6611 Hillcrest, No. 223, Dallas, Texas 75205, or such other office in the United States as the Company shall notify the Holder of in writing. (c) Exercise Period. This Warrant may be exercised at any time after --------------- the second anniversary of the Issuance Date until the earlier of (i) the fourth anniversary of the Issuance Date or (ii) the date of a Deemed Liquidation, as defined below (the "Exercise Period"); provided, however, -------- ------- that the Company shall not effect a Deemed Liquidation without compliance with the provisions of Section 2(d) below. (d) Deemed Liquidation. For purposes of this Warrant, a "Deemed ------------------ Liquidation" shall mean (i) any liquidation, dissolution or winding up of the Company, (ii) any sale, conveyance or disposition of all or substantially all of its property or business, (iii) any merger or consolidation with any other corporation (other than a wholly owned subsidiary corporation) or (iv) any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company will not,immediately after such acquisition or transaction be held by the Company's stockholders of record as constituted immediately prior to such acquisition or transaction, provided that a merger effected exclusively for -------- the purpose of changing the domicile of the Company shall not constitute be a Deemed Liquidation. (i) Notice of Transaction. The Company shall give each Holder written notice of a Deemed Liquidation (a "Notice of Liquidation --------------------- Event") not later than ten (10) days prior to the stockholders' ----- meeting called to approve such transaction, or ten (10) days prior to the closing of such transaction, whichever is earlier, and shall also notify the Holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2(d), and the Company shall thereafter give such Holders prompt notice of any material changes. The transaction shall in no event take place sooner than ten (10) days after the Company has given the first notice provided for herein or sooner than five (5) days after the Company has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of all of the Holders. (ii) Effect of Noncompliance. In the event the requirements of this Section 2(d) are not complied with, the Company shall forthwith either cause the closing of the transaction to be postponed until such requirements have been complied with, or cancel such transaction. (iii) Election to Exercise. Upon receipt of a Notice of Liquidation Event, each Holder shall have the right to elect to exercise this Warrant, in whole or in part, as provided for in this Section 2, notwithstanding the prohibition on exercise prior to the second anniversary of the Issuance Date set forth in Section 2(c) above. 3. Payment of Exercise Price. The Holder may make payment of the Exercise -------------------------- Price in cash or by certified or official bank check payable to the order of the Company or by wire transfer of immediately available funds to the account of the Company. 4. Cashless Exercise of Warrants. ----------------------------- (a) Notwithstanding the provisions of Section 3 above, if the Fair Market Value is greater than the Exercise Price (at the date of calculation, as set forth below), in lieu of exercising the Warrant as permitted in Section 2.1(b), the Holder may elect to receive shares of Common Stock equal to the value (as determined below) of the Warrants (or the portion thereof being canceled) by surrender of the Warrant, together with the Subscription Form duly executed, to the Company at its office referred to in Section 2(b) hereof, in which event the Company shall issue to the Holder that number of shares of Common Stock computed using the following formula: CS = WCS x (FMV - EP) ---------------- Warrant - Page 2 FMV Where CS equals the number of shares of Common Stock to be issued to the holder of the Warrant WCS equals the number of shares of Common Stock purchasable under the Warrants being exercised (at the date of such calculation) FMV equals the Fair Market Value of one share of the Common Stock (at the date of such calculation) EP equals the Exercise Price (as adjusted to the date of such calculation). (b) For purposes of Rule 144 under the Securities Act, 17 C.F.R. ss. 230.144, the parties hereto agree that the exercise of any Warrants in accordance with this Section 2.2 shall be deemed to be a conversion of such Warrants, pursuant to the terms of this Agreement and the Warrants, into Common Stock. (c) For purposes of this Section 4, "Fair Market Value" shall mean with respect to every share of Common Stock on any date in question (i) the average of the closing bid prices per share of the Common Stock for the previous fifteen (15) consecutive trading days (A) on the principal securities exchange or trading market where the Common Stock is listed or traded or, if the foregoing does not apply, (B) in the over-the-counter market on the electronic bulletin board for the Common Stock or (ii), if, and only if, no trading price is reported for the Common Stock, then its Fair Market Value shall be as determined, in good faith by the board of directors of the Company. If the Holder shall object in writing within 5 days of notification of the determination of the Company's board of directors, then the Fair Market Value shall be determined by an investment banking firm or appraisal firm (which firm shall own no securities of, and shall not be an affiliate, subsidiary or a related person of, the Company or any Holder) of recognized national standing retained by the Company and acceptable to the Holder. 5. Partial Exercise. This Warrant may be exercised in part, and the Holder ----------------- shall be entitled to receive a new warrant, which shall be dated as of the date of this Warrant, covering the number of Warrant Shares in respect of which this Warrant shall not have been exercised. 6. Issuance Date. The person or persons in whose name or names any ------------- certificate representing Warrant Shares is issued hereunder shall be deemed to have become the holders of record of such shares represented thereby as at the close of business on the date this Warrant is exercised with respect to such shares, whether or not the transfer books of the Company shall be closed. As soon as practicable after the exercise of this Warrant, the Company at its expense (including the payment of any applicable taxes) will use its best lawful efforts to cause the Company's transfer agent to issue and deliver to Holder a certificate for the number of fully paid nonassessable shares of Common Stock to which such Holder is entitled. Warrant - Page 3 7. Reserved Shares; Valid Issuance. The Company covenants that it will ------------------------------- reserve and keep available at all times from and after the date hereof such number of its authorized shares of Common Stock, free from all preemptive or similar rights therein, as will be sufficient to permit the exercise of this Warrant in full. The Company further covenants that such shares as may be issued pursuant to the exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof. 8. Adjustment Provision. -------------------- (a) Subdivisions, Split-ups, Combinations and Stock Dividends. If --------------------------------------------------------- after the Issuance Date the Company shall subdivide the Common Stock, by split up or otherwise, or combine such shares, or issue additional shares in payment of a stock dividend on such shares, the number of shares issuable on the exercise of this Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination, and the Exercise Price shall forthwith be proportionately decreased in the case of a subdivision or stock dividend, or proportionately increased in the case of a combination. (b) Reclassifications. If after the Issuance Date there shall be any ----------------- reclassification, capital reorganization or change of the Common Stock (other than as a result of a subdivision, combination or stock dividend provided for in Section 7(a) hereof), then, as a condition of such reclassification, reorganization or change, lawful provisions shall be made, and duly executed documents evidencing the same from the Company shall be delivered to the Holder, so that the Holder shall thereafter have the right to purchase, at a total price not to exceed that payable upon the exercise of this Warrant in full, the kind and amount of shares of stock and other securities and property receivable upon such reclassification, reorganization or change, by holders of the number of shares of Common Stock which might have been purchased by the Holder immediately prior to such reclassification, reorganization or change, and in such case appropriate provisions shall be made with respect to the rights and interest of the Holder to the end that the provisions hereof (including, without limitation, provisions for the adjustment of the Exercise Price and the number of shares issuable hereunder) shall thereafter be applicable in relation to any shares of stock or other securities and property thereafter deliverable upon exercise hereof. 9. Fractional Shares. In no event shall any fractional share of Common ------------------ Stock be issued upon any exercise of this Warrant and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. 10. Certificate of Adjustment. Whenever the Exercise Price or the number of ------------------------- shares issuable hereunder is adjusted, as herein provided, the Company shall promptly deliver to the Holder a certificate of the Company's Chief Financial Officer setting forth the number of shares issuable hereunder and the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Warrant - Page 4 11. Notices of Record Date. In the event of: ---------------------- (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, (b) any reclassification of the capital stock of the Company, capital reorganization of the Company, or (c) any transaction which would constitute a Deemed Liquidation, then and in each such event the Company will mail or cause to be mailed to the Holder a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the date on which any such reclassification, reorganization, conveyance or Deemed Liquidation is to take place, and the time, if any is to be fixed, as of which the holders of record in respect of such event are to be determined. Such notice shall be mailed at least ten (10) days prior to the date specified in such notice on which any such action is to be taken. 12. Amendment. The terms of this Warrant may be amended, modified or waived --------- only with the written consent of the Company and the Holder. 13. Warrant Register; Transfers. --------------------------- (a) The Company will maintain a register containing the names and addresses of the registered holders of the Warrants. The Holder may change his or its address as shown on the warrant register by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the Holder may be given by certified mail or delivered to the Holder at his or its address as shown on the warrant register. (b) Subject to compliance with applicable federal and state securities laws, this Warrant may be transferred by the Holder with respect to any or all of the Warrant Shares purchasable hereunder. Upon surrender of this Warrant to the Company, together with the assignment hereof properly endorsed for transfer of this Warrant as an entirety by the Holder, the Company shall issue a new warrant of the same denomination to the assignee. Upon surrender of this Warrant to the Company, together with the assignment hereof properly endorsed by the Holder for transfer with respect to a portion of the Warrant Shares purchasable hereunder, the Company shall issue a new warrant to the assignee, in such denomination as shall be requested by the Holder hereof, and shall issue to such Holder a new warrant covering the number of shares in respect of which this Warrant shall not have been transferred. Warrant - Page 5 (c) In case this Warrant shall be mutilated, lost, stolen or destroyed, the Company shall issue a new warrant of like tenor and denomination and deliver the same (i) in exchange and substitution for and upon surrender and cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant lost, stolen or destroyed, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft or destruction of such Warrant (including a reasonably detailed affidavit with respect to the circumstances of any loss, theft or destruction) and of indemnity reasonably satisfactory to the Company. 14. No Impairment. The Company will not, by amendment of its Charter or ------------- by-laws or through any reclassification, capital reorganization, consolidation, merger, sale or conveyance of assets, dissolution, liquidation, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder. 15. Governing Law. The provisions and terms of this Warrant shall be ------------- governed by and construed in accordance with the internal laws of State of Texas, without giving effect to principles of conflicts law. 16. Successors and Assigns. This Warrant shall be binding upon the ---------------------- Company's successors and assigns and shall inure to the benefit of each of the Holder's successors, legal representatives and permitted assigns. [signature page follows] Warrant - Page 6 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed as an instrument under seal by its duly authorized officer as of the date first above written. EDGE TECHNOLOGY GROUP, INC. By: ---------------------------------- Graham C. Beachum II President and Chief Executive Officer Attest: - --------------------------------- David N. Pilotte, Secretary Warrant - Page 7 Subscription Date:___________ The undersigned hereby subscribes for: _______ shares of Common Stock covered by this Warrant. The certificate(s) for such shares shall be issued in the name of the undersigned or as otherwise indicated below: ------------------------------------ Signature ------------------------------------ Name for Registration ------------------------------------ Mailing Address Assignment For value received _______________hereby sells, assigns and transfers unto --------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Please print or typewrite name and address of Assignee the within Warrant, and does hereby irrevocably constitute and appoint ________________its attorney to transfer the within Warrant on the books of the within named Company with full power of substitution in the premises. Dated: ------------------------------ --------------------------------------- In the Presence of: - ------------------------------------ EX-4.12 6 dex412.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.12 REGISTRATION RIGHTS AGREEMENT April 1, 2002 To Each of the Several Purchasers to the Series A Convertible Preferred Stock Subscription and Purchase Agreement of even date herewith Dear Sirs: This will confirm that in consideration of your agreement on the date hereof to purchase an aggregate of 4,200 shares of Series A Convertible Preferred Stock, $0.01 par value per share of Edge Technology Group, Inc., a Delaware corporation (the "Company"), pursuant to the Subscription and Securities Purchase Agreement of even date herewith (the "Purchase Agreement") between the Company and you and as an inducement to you to consummate the transactions contemplated by the Purchase Agreement, the Company covenants and agrees with each of you as follows: 1. Certain Definitions. As used in this Agreement, the following terms ------------------- shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission, or any ---------- other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock, $.01 par value, of the ------------ Company, as constituted as of the date of this Agreement. "Conversion Shares" shall mean shares of Common Stock issued upon ----------------- conversion of the Preferred Shares. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Preferred Shares" shall mean at any time, the number of shares of ---------------- Series A Convertible Preferred Stock which are then currently outstanding. "Purchasers" shall mean the several Purchasers named in Schedule I to ---------- ---------- the Purchase Agreement. "Registration Expenses" shall mean the expenses so described in --------------------- Section 8. "Restricted Stock" shall mean the Conversion Shares, excluding ---------------- Conversion Shares which (a) have been registered under the Securities Act pursuant to an effective registration statement filed thereunder and disposed of in accordance with registration statement covering them or (b) have become eligible for public re-sale pursuant to Rule 144 under the Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended, or any -------------- similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean the expenses so described in Section 8. ---------------- 2. Required Registration. --------------------- a. At the earlier of (i) any time after the first anniversary of the Closing Date as such term is defined in the Purchase Agreement, or (ii) at the time at which a demand to register other restricted stock of the Company (other than employee stock options on Form S-8) is made by the holders thereof, then the holders of Restricted Stock constituting at least 40% of the total shares of Restricted Stock then outstanding may request the Company to register under the Securities Act all or any portion of the shares of Restricted Stock held by such requesting holder or holders for sale in the manner specified in such notice. For purposes of this Section 2 and Section 3, 10(a) and 10(d), the term "Restricted Stock" shall be deemed to include the number of shares of Restricted Stock which would be issuable to a holder of Preferred Shares upon conversion of all such Preferred Shares held by such holder at such time, provided, however, that the only -------- ------- securities which the Company shall be required to register pursuant hereto shall be shares of Common Stock. Notwithstanding anything to the contrary contained herein, the Company shall not be obligated to effect, nor to take any action to effect, any such registration pursuant to this Section 2 during the period starting with the date forty-five (45) days prior to the Company's good faith estimate of the date of filing of, and ending on a date ninety (90) days after the effective date of, a Company-initiated registration ; provided that the Company is actively employing in good -------- faith all reasonable efforts to cause such registration statement to become effective. b. Following receipt of any notice under this Section 2, the Company shall immediately notify all holders of Restricted Stock from whom notice has not been received and shall use commercially reasonable efforts to register under the Securities Act, for public sale in accordance with the method of disposition specified in such notice from requesting holders, the number of shares of Restricted Stock specified in such notice (and in all notices received by the Company from other holders within 30 days after the giving of such notice by the Company). If such method of disposition shall be an underwritten public offering, the Company will designate the managing underwriter of such offering. The Company shall be obligated to register Restricted Stock pursuant to this Section 2 on one occasion only, provided, -------- however, that such obligation shall be deemed satisfied only when a ------- registration statement covering all shares of Restricted Registration Rights Agreement - Page 2 Stock specified in notices received and not rescinded as aforesaid, for sale in accordance with the method of disposition specified by the requesting holders, shall have become effective and, if such method of disposition is a firm commitment underwritten public offering, all such shares shall have been sold pursuant thereto. c. The Company and any other holders of Common Stock which the Company shall permit to participate shall be entitled to include in any registration statement referred to in this Section 2, for sale in accordance with the method of disposition specified by the requesting holders, shares of Common Stock to be sold by the Company or such other holders for their own account, except as and to the extent that, in the opinion of the managing underwriter (if such method of disposition shall be an underwritten public offering), such inclusion would adversely affect the marketing of the Restricted Stock to be sold. 3. Incidental Registration. If the Company at any time (other than pursuant ----------------------- to Section 2) proposes to register any of its Common Stock under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Restricted Stock for sale to the public), each such time it will give written notice to all holders of outstanding Restricted Stock of its intention so to do. Upon the written request of any such holder, received by the Company within 10 business days after the giving of any such notice by the Company, to register any of its Restricted Stock (which request shall state the intended method of disposition thereof), the Company will use its commercially reasonable efforts to cause the Restricted Stock as to which registration shall have been so requested to be included in the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent requisite to permit the sale or other disposition by the holder (in accordance with its written request) of such Restricted Stock so registered. In the event that any registration pursuant to this Section 3 shall be, in whole or in part, an underwritten public offering of Common Stock, the number of shares of Restricted Stock to be included in such an underwriting may be reduced (pro rata among the requesting holders based upon the number of shares of Restricted Stock owned by such holders) if and to the extent that the managing underwriter shall be of the opinion that such inclusion would adversely affect the marketing of the securities to be sold by the Company therein; provided, however, that such number of shares of Restricted Stock shall -------- ------- not be reduced if any shares are to be included in such underwriting for the account of any executive officer or director of the Company. Notwithstanding the foregoing provisions, the Company may withdraw any registration statement referred to in this Section 3 without thereby incurring any liability to the holders of the Restricted Stock. 4. Registration Procedures. If and whenever the Company is required by the ----------------------- provisions of Section 2 or 3 to use commercially reasonable efforts to effect the registration of any shares of Restricted Stock under the Securities Act, the Company will, use commercially reasonable efforts to: Registration Rights Agreement - Page 3 a. prepare and file with the Commission a registration statement with respect to such securities and use commercially reasonable efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as hereinafter provided); b. prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in paragraph (a) above and comply with the provisions of the Securities Act with respect to the disposition of all Restricted Stock covered by such registration statement in accordance with the sellers' intended method of disposition set forth in such registration statement for such period; c. furnish to each seller of Restricted Stock and to each underwriter such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such registration statement; d. use commercially reasonable efforts to register or qualify the Restricted Stock covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the sellers of Restricted Stock or, in the case of an underwritten public offering, the managing underwriter reasonably shall request, provided, however, that the -------- ------- Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; e. use commercially reasonable efforts to list the Restricted Stock covered by such registration statement with any securities exchange on which the Common Stock of the Company is then listed; f. immediately notify each seller of Restricted Stock and each underwriter under such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; g. if the offering is underwritten and at the request of any seller of Restricted Stock, use commercially reasonable efforts to furnish on the date that Restricted Stock is Registration Rights Agreement - Page 4 delivered to the underwriters for sale pursuant to such registration: (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters, stating that such registration statement has become effective under the Securities Act and that (A) to the knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (B) the registration statement, the related prospectus and each amendment or supplement thereof comply as to form in all material respects with the requirements of the Securities Act (except that such counsel need not express any opinion as to financial statements contained therein) and (C) to such other effects as reasonably may be requested by counsel for the underwriters and (ii) a letter dated such date from the independent public accountants retained by the Company, addressed to the underwriters, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to such registration as such underwriters reasonably may request; and h. make available for inspection by each seller of Restricted Stock, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement. For purposes of Section 4(a) and 4(b) and of Section 2(c), the period of distribution of Restricted Stock in a firm commitment underwritten public offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchase by it or a period of 90 days, which ever first occurs, and the period of distribution of Restricted Stock in any other registration shall be deemed to extend until the later of the sale of all Restricted Stock covered thereby and 90 days after the effective date thereof. In connection with each registration hereunder, the sellers of Restricted Stock will furnish to the Company in writing such information with respect to themselves and the proposed distribution by them as reasonably shall be necessary in order to assure compliance with federal and applicable state securities laws. Registration Rights Agreement - Page 5 In connection with each registration pursuant to Sections 2 or 3 covering an underwritten public offering, the Company and each seller agree to enter into a written agreement with the managing underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of the Company's size and investment stature. 5. Expenses. All expenses incurred by the Company in complying with ------------ sections 2 or 3, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the National Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents and registrars, costs of insurance and reasonable fees and disbursements of one counsel for the sellers of Restricted Stock, but excluding any Selling Expenses, are called "Registration Expenses". All underwriting discounts and selling commissions applicable to the sale of Restricted Stock are called "Selling Expenses". The Company will pay all Registration Expenses in connection with each registration statement under Sections 2 or 3. All Selling Expenses in connection with each registration statement under Sections 2 or 3 shall be borne by the participating sellers in proportion to the number of shares sold by each, or by such participating sellers other than the Company (except to the extent the Company shall be a seller) as they may agree. 6. Indemnification and Contribution. -------------------------------- a. In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Sections 2 or 3, the Company will indemnify and hold harmless each seller of such Restricted Stock thereunder, each underwriter of such Restricted Stock thereunder and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement of any material fact contained in any registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Sections 2 or 3, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such seller, each such underwriter and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that the Company will not be liable in any such -------- ------- case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an Registration Rights Agreement - Page 6 untrue statement or omission so made in conformity with information furnished by any seller, any underwriter or any controlling person specifically for use in such registration statement or prospectus. It is agreed that the indemnity agreement contained in this Section 7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). b. In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Sections 2 or 3, each seller of such Restricted Stock thereunder, severally and not jointly, will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement of any material fact contained in the registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Sections 2 or 3, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that -------- ------- such seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or omission made in reliance upon and in conformity with information pertaining to such seller, as such, furnished to the Company by such seller specifically for use in such registration statement or prospectus, and provided, further, however, that the liability -------- ------- ------- of each seller hereunder shall not in any event to exceed the proceeds received by such seller from the sale of Restricted Stock covered by such registration statement. It is agreed that the indemnity agreement contained in this Section 6(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of seller hereunder (which consent shall not be unreasonably withhold or delayed). c. Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Registration Rights Agreement - Page 7 Section 6 and shall only relieve it from any liability which it may have to such indemnified party under this Section 6 if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 6 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, provided, however, that, if the -------- ------- defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party or if the interest of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. d. In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any holder of Restricted Stock exercising rights under this Agreement, or any controlling person of any such holder, makes a claim for indemnification pursuant to this Section 6 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 6 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling holder or any such controlling person in circumstances for which indemnification is provided under this Section 6; then, and in each such case, the Company and such holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such holder is responsible for the portion represented by the percentage that the public offering price of its Restricted Stock offered by the registration statement bears to the public offering price of all securities offered by such registration statement, and the Company is responsible for the remaining portion; provided, however, that, in any such case, (A) no such -------- ------- holder will be required to contribute any amount in excess of the public offering price of all such Restricted Stock offered by it pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. Registration Rights Agreement - Page 8 7. Changes in Common Stock. If, and as often as, there is any change in the ----------------------- Common Stock by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue with respect to the Common Stock as so changed. 8. Rule 144 Reporting. With a view to making available the benefits of ------------------ certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Stock to the public without registration, at all times after 90 days after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, the Company agrees to: a. make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act; b. use commercially reasonable efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and c. furnish to each holder of Restricted Stock forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of such Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as such holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such holder to sell any Restricted Stock without registration. 9. Representations and Warranties of the Company. ---------------------------------------------- The Company represents and warrants to you as follows: a. The execution, delivery and performance of this Agreement by the Company have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or there agency of government, the Charter or By-laws of the Company or any provision of any indenture, agreement or other instrument to which it or any of its properties or assets is bound, conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. Registration Rights Agreement - Page 9 b. This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms. 10. Miscellaneous. ------------- a. All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including without limitation transferees of any Preferred Shares or Restricted Stock), whether so expressed or not, provided, however, that registration rights conferred herein on the holders of Preferred Shares or Restricted Stock shall only inure to the benefit of a transferee of Preferred Shares or Restricted Stock if (i) there is transferred to such transferee at least 100 shares in the aggregate of Preferred Shares or 100,000 shares in the aggregate of Restricted Stock or (ii) such transferee is a partner, shareholder or affiliate of a party hereto. b. All notices, requests, consents and other communications hereunder shall be in writing and shall be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by telecopier or telex, addressed as follows: if to the Company or any other party hereto, at the address of such party set forth in the Purchase Agreement; if to any subsequent holder of Preferred Shares or Restricted Stock, to it at such address as may have been furnished to the Company in writing by such holder; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a holder of Preferred Shares or Restricted Stock) or to the holders of Preferred Shares or Restricted Stock (in the case of the Company) in accordance with the provisions of this paragraph. c. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. d. This Agreement may not be amended or modified, and no provision hereof may be waived, without the written consent of the Company and the holders of at least two-thirds (2/3) of the voting power of the outstanding shares of Restricted Stock. e. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Registration Rights Agreement - Page 10 f. The obligations of the Company to register shares of Restricted Stock under Sections 2 or 3 shall terminate on the tenth anniversary hereof. g. If the Company grants to any third party any registration rights more favorable in any material respect than any of those contained herein, then the registration rights under this Agreement shall automatically be amended without the requirement of further action by the Purchasers to be equivalent to such more favorable rights. h. If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. Registration Rights Agreement - Page 11 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers, as of the date first above written. COMPANY: EDGE TECHNOLOGY GROUP, INC. By: -------------------------------------------------- Name: -------------------------------------------------- Title: -------------------------------------------------- Address: -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- Facsimile:-------------------------------------------------- Telephone:-------------------------------------------------- PURCHASERS: By: -------------------------------------------------- Name: -------------------------------------------------- Title: -------------------------------------------------- Address: -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- Fax: -------------------------------------------------- Tel.: -------------------------------------------------- Edge Technology Group, Inc. - Page 12 EX-4.13 7 dex413.txt LETTER AGREEMENT EXHIBIT 4.13 INFINITY INVESTORS LIMITED April 1, 2002 Edge Technology Group, Inc. Re: Proposed conversion of Promissory Note held by Infinity Investors Limited ("IIL") in the principal amount of $219,000 (the "Note") issued by Edge Technology Group, Inc. ("Company") into 397,637 shares of common stock, par value $0.01 (the "Shares") of the Company Board of Directors: IIL proposes to convert its Note, the approximate outstanding principal and interest of which is approximately $258,464.03, into 397,637 Shares (a rate of $0.65 per share). Such Shares are being issued to and acquired by IIL under the conditions and upon the representations contained in this letter agreement (the "Letter Agreement"). The Company hereby issues and delivers to IIL, and IIL hereby accepts from the Company 397,637 Shares of the Company in consideration for the cancellation of the Company's obligations under the Note, including its obligation to pay IIL approximately $258,464.03 (all of the principal and interest owing thereunder). ILL shall cancel and deliver the Note on the date that the stock certificates representing the Shares have been issued to IIL. IIL hereby represents and warrant to the Company that: (a) The Shares will be held by IIL subject to all applicable provisions of the federal and state securities laws and the rules and regulations of the Securities and Exchange Commission. (b) IIL understands that ownership of the Shares involves substantial risk. IIL acknowledges that IIL has evaluated such risk and has determined that the Shares are a suitable investment. IIL considers itself sophisticated in financial and business matters and is capable of evaluating the merits and risks of an investment of this type and of protecting its own interests in connection with this transaction. (c) IIL understands that the Shares shall bear a restrictive legend which prohibits the holder from freely transferring the Shares and that the Shares will only be transferable if an exemption from the securities laws is available for such transfer. (d) IIL represents that it is an "accredited investor" as such term is defined in Rule 501(a) of the Act, because of Section (a)(8) which states that an "accredited Representation Letter - Page 1 investor" includes "an entity in which all of the equity owners are accredited investors." (e) IIL understands that the Company is relying on the accuracy of the representations made herein and, but for the existence of this letter, the Company would not issue the Shares. (f) IIL or its representatives have been provided access to business and financial information regarding the Company and have had the opportunity to discuss such information with its advisors to enable IIL to make an informed investment decision regarding the conversion of the Note into the Shares. Miscellaneous (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. (b) This Agreement represents the entire agreement between the parties with respect to the transaction described herein and, except as provided herein, supersedes all previous negotiations, commitments and writings with respect to such transaction. (c) The Company's obligations and agreements contained herein are subject to the Company's receipt of the Waiver attached hereto as Exhibit A --------- executed by all parties thereto. Dated March 31, 2002 INFINITY INVESTORS LIMITED By: /s/ James Loughran ---------------------------- James Loughran, Director ACKNOWLEDGED AND AGREED: EDGE TECHNOLOGY GROUP, INC. By: /s/ David N. Pilotte ----------------------------------------- Name: David N. Pilotte --------------------------------------- Title: Executive Vice President and -------------------------------------- Chief Financial Officer - -------------------------------------------- Representation Letter - Page 2 EX-10.23 8 dex1023.txt AGREEMENT AND PLAN OF MERGER - APRIL 8, 2002 EXHIBIT 10.23 AGREEMENT AND PLAN OF MERGER AMONG EDGE TECHNOLOGY GROUP, INC., VISIONARY ACQUISITION CORP., THE VISIONARY GROUP, INC. AND THE VISIONARY GROUP SHAREHOLDERS as of April 8, 2002 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of April 8, 2002, among Edge Technology Group, Inc., a Delaware corporation ("Edge"), Visionary Acquisition Corp., a Texas corporation and a wholly owned subsidiary of Edge ("Acquisition Corp"), The Visionary Group, Inc., a Texas corporation ("Visionary"), and Peter Gurian and Lindsay L. Purvis (collectively, --------- the "Visionary Shareholders"). ---------------------- RECITALS A. The parties intend that, subject to the terms and conditions hereinafter set forth, Acquisition Corp will merge with and into Visionary (the "Merger"). ------ Visionary will be the surviving corporation (the "Surviving Corporation") and --------------------- will become a wholly owned subsidiary of Edge. The merger will occur pursuant to a Plan of Merger substantially in the form of Exhibit A (the "Plan of Merger") --------- -------------- and the applicable provisions of the laws of the State of Texas. Upon the Merger, all outstanding Common Stock of Visionary will be converted into cash, and all outstanding Common Stock of Acquisition Corp will be converted into Common Stock of Visionary, in each case in the manner and on the basis determined herein and as provided in the Plan of Merger. B. Concurrently with the execution and delivery of this Agreement, the Visionary Shareholders are executing and delivering to Visionary's Secretary their unanimous written consents, as all of Visionary's shareholders, to the Merger, this Agreement, the Plan of Merger and the transactions provided for herein. NOW, THEREFORE, in consideration of the foregoing and the mutual agreements of Edge, Visionary, the Visionary Shareholders and Acquisition Corp contained herein, the parties agree as follows: ARTICLE I PLAN OF MERGER 1.01 The Merger. The Plan of Merger will be filed with the Office of the ---------- Secretary of State of the State of Texas as soon as practicable after the "Closing" (as defined in Section 5.01, below). The Merger shall be effective upon the filing of the Plan of Merger with the State of Texas (the "Effective Time"). Subject to the terms and conditions of this Agreement and the Plan of Merger, Acquisition Corp will be merged with and into Visionary pursuant to the Plan of Merger and in accordance with applicable provisions of the laws of the State of Texas as follows: (a) Merger Consideration. In exchange for all of the issued and -------------------- outstanding common stock of Visionary (the "Visionary Common Stock"), Edge shall deliver, in the aggregate, $910,000 (the "Merger Consideration") payable as follows (i) to Comerica Bank an amount equal to the unpaid principal and interest due and payable as of the Closing Date under that certain loan agreement with Visionary (the "Comerica Payment") and (ii) to the Visionary Shareholders an amount in cash equal to the difference between the Merger Consideration and the Comerica Payment, with an additional amount (the "Earnout Commission") to be paid to the Visionary Shareholders in an amount not to AGREEMENT AND PLAN OF MERGER - Page 1 exceed, in the aggregate, $500,000, only upon the satisfaction of the terms and conditions set forth in Section 1.06, below. (b) Conversion of Shares. The shares of Visionary Common Stock, $1.00 -------------------- par value per share (the "Visionary Common Stock"), that are issued and ---------------------- outstanding immediately prior to the Effective Time will by virtue of the Merger and at the Effective Time, and without further action on the part of any holder thereof, be converted into the right to receive the Merger Consideration, subject to all terms and conditions of this Agreement, including, without limitation, the provisions for withholding a portion of the Merger Consideration as provided in Section 1.03, below. (c) Visionary Treasury Stock. All shares of Visionary Common Stock ------------------------ that are held by Visionary as treasury stock, if any, shall be canceled and retired and no Merger Consideration shall be delivered or paid in exchange therefor. 1.02 Visionary Options. All rights to acquire capital stock of Visionary ----------------- (whether in the form of options, warrants, or rights to convert securities) shall, prior to the Closing Date, be exercised or terminated, such that upon the payment of the Merger Consideration, Edge will hold 100% of the capital stock of Visionary and no rights or options to purchase or receive any shares of Visionary's capital stock shall be outstanding. 1.03 Withheld Merger Consideration. At the Closing, Edge shall retain ----------------------------- $100,000 of the Merger Consideration (the "Withheld Merger Consideration"). (a) Edge may deduct from the Withheld Merger Consideration any of the following amounts after delivery of a notice to the Visionary Shareholders and the accompanying documentation to evidence such deduction (each an "Adjustment Amount"); provided, however, that no deduction shall me made -------- ------- until ten (10) days have passed from the date the notice of an Adjustment Amount has been provided to the Visionary Shareholders or if, within such notice period the Visionary Shareholders have cured the event which would otherwise result in the need for Edge to make such Adjustment Amount: (i) Any Visionary Pre-Closing Date Tax Obligations, as defined in Section 2.08(b), that remain unpaid as of the Closing Date; (ii) Any amounts of Collectible A/R Deficiency, as defined in Section 2.27; (iii) The amount of any indebtedness for borrowed money of Visionary existing on its balance sheet as of the Closing Date in excess of $220,000; and (iv) The amount of any Trade Payables, as defined in Section 2.31, which is in excess of 30 days past due,. AGREEMENT AND PLAN OF MERGER - Page 2 (b) In addition to any Adjustment Amounts set forth above, Edge shall also have the right to deduct amounts from the Withheld Merger Consideration for any Claims, pursuant to the indemnification procedures set forth in Section 6.02. (c) Edge shall provide an aggregate accounting of any previous Adjustment Amounts and release any remaining amounts of Withheld Merger Consideration to the Visionary Shareholders upon the later to occur of either: (i) Twelve months and one day from the Effective Date; or (ii) The date there are no current, pending or threatened Claims for indemnification under Section 6.02, (d) The deductions against the Withheld Merger Consideration set forth in this Section 1.03 shall not be deemed to be Edge's exclusive remedy for any breach by Visionary or any Visionary Shareholder of any term, condition, provision, or obligation hereunder. 1.04 Effects of the Merger. At the Effective Time: --------------------- (a) The separate existence of Acquisition Corp will cease and Acquisition Corp will be merged with and into Visionary and Visionary will be the surviving corporation pursuant to the terms of the Plan of Merger, (b) The Articles of Incorporation and Bylaws of Acquisition Corp will become the Articles of Incorporation and Bylaws of the Surviving Corporation, (c) Each share of Acquisition Corp Common Stock outstanding immediately prior to the Effective Time will continue to be an identical outstanding share of the Surviving Corporation, (d) The composition of the Board of Directors of the Surviving Corporation shall be as set forth in Annex 1 to Exhibit A, and ------- --------- (e) The officers of the Surviving Corporation shall be the persons set forth in Annex 1 to Exhibit A; and ------- --------- (f) The Merger will, at and after the Effective Time, have all of the effects provided by applicable law. 1.05. Further Assurances. Visionary agrees that if, at any time after the ------------------ Effective Time, Edge considers or is advised that any further deeds, assignments or assurances are reasonably necessary or desirable to vest, perfect or confirm in the Surviving Corporation title to any property or rights of Visionary, Edge and any of its officers are hereby authorized by Visionary to execute and deliver all such proper deeds, assignments and assurances and do all other things reasonably necessary or desirable to vest, perfect or confirm title to such property or rights in the AGREEMENT AND PLAN OF MERGER - Page 3 Surviving Corporation and otherwise to carry out the purposes of this Agreement, in the name of Visionary or otherwise. 1.06 Earnout Commissions. ------------------- (a) In the event that the Surviving Corporation's "Gross Revenue" (as defined below) during the calendar year 2002 (the "Earnout Period") equals to or exceeds Visionary's Gross Revenue for calendar year 2001 as reflected in the audited financial statements previously delivered to Edge, then Edge shall make an earnout payment (i) in the amount of $250,000 to the Visionary Shareholders with (ii) an additional payment in the amount of $62,500 for each $250,000 of the Surviving Corporation's Gross Revenue in excess of Visionary's Gross Revenue for calendar year 2001, up to a total aggregate amount of earnout payments under (i) and (ii) above of no more than $500,000 (the "Earnout Commission") payable to the Visionary Shareholders as set forth below. (b) For purposes of this Agreement, the Surviving Corporation's "Gross Revenue" shall mean an amount equal to the audited gross revenue actually received by the Surviving Corporation during the Earnout Period, calculated in accordance with generally accepted accounting principles. (c) Edge shall pay to the Visionary Shareholders an amount in cash equal to the Earnout Commission due, if any, by the later of (i) sixty (60) days following the end of the Earnout Period or (ii) the final determination of the Surviving Corporation's Gross Revenue for the Earnout Period. (d) Edge and the Visionary Shareholders agree that any Earnout Commission will not constitute deferred payment for the Visionary Common Stock, but rather shall constitute contingent commissions payable to the Visionary Shareholders. Edge and the Visionary Shareholders will report such treatment (as ordinary income and ordinary deductions) consistently in all federal, state, and local income tax returns filed by any of them. (e) As promptly as practicable, but in no event later than thirty (30) days after the end of the Earnout Period, Edge shall deliver to the Visionary Shareholders a preliminary calculation of the Surviving Corporation's Gross Revenue for the Earnout Period. (f) Notwithstanding the foregoing, Edge shall be entitled to deduct from Earnout Commission due under the provisions of this Section 1.06, all amounts resulting from any and all claims, demands, actions, causes of action, losses, costs, damages, liabilities and expenses relating to or arising out of the Brower Matter, as defined below. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE VISIONARY SHAREHOLDERS Each of the Visionary Shareholders hereby jointly and severally represents and warrants that: AGREEMENT AND PLAN OF MERGER - Page 4 2.01 Organization and Good Standing. Visionary is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of the State of Texas and has the corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted. Visionary is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction listed in Schedule 2.01, which is each jurisdiction in which ------------- the ownership of its properties, the employment of its personnel or the conduct of its business requires it to be so qualified, except where the failure to so qualify would not have a material adverse effect on Visionary, its assets, properties or financial condition. 2.02 Power, Authorization and Validity. --------------------------------- (a) Visionary has the corporate right, power, legal capacity and authority to enter into and perform its obligations under this Agreement and all agreements to which Visionary is or will be a party as contemplated by this Agreement (the "Visionary Ancillary Agreements"). The execution, ------------------------------ delivery and performance of this Agreement and the Visionary Ancillary Agreements have been duly and validly approved by the Visionary Board of Directors and the Visionary Shareholders, as required by applicable law. (b) No filing, authorization or approval, governmental or otherwise, is necessary to enable Visionary to enter into, and to perform its obligations under, this Agreement and the Visionary Ancillary Agreements, except for: (i) The filing of the Plan of Merger with the Secretary of State of the State of Texas (which filing has been authorized by all necessary corporate approvals), and (ii) The Required Consents, as defined in Section 2.05 below (which Required Consents have been obtained). (c) This Agreement and the Visionary Ancillary Agreements are, or when executed and delivered by Visionary will be, valid and binding obligations of Visionary, enforceable against Visionary in accordance with their respective terms, except as to the effect, if any, of: (i) Applicable bankruptcy and other similar laws affecting the rights of creditors generally; (ii) Rules of law governing specific performance, injunctive relief and other equitable remedies; and (iii) Any rights to indemnification being limited under applicable securities laws; provided, however, that the Visionary Ancillary Agreements will not be -------- ------- effective until the earlier of the date set forth therein or the Effective Time. 2.03 Capitalization. -------------- AGREEMENT AND PLAN OF MERGER - Page 5 (a) Authorized/Outstanding Capital Stock. The authorized capital stock ------------------------------------ of Visionary consists of 10,000 shares of Visionary Common Stock, $1.00 par value per share, of which 1,000 shares are issued and outstanding as of the Closing Date, and all of which issued and outstanding shares are held of record and owned by the Visionary Shareholders. Visionary has no authorized or issued shares of Preferred Stock. All issued and outstanding shares of Visionary Common Stock have been duly authorized and validly issued, are fully paid and nonassessable, are not subject to any right of rescission and have been offered, issued, sold and delivered by Visionary in compliance with all registration or qualification requirements (or applicable exemptions therefrom) of applicable federal and state securities laws. (b) Options/Rights. There are no stock appreciation rights, options, -------------- warrants, conversion privileges or preemptive or other rights or agreements outstanding to purchase or otherwise acquire any of Visionary's authorized but unissued capital stock, there are no options, warrants, conversion privileges or preemptive or other rights or agreements to which Visionary or any Visionary Shareholder is a party involving the purchase or other acquisition of any share of Visionary capital stock, and there is no liability for dividends accrued but unpaid; and there are no voting agreements, rights of first refusal or other restrictions (other than normal restrictions on transfer under applicable federal and State of Texas securities laws) applicable to any of Visionary's outstanding securities. 2.04 Subsidiaries. Except as disclosed on Schedule 2.04, Visionary does not ------------ ------------- have any subsidiaries or any equity interests, direct or indirect, in any corporation, partnership, joint venture or other business entity. 2.05 No Violation of Existing Agreements. ----------------------------------- (a) Except as set forth on Schedule 2.05, neither the execution and ------------- delivery of this Agreement or any Visionary Ancillary Agreement, nor the consummation of the transactions provided for herein or therein, will conflict with, or (with or without notice or lapse of time, or both) result in a termination, breach, impairment or violation of: (i) Any provision of the Articles of Incorporation or Bylaws of Visionary, as currently in effect; (ii) Any material instrument or contract to which Visionary is a party or by which Visionary is bound; or (iii) Any federal, state, local or foreign judgment, writ, decree, order, statute, rule or regulation applicable to and that would have a material adverse effect on Visionary or its assets or properties. (b) The consummation of the Merger by Visionary will not require the consent of any third party and will not have a material adverse effect upon any such rights, licenses, franchises, leases or agreements pursuant to the terms of those agreements, other than as set forth in Schedule 2.05 (the ------------- "Required Consents"), and Visionary has received AGREEMENT AND PLAN OF MERGER - Page 6 all such Required Consents, copies of which have been delivered to Edge prior to the Closing Date. 2.06 Litigation; Legal Impediments. Except as set forth in Schedule 2.06: ----------------------------- ------------- (a) There is no action, proceeding or investigation pending or, to the knowledge of Visionary or the Visionary Shareholders, threatened against Visionary before any court or administrative agency. (b) No person, firm, corporation or entity has a claim against Visionary (or a successor in interest to Visionary) based upon: (i) Ownership or rights to ownership of any shares of Visionary Common Stock; (ii) Any rights as a Visionary securities holder, including, without limitation, any option or other right to acquire any Visionary securities, any preemptive rights or any rights to notice or to vote; or (iii) Any rights under any agreement between Visionary and any Visionary securities holder or former Visionary securities holder in such holder's capacity as such. (c) There is no order, decree or ruling by any court or governmental agency or threat thereof, or any other fact or circumstance that would prohibit or render illegal the transactions provided for in this Agreement. (d) There is no litigation or proceeding pending or threatened that would have the probable effect of enjoining or preventing the consummation of any of the transactions provided for in this Agreement. 2.07 Visionary Financial Statements. Visionary has delivered to Edge the ------------------------------ financial statements as set forth in Schedule 2.07 (the "Visionary Financial ------------- ------------------- Statements"). Except for audit adjustments reflected in the audited financial - ---------- statements, the Visionary Financial Statements have been prepared on an accrual basis and, in all material respects, are in accordance with generally accepted accounting principles, and fairly and accurately represent the financial condition of Visionary at the respective dates specified therein and the results of operations for the respective periods specified therein. Except as set forth in Schedule 2.07, Visionary has no material debt, liability or obligation of any ------------- nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, that is not reflected or disclosed in Visionary Financial Statements, except for those that may have been incurred after the issuance of the audited balance sheet of Visionary as of December 31, 2001 (the "Balance ------- Sheet Date") in the ordinary course of its business. The Visionary Financial - ---------- Statements reflect all material transactions of the business of Visionary during the periods covered thereby consistent with the basis of accounting historically used by Visionary, and all documentation that is necessary to support such transactions has been made, and after the Closing will be, available to Edge. AGREEMENT AND PLAN OF MERGER - Page 7 2.08 Tax Matters. Except as disclosed in Schedule 2.08: ----------- ------------- (a) Returns and Reports. ------------------- (i) All Tax Returns required to be filed with any Taxing Authority in any jurisdiction by or for Visionary on or before the Closing Date have been duly and timely filed, or extensions of time within which to file such Tax Returns have been obtained; and (ii) All such Tax Returns are true, correct and complete in all material respects. (b) Payment. ------- (i) Visionary has timely paid or has made adequate provision for the payment of all Taxes for which Visionary is or may become liable for payment, insofar as such Taxes are, were or will be due and payable on or prior to the Closing Date; (ii) All Tax deficiencies assessed against Visionary as a result of any examination of Tax Returns of Visionary have been paid or are being contested in good faith (collectively, all payment obligations under Section 2.08(b)(i) and (ii) shall be referred to as the "Visionary Pre-Closing Date Tax Obligations"); and (iii) Visionary is not the subject of, nor has it been notified that it is the subject of, any investigation, assessment, adjustment, audit or other proceeding proposing any deficiency in respect of any Tax, and to the knowledge of Visionary and the Visionary Shareholders, no investigation, assessment, adjustment, or audit has been threatened. (c) Taxes. Visionary has made adequate provisions on the Visionary ----- Financial Statements for all Taxes payable by Visionary for any period for which no Tax Return has yet been filed or for which Tax Returns have been filed but payment of the Tax shown to be due thereon is not yet due. Furthermore, adequate reserves have been maintained to pay such Taxes as they are due. (d) Extensions. No agreements, waivers, or other arrangements exist ---------- providing for an extension of time or statutory periods of limitation with respect to payment by, or assessment against, Visionary of any Tax and no request for any such arrangements, waivers, or other agreements have been made; furthermore, no unrevoked power of attorney with respect to any Tax has been executed or filed with the Internal Revenue Service or any other Taxing Authority. (e) Proceedings. No suit, actions, claims, or proceedings have been ----------- asserted as of the date hereof against Visionary in respect of any Tax. AGREEMENT AND PLAN OF MERGER - Page 8 (f) Section 341(f) Election. No election under Section 341(f) of the ----------------------- Internal Revenue Code of 1986, as amended (the "Code"), has been or will be filed by or on behalf of Visionary. (g) Tax Liens. There are no Tax liens as of the date hereof upon any --------- of the assets or properties of Visionary except for statutory liens for Taxes not yet due or delinquent. (h) Withholding. The amounts of Taxes withheld by or on behalf of ----------- Visionary with respect to all amounts paid to employees of Visionary or creditors or other parties for all periods ending on or before the Closing Date have been proper and accurate in all material respects, and all deposits required with respect to amounts paid to such employees, creditors or other parties have been made in compliance in all material respects with the provisions of all applicable Tax laws. (i) Tax Sharing Agreements. Visionary is not party to, nor has any ---------------------- obligations under, any tax sharing or similar agreement or arrangement. (j) Records. Visionary has made available for inspection by Edge: ------- (i) Complete and correct copies of all Tax Returns of Visionary that have been required to be filed for taxable periods ending with or within the last five calendar years and for such longer period as Edge has requested in writing not to exceed the period of the relevant statute of limitations; (ii) Complete and correct copies of all ruling requests, private letter rulings, revenue agent reports, information document requests and responses thereto, notices of proposed deficiencies, deficiency notices, applications for changes in method of accounting, protests, petitions, closing agreements, settlement agreements and any similar documents submitted by, received by or agreed to by, or on behalf of, Visionary and relating to taxable periods ending with or within the last five calendar years and for such longer period as Edge has requested in writing, not to exceed the period of the relevant statute of limitations; and (iii) Copies of all record retention agreements currently in effect between Visionary and any Taxing Authority. (k) Accounting Methods. ------------------ (i) Visionary has not agreed to make any adjustment by reason of a change in its accounting method that would affect the taxable income or deductions of Visionary for any period following the Closing Date; AGREEMENT AND PLAN OF MERGER - Page 9 (ii) Visionary will not be required to include in a taxable period on or after the Closing Date taxable income attributable to income that economically accrued in a taxable period ending on or before the Closing Date, except as a result of its utilization of the cash method of reporting; (iii) Visionary is not required to include income in any amount under Section 481 of the Code (or any comparable provisions of state, local or foreign law), by reason of a change in accounting methods or otherwise, as a result of actions taken prior to the Closing Date; and (iv) Visionary is and was entitled under the Code to report its taxable income on the cash method of reporting for all taxable years for which the statute of limitations has not expired. (l) Transfer Pricing Agreements. There are no transfer pricing --------------------------- agreements made by Visionary with any Taxing Authority. (m) Excess Parachute Payments. Visionary is not a party to any ------------------------- agreement, contract, arrangement or plan that would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code. (n) Controlled Foreign Corporation. Visionary does not own any ------------------------------ interest in any "controlled foreign corporation" (within the meaning of Section 957 of the Code), "passive foreign investment company" (within the meaning of Section 1297 of the Code) or other entity the income of which is required to be included in the income of Visionary whether or not distributed. (o) For the purposes of this Agreement the following terms shall have the meanings set forth below: "Tax" or "Taxes" means all taxes, charges, fees, levies or other --- ----- assessments, including, without limitation, any net income tax or franchise tax based on net income, any alternative or add-on minimum taxes, any gross income, gross receipts, premium, sales, use, ad valorem, value added, transfer, profits, license, social security, Medicare, payroll, employment, excise, severance, stamp, occupation, property, environmental or windfall profit tax, custom duty or other tax, governmental fee or other like assessment, together with any interest, penalty, addition to tax or additional amount imposed by any Taxing Authority. "Tax Return" or "Tax Returns" shall mean all returns, ---------- ----------- declarations of estimated tax payments, reports, forms, estimates, information returns, statements and other documentation, including any related or supporting information filed with respect to any of the foregoing, maintained, filed or AGREEMENT AND PLAN OF MERGER - Page 10 to be filed with any Taxing Authority in connection with the determination, assessment, collection or administration of any Taxes. "Taxing Authority" shall mean any domestic, foreign, federal, ---------------- national, state, provincial, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising any Taxing Authority or any other authority exercising Tax regulatory authority. 2.09 Title to Properties. Visionary has good and valid title to all of its ------------------- assets as shown on the balance sheet as of the Balance Sheet Date included in the Visionary Financial Statements, free and clear of all liens, charges or encumbrances (other than for Taxes not yet due and payable and Permitted Liens (as defined below)), other than such material assets set forth on Schedule 2.09 as were sold by Visionary in the ordinary course of business since the Balance Sheet Date or which are subject to capitalized leases. "Permitted Liens" means --------------- any lien, mortgage, encumbrance or restriction that is reflected in the Visionary Financial Statements and is not in excess of $10,000 and which does not materially detract from the value or materially interfere with the use, as currently used, of the properties subject thereto or affected thereby or otherwise materially impair the business operations being conducted thereon. There are no UCC financing statements of record naming Visionary as debtor. The machinery and equipment included in such assets are in good condition and repair, normal wear and tear excepted, and all leases of real or personal property to which Visionary is a party are fully effective and afford Visionary peaceful and undisturbed possession of the subject matter of the lease. Visionary is not in violation of any material zoning, building, safety or environmental ordinance, regulation or requirement or other law or regulation applicable to the operation of owned or leased or occupied properties, and Visionary has not received any notice of such violation with which it has not complied or had waived. 2.10 Absence of Certain Changes. Since the Balance Sheet Date, except as -------------------------- set forth in Schedule 2.10, there has not been with respect to Visionary: ------------- (a) Any change in the financial condition, properties, assets, liabilities business, results of operations or prospects of Visionary, which change by itself or in conjunction with all other such changes, whether or not arising in the ordinary course of business, has had or can reasonably be expected to have a material adverse effect on Visionary; (b) Any contingent liability incurred by Visionary as guarantor or surety with respect to the obligations of others; (c) Any material mortgage, encumbrance or lien placed on any of the properties of Visionary; (d) Any material obligation or liability incurred by Visionary other than in the ordinary course of business; AGREEMENT AND PLAN OF MERGER - Page 11 (e) Any purchase or sale or other disposition, or any agreement or other arrangement for the purchase, sale or other disposition, of any of the properties or assets of Visionary other than in the ordinary course of business; (f) Any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the properties, assets or business of Visionary; (g) Any declaration, setting aside or payment of any dividend on, or the making of any other distribution in respect of, the capital stock of Visionary, any split, stock dividend, combination or recapitalization of the capital stock of Visionary or any direct or indirect redemption, purchase or other acquisition by Visionary of the capital stock of Visionary; (h) Any material labor dispute or claim of material unfair labor practices, any change in the compensation payable or to become payable to any of Visionary's officers, employees or agents earning compensation at an anticipated annual rate in excess of $1,000, or any bonus payment or arrangement made to or with any of such officers, employees or agents; or any change in the compensation payable or to become payable to any of Visionary's other officers, employees or agents other than normal annual compensation increases in accordance with past practices or any bonus payment or arrangement made to or with any of such other officers, employees or agents other than normal bonuses or other arrangements made in accordance with past practices; (i) Any material change with respect to the management, supervisory, development or other key personnel of Visionary (the management, supervisory, development and other key personnel of Visionary being listed on Schedule 2.10(i)); ---------------- (j) Any payment or discharge of a material lien or liability thereof, which lien or liability was not either (i) Shown on the balance sheet as of the Balance Sheet Date included in the Visionary Financial Statements; or (ii) Incurred in the ordinary course of business after the Balance Sheet Date; and (k) Any obligation, or material liability incurred by Visionary to any of its officers, directors or shareholders, or any loans or advances made to any of its officers, directors, shareholders or affiliate except normal compensation and expense allowances payable to officers. 2.11 Agreements and Commitments. Except as set forth in Schedule 2.11, or -------------------------- ------------- as listed in Schedule 2.12(b) or Schedule 2.12(c), Schedule 2.15 (a), Schedule ---------------- ---------------- ----------------- -------- 2.15(b), Schedule 2.15(c), Schedule 2.15(e), Schedule 2.15(f) or Schedule - ------- ---------------- ---------------- ---------------- -------- 2.15(g) as required by Section 2.12 and Section 2.15 respectively, Visionary is - ------- not a party or subject to any oral or written agreement, obligation or commitment that is material to Visionary, its financial condition, business or prospects or which is described below: AGREEMENT AND PLAN OF MERGER - Page 12 (a) Any contract, commitment, letter agreement, quotation or purchase order providing for payments by or to Visionary in an aggregate amount of (i) $10,000 or more in the ordinary course of business; or (ii) $10,000 or more not in the ordinary course of business; (b) Any license agreement as licensor (except for any nonexclusive software license granted by Visionary to end-user customers where the form of the license, excluding standard immaterial deviations, has been provided to Edge); (c) Any agreement by Visionary to encumber, transfer or sell rights in or with respect to any Visionary Intellectual Property (as defined in Section 2.12); (d) Any agreement for the sale or lease of real or personal property involving more than $10,000 per year; (e) Any dealer, distributor, sales representative, original equipment manufacturer, value added remarketer or other agreement for the distribution of Visionary's products; (f) Any franchise agreement or financing statement; (g) Any stock redemption or purchase agreement; (h) Any joint venture contract or arrangement or any other agreement that involves a sharing of profits with other persons; (i) Any instrument evidencing indebtedness for borrowed money by way of direct loan, sale of debt securities, purchase money obligations, conditional sale, guarantee or otherwise, except for trade indebtedness or any advance to any employee of Visionary incurred or made in the ordinary course of business, and except as disclosed in the Visionary Financial Statements; or (j) Any contract containing covenants purporting to limit the freedom of Visionary to compete in any line of business in any geographic area. All agreements, obligations and commitments listed in Schedule 2.11, or as ------------- listed in Schedule 2.12(b) or Schedule 2.12(c), Schedule 2.15 (a), Schedule ---------------- ---------------- ----------------- -------- 2.15(b), Schedule 2.15(c), Schedule 2.15(e), Schedule 2.15(f) or Schedule ------- ---------------- ---------------- ---------------- -------- 2.15 (g), as required by Section 2.11, Section 2.21, and Section 2.15, as -------- the case may be, are valid and in full force and effect in all material respects, and except as expressly noted in writing, a true and complete copy of each has been delivered or been made available to Edge or its counsel. Except as noted on Schedule 2.11 neither Visionary nor, to the ------------- knowledge of Visionary or the Visionary Shareholders, any other party is in breach of or default under any material terms of any such agreement, obligation or commitment. Visionary is not a party to any contract or arrangement that it reasonably expects will have a material adverse effect on its business or prospects. AGREEMENT AND PLAN OF MERGER - Page 13 2.12 Intellectual Property. --------------------- (a) Visionary owns all right, title and interest in, or has the right to use, all domestic and foreign patent applications, patents, patent licenses, trademark applications, trademarks, service marks, trade names, copyrights applications, copyrights, trade secrets, know-how, technology, material software licenses and other intellectual property and proprietary rights used in or reasonably necessary to the conduct of its business as presently conducted and the business of the development, production, marketing, licensing and sale of commercial products using such intellectual property and proprietary rights ("Visionary Intellectual ---------------------- Property"), except as would result in liability to Visionary in the -------- aggregate amount of $10,000. (b) Visionary has taken reasonable measures to protect all Visionary Intellectual Property, and, except as set forth on Schedule 2.12(b), ---------------- neither Visionary nor any Visionary Shareholder has any knowledge of any infringement of any Visionary Intellectual Property by any third party. As to the third party products listed on Schedule 2.12(b) (the "Visionary ---------------- --------- Third Party Products"), Visionary has obtained appropriate licensing rights -------------------- to the same and the use by Visionary of Visionary Third Party Products does not infringe the rights of Visionary's licensors. (c) Set forth on Schedule 2.12(c) delivered to Edge herewith is a true ---------------- and complete list of all copyright and trademark registrations (and any applications therefor) and all patents (and any applications therefor) for Visionary Intellectual Property owned by Visionary. Neither Visionary nor any Visionary Shareholder has any knowledge of any material loss, cancellation, termination of expiration of any such registration or patent except as set forth on Schedule 2.12(c). ---------------- (d) To the knowledge of Visionary or the Visionary Shareholders, the business of Visionary as conducted as of the date hereof, including (without limitation) the business of development, production, marketing, licensing and sale of commercial products using Visionary Intellectual Property and proprietary rights, does not infringe or violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets, proprietary rights or other intellectual property of any other person, and Visionary has not received any written or oral claim or notice of infringement or potential infringement of the intellectual property of any other person or entity. (e) Other than the matter involving Visionary employee John Brower, as more specifically described on Schedule 2.12(e) (the "Brower Matter"), with ---------------- respect to Visionary Third Party Products, Visionary has obtained appropriate licensing rights to such Visionary Third Party Products and the use by Visionary of Visionary Third Party Products does not infringe the rights of Visionary's licensors. Visionary has the right to manufacture all of its products and the right to use all of its registered user lists, and to the knowledge of Visionary or the Visionary Shareholders, is not using any confidential information or trade secrets of any former employer of any past or present employees. AGREEMENT AND PLAN OF MERGER - Page 14 2.13 Compliance with Laws. Except as set forth in Schedule 2.13 or to the -------------------- ------------- knowledge of Visionary or the Visionary Shareholders, Visionary has complied and is and will be at the Closing Date in full compliance with all material laws, ordinances, regulations and rules, and all orders, writs, injunctions, awards, judgments and decrees (collectively, "Laws"), applicable to Visionary or to the assets, properties and business of Visionary, including, without limitation: (a) All applicable federal and state securities laws and regulations, (b) All applicable federal state and local Laws, pertaining to: (i) The sale, licensing, leasing, ownership or management of Visionary's owned, leased, occupied or licensed real or personal property, products or technical data; (ii) Employment or employment practices, terms and conditions of employment or wages and hours, or (iii) Safety, health, fire prevention, environmental protection (including toxic waste disposal and related matters described in Section 2.21), building standards, zoning or other similar matters; (iv) The Export Administration Act and regulations promulgated thereunder or other laws, regulations, rules, orders, writs, injunctions, judgments or decrees applicable to the export or re-export of controlled commodities or technical data; or (v) The Immigration Reform and Control Act; provided, however, that this Section 2.13 shall not apply to any Law to the extent Visionary and the Visionary Shareholders have provided a representation and warranty elsewhere in this Agreement as to full past and present compliance by Visionary with such Law; and (c) Visionary has received all material permits and approvals from and has made all material filings with third parties, including government agencies and authorities, that are necessary to the conduct of its business as presently conducted. 2.14 Certain Transactions and Agreements. To the best of the Visionary ----------------------------------- Shareholders' knowledge, no person who is an officer or director of Visionary, or a member of any officer's or director's immediate family, has any direct or indirect ownership interest in any firm or corporation that competes with Visionary or Edge (except with respect to any interest in less than 1% of the outstanding voting shares of any corporation the stock of which is publicly traded). Except as set forth in Schedule 2.14, no person who is an officer or ------------- director of Visionary, or any member of any officer's or director's immediate family, is directly or indirectly interested in any material contract or informal arrangement with Visionary, except for compensation for services as an officer, director or employee of Visionary and except for the normal rights of a shareholder. Except at set forth in Schedule 2.14, none of such officers or ------------- directors or family members has any interest in any property, real or personal, tangible or intangible, including, without limitation, AGREEMENT AND PLAN OF MERGER - Page 15 inventions, patents, copyrights, trademarks, trade names or trade secrets, used in the business of Visionary, except for the normal rights of a shareholder. As of the Closing Date, none of the Visionary Shareholders nor any officer, director or employee of Visionary has any outstanding and unpaid debt obligations due and owning to Visionary, including, without limitation, any loans made by Visionary to any such Visionary Shareholders, officers, directors, or employees. 2.15 Employees. --------- (a) Except as set forth in Schedule 2.15 (a), Visionary has no ----------------- employment contract or material consulting agreement currently in effect that is not terminable at will without penalty or payment of compensation by Visionary. (b) Except as set forth in Schedule 2.15 (b), Visionary: ----------------- (i) Has never been and is not now subject to a union organizing effort; (ii) Is not subject to any collective bargaining agreement with respect to any of its employees; (iii) Is not subject to any other contract, written or oral, with any trade or labor union, employees' association or similar organization; and (iv) To the knowledge of either Visionary or the Visionary Shareholders, has no material current labor dispute, and neither Visionary nor any Visionary Shareholder has any knowledge of any facts indicating that the consummation of the transactions provided for herein will have a material adverse effect on its labor relations. (c) Schedule 2.15 (c) delivered by Visionary to Edge herewith contains ----------------- a list of all pension, retirement, disability, medical, dental or other health plans, life insurance or other death benefit plans, profit sharing, deferred compensation agreements, stock, option, bonus or other incentive plans, vacation, sick, holiday or other paid leave plans, severance plans or other similar employee benefits plan maintained, contributed to, or required to be contributed to, by Visionary or any ERISA Affiliate (as defined herein) for the benefit of any Visionary employee, former employee or retired employee (the "Employee Plans"), including without limitation -------------- all "employee benefit plans" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). "ERISA ----- Affiliate" as used in this Section 2.15 shall mean any other person or entity under common control with Visionary within the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations thereunder. Visionary does not now, nor has it ever, maintained, participated in, or contributed to, any Employee Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA, Section 412 of the Code, or any multiemployer plan as defined in Section 3(37) of ERISA. Visionary has delivered true and complete copies of all the Employee Plans, together with the most recent summary plan descriptions, if any, required under ERISA, and the three most recent annual reports (Forms 5500 and all schedules thereto), if any, required under ERISA, to Edge. To the AGREEMENT AND PLAN OF MERGER - Page 16 knowledge of Visionary or the Visionary Shareholders, each of the Employee Plans, and its operation and administration, is in compliance with all applicable, federal, state, local and other governmental laws and ordinances, orders, rules and regulations, including the requirements of ERISA and the Code. Except as set forth in Schedule 2.15(c), any such ---------------- Employee Plans that are employee pension benefit plans (as defined in Section 3(2) of ERISA) which are intended to qualify under Section 401(a) of the Code have received favorable determination letters that such plans satisfy the qualification requirements of the Tax Reform Act of 1986. In addition, to Visionary's or the Visionary Shareholders' knowledge, no "prohibited transaction," within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any Employee Plan. To the knowledge of Visionary or the Visionary Shareholders, the group health plans as defined in Section 4980B(g) of the Code that benefit employees of Visionary are in material compliance with the continuation coverage requirements of Section 4980B of the Code. To the knowledge of Visionary or the Visionary Shareholders, there are no outstanding violations of Section 4980B of the Code with respect to any Employee Plan, covered employees or qualified beneficiaries. No Employee Plan provides life insurance, medical or other medical benefits to any employee upon his or her retirement or termination of employment for any reason, except as may be required by statute. Except as set forth in Schedule 2.15(c) (which ---------------- does not identify any individual by name, Social Security number or in any other manner), no employee of Visionary and no person subject to any Visionary health plan has made medical claims during the twelve months preceding the date hereof for $25,000 or in the aggregate, or, to the knowledge of Visionary or the Visionary Shareholders, has any catastrophic illness. (d) To the knowledge of Visionary or the Visionary Shareholders or other than as set forth in Schedule 2.15(e), no employee of Visionary is in ---------------- material violation of any term of any employment contract, patent disclosure agreement or noncompetition agreement or any other contract or agreement, or any restrictive covenant, relating to the right of any such employee to be employed by Visionary or to use trade secrets or proprietary information of others. To the knowledge of Visionary or the Visionary Shareholders, the employment of any employee of Visionary does not of itself subject Visionary to any liability to any third party. (e) Except as set forth in Schedule 2.15(e), Visionary is not a party ---------------- to any: (i) Agreement with any executive officer or other key employee of Visionary: (A) The benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving Visionary in the nature of any of the transactions contemplated by this Agreement and the Plan of Merger, or any other business combination transaction; (B) Providing any term of employment or compensation guarantee; or AGREEMENT AND PLAN OF MERGER - Page 17 (C) Providing severance benefits or other benefits after the termination of employment of such employee regardless of the reason for such termination of employment; or (ii) Agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be materially increased, or the vesting of benefits of which will be materially accelerated, by the occurrence of any of the transactions contemplated by this Agreement and the Plan of Merger or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement and the Plan of Merger. (f) A list of all employees, officers and development consultants of Visionary as of the date of this Agreement is set forth on Schedule -------- 2.15(f), and neither Visionary nor any Visionary Shareholder has any ------- knowledge that any of its key development employees (each of whom is listed on Schedule 2.10(i)) intends to leave its employ. Peter Gurian, as a ---------------- Visionary Shareholder and as the President of Visionary immediately prior to the Closing Date, warrants that on the Closing Date he will enter into a written employment agreement with the Surviving Corporation containing usual and customary terms of employment. (g) Except as set forth in Schedule 2.15 (g), all contributions due ----------------- from Visionary with respect to any of the Employee Plans have been made or accrued on Visionary's Financial Statements, and no further contributions will be due or will have accrued thereunder as of the Closing Date. (h) As of the Closing Date, other than amounts outstanding stemming from Visionary's normal payment cycle (i.e. 1/2 month), there are no outstanding payment obligations due to any employee of Visionary, nor any claims outstanding by any employee, for accrued and unpaid wages, salaries, bonuses, pensions, severance pay or other benefits. 2.16 Corporate Documents. Visionary has made available to Edge for ------------------- examination all documents and information listed in Article II or other exhibits called for by this Agreement that have been requested by Edge's legal counsel or accountants, including, without limitation, the following: (a) Copies of Visionary's Articles of Incorporation and Bylaws as currently in effect; (b) Visionary's minute book containing all records of all proceedings, consents, actions and meetings of Visionary's directors and shareholders; (c) Visionary's stock ledger, journal and other records reflecting all stock issuances and transfers; and AGREEMENT AND PLAN OF MERGER - Page 18 (d) All permits, orders and consents issued by any regulatory agency with respect to Visionary, or any securities of Visionary, and all applications for such permits, orders and consents. 2.17 No Brokers. Visionary is not obligated for the payment of fees or ---------- expenses of any investment banker, broker or finder in connection with the origin, negotiation or execution of this Agreement or the Plan of Merger or in connection with any transaction provided for herein or therein. 2.18 Disclosure. The representations and warranties contained in this ---------- Agreement and the schedules thereto delivered to Edge by Visionary or the Visionary Shareholders or both under this Agreement, taken together, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which such statements were made, not misleading. 2.19 Books and Records. The books, records and accounts of Visionary: ----------------- (a) Are in all material respects true and complete; (b) Have been maintained in accordance with reasonable business practices on a basis consistent with prior years; (c) Are stated in reasonable detail and accurately and fairly reflect the transactions and disposition of the assets of Visionary in all material respects; and (d) Accurately and fairly reflect in all material respects the basis for the Visionary Financial Statements. 2.20 Insurance. Visionary maintains fire and casualty, workers --------- compensation, general liability, "key man" and other insurance policies as listed on Schedule 2.20. Neither Visionary nor any Visionary Shareholder has any ------------- knowledge that any such insurance policy will not be renewed in the normal course. 2.21 Environmental Matters. --------------------- (a) During the period that Visionary has leased or occupied the premises currently occupied by it and those premises occupied by it since the date of its incorporation, there have been no disposals, releases or threatened releases of Hazardous Materials (as defined below) from or any presence thereof on any such premises that would have a material adverse effect upon the business or financial statements of Visionary. There is no presence, disposals, releases or threatened releases of Hazardous Materials on or from any of such premises, which may have occurred prior to Visionary having taken possession of any of such premises that would have a material adverse effect upon the business or financial statements of Visionary. For purposes of this Agreement, the terms "disposal," "release," and -------- ------- "threatened release" have the definitions assigned thereto by the ------------------ Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. ss. 9601 et seq., as amended ("CERCLA"). For the purposes ------ of this AGREEMENT AND PLAN OF MERGER - Page 19 Section 2.21, "Hazardous Materials" mean any hazardous or toxic substance, ------------------- material or waste which is or becomes prior to the Closing Date (as defined in Section 5.01) regulated under, or defined as a "hazardous substance," "pollutant," "contaminant," "toxic chemical," "hazardous material," "toxic substance" or "hazardous chemical" under any of the following: (i) CERCLA; (ii) The Emergency Planning and Community Right-to-Know Act, 42 U.S.C.ss.11001 et seq.; -- --- (iii) The Hazardous Material Transportation Act, 49 U.S.C.ss.1801, et seq.; -- --- (iv) The Toxic Substances Control Act, 15 U.S.C.ss.2601 et seq.; -- --- (v) The Occupational Safety and Health Act of 1970, 29 U.S.C.ss.651 et seq.; -- --- (vi) Regulations promulgated under any of the above statutes; or (vii) Any applicable state or local statute, ordinance, rule or regulation that has a scope or purpose similar to those identified above. (b) None of the premises currently leased or occupied by Visionary or any premises previously occupied by Visionary is in material violation of any federal, state or local law, ordinance, regulation or order relating to industrial hygiene or to the environmental conditions in such premises. (c) During the time that Visionary has leased or occupied the premises currently occupied by it or any premises previously occupied by Visionary, neither Visionary nor, to the knowledge of Visionary or the Visionary Shareholders, any third party, has used, generated, manufactured or stored in such premises or transported to or from such premises any Hazardous Materials that would have a material adverse effect upon the business or financial statements of Visionary. (d) During the time that Visionary has leased or occupied the premises currently occupied by it or any premises previously occupied by Visionary, there has been no litigation, proceeding or administrative action brought or threatened in writing against Visionary by, or any settlement reached by Visionary with, any party or parties alleging the presence, disposal, release or threatened release of any Hazardous Materials on, from or under any of such premises. (e) During the period that Visionary has leased or occupied the premises currently occupied by it or any premises previously occupied by Visionary, no Hazardous Materials have been transported from such premises to any site or facility now listed or AGREEMENT AND PLAN OF MERGER - Page 20 proposed for listing on the National Priorities List, at 40 C.F.R. Part 300, or any list with a similar scope or purpose published by any state authority. 2.22 Government Contracts. Except as set forth on Schedule 2.22, Visionary -------------------- ------------- has no business contracts with any independent or executive agency, division, subdivision, audit group or procuring office of the federal government or of a state government, including any prime contractor of the federal government and any higher level subcontractor of a prime contractor of the federal government, and including any employees or agents thereof, in each case acting in such capacity. 2.23 Product Liability and Warranty Proceedings. No product liability, ------------------------------------------ warranty or similar actions, suits or proceedings have been asserted against Visionary since the Balance Sheet Date other than as set forth in the Visionary Financial Statements. 2.24 WARN Compliance. Since the Balance Sheet Date, Visionary has not --------------- incurred any liability or obligation under the Worker Adjustment and Retraining Notification Act (WARN) or similar state laws. Visionary has not (a) closed any facilities or discontinued any operating unit with 50 or more workers; (b) laid off or terminated 33% or more of the total workforce at any singe site of employment, or (c) laid off or terminated 500 or more workers at a singe site or employment during the ninety (90) day period preceding the Closing Date. It shall be the obligation of Visionary and the Visionary Shareholders to provide any notice required by said Act by reason of the provisions, execution or operation of this Agreement. Further, Visionary is fully and solely responsible for any WARN Act liability or notice requirements relating to any events occurring prior to and through the Closing Date. 2.25 ADA Compliance. Except as set forth in Schedule 2.25, Visionary has -------------- ------------- complied and is in material compliance with the provisions of the Americans with Disabilities Act (the "ADA"). 2.26 Year 2000 Compliance. Except as set forth in Schedule 2.26, each -------------------- ------------- automated, computerized and/or software system or program (each a "System") licensed, marketed, sold or used by Visionary is designed to be used prior to, during and after the calendar year 2000 A.D., including leap years, and each System will operate during each such time period without error relating to date data, specifically including any error relating to, or the product of, date data which represents or references different centuries or more than one century ("Year 2000 Compliant"). Without limiting the generality of the foregoing, each of the Visionary Shareholders further represents and warrants that: (a) Each System will not abnormally end or provide invalid or incorrect results as a result of date data, specifically including data which represents or references different centuries or more than one century; (b) Each System has been designed to ensure that it is Year 2000 Compliant, including, but not limited to, date data recognition, calculations which accommodate same century and multi-century formulas and date values and date data interface values that reflect the century; AGREEMENT AND PLAN OF MERGER - Page 21 (c) Each System will manage and manipulate data involving dates, including single century formulas and multi-century formulas, and will not cause an abnormally ending scenario or result within the application or generate incorrect values or invalid results involving such dates; (d) Each System provides that all date-related user interface functionalities include the indication of century; (e) All date processing by the System shall be stored and interpreted according to one of the following methods: (i) Field expansion format; (ii) Century indicator; (iii) Converting to packed or binary fields; or (iv) Industry standard date windowing techniques; and (f) Each System will continue to be Year 2000 Compliant. Notwithstanding the preceding provisions of this Section, to the extent any such System of Visionary must perform with third-party systems or products collectively as an unified information processing system, each System will properly exchange date/time data among such other systems and programs to accurately receive, provide and process date/time data (including, but not limited to, calculating, comparing and sequencing) prior to, during and after the calendar year 2000 A.D., including leap years and will not malfunction, cease to function or provide invalid or incorrect results as a result of date/time data; provided that any third-party system or product functions in accordance with the provisions hereof. Visionary has, prior to the Closing Date, submitted or made available to Edge each such System licensed, marketed, sold or used by Visionary for Year 2000 testing procedure reasonably approved by Edge. 2.27 Accounts Receivable. Except as set forth in Schedule 2.27, the ------------------- ------------- accounts receivable set forth in the Visionary Financial Statements and those accounts receivable accruing through the Closing Date (the "Collectible A/R") represent valid and bona fide sales to third parties incurred in the ordinary course of business, subject to no defenses, set-offs or counterclaims other than those resulting from applicable insolvency laws. Each of the Visionary Shareholders warrant the Surviving Corporation's collection of the Collectible A/R within sixty (60) days of the Closing Date; provided, however, that any portion of the Collectible A/R that is not collected within such 60 day period (the "Collectible A/R Deficiency") shall be assigned to the Visionary Shareholders after the end of such 60 day period and after the Collectible A/R Deficiency has either been deducted from the Withheld Merger Consideration or been paid to Edge pursuant to the indemnification provisions of Section 6.02. Edge will reasonably cooperate and assist the Visionary Shareholders in collecting the Collectible A/R Deficiency. 2.28 Interests in Customers, Suppliers, Etc. No shareholder, officer, -------------------------------------- director or affiliate of Visionary possesses, directly or indirectly, any financial interest in, or is a director, officer, AGREEMENT AND PLAN OF MERGER - Page 22 employee or affiliate of, any corporation, firm, association or business organization that is a client, supplier, customer, lessor, lessee or competitor of Visionary. Ownership of securities of a corporation whose securities are registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), not in excess of one percent (1%) of any class of such securities shall not be deemed to be a financial interest for purposes of this Section 2.28. ------------ 2.29 Business Relations. Schedule 2.29 contains an accurate list of all ------------------ ------------- significant customers of Visionary (i.e., those customers representing 5% or more of Visionary's revenues for the 24 month period ended December 31, 2001 or who have paid to Visionary $10,000 or more over any two consecutive fiscal quarters in the 24 month period ended December 31, 2001). Except as set forth in Schedule 2.29, to the knowledge of Visionary or the Visionary Shareholders, no - ------------- customer or supplier of Visionary will cease to do business with Visionary after the consummation of the transactions contemplated hereby, which cessation would have a material adverse effect on the business, operations or financial condition of Visionary. Except as set forth in Schedule 2.29, since December 31, ------------- 2000, Visionary has not experienced any difficulties in obtaining any inventory items necessary to the operation of its business, and no such shortage of supply of inventory items is pending or threatened. Visionary is not required to provide any bonding or other financial security arrangements in any amount in connection with any transactions with any of its customers or suppliers. 2.30 Bank Accounts and Powers of Attorney. Schedule 2.30 sets forth each ------------------------------------ ------------- bank, savings institution and other financial institution with which Visionary has an account or safe deposit box and the names of all persons authorized to draw thereon or to have access thereto. Each person holding a power of attorney or similar grant of authority on behalf of Visionary is identified on Schedule -------- 2.30. Except as disclosed on such Schedule, Visionary has not given any - ---- revocable or irrevocable powers of attorney to any person, firm, corporation or organization relating to its business for any purpose whatsoever. 2.31 Status of Trade Payables. As of March 12, 2002, Visionary has no other ------------------------ trade payable accounts other than those provided on Schedule 2.31 (collectively the "Trade Payables"). 2.32 Advisability of Obtaining Separate Counsel. Each of Visionary and the ------------------------------------------ Visionary Shareholders hereby acknowledges that Edge has advised and encouraged them to obtain separate counsel to review this Agreement and to represent Visionary and the Visionary Shareholders in the negotiating and closing of this Agreement and the related transactions, and further each of Visionary and the Visionary Shareholders represent and warrant that the decision whether to obtain such legal counsel has been made independently and in the exercise of each such party's discretion. ARTICLE III INVESTMENT REPRESENTATIONS Each Visionary Shareholder jointly and severally represents and warrants to Edge as of the date of this Agreement that: 3.01 Information Delivered. Such Visionary Shareholder: --------------------- AGREEMENT AND PLAN OF MERGER - Page 23 (a) Has received from Edge copies of Edge's Reports (the "Reports") on ------- Form 10-KSB for the fiscal year ended December 31, 2000, the Form 10-KSB/A filed on April 30, 2001, Form 10-QSB for the fiscal quarters ended March 31, 2001, June 30, 2001 and September 30, 2001 (the Reports collectively referred to herein as the "SEC Documents"); and ------------- (b) Has had the opportunity to ask questions of and receive answers from Edge concerning the terms and conditions of this Agreement and to obtain from Edge any additional information that Edge possesses or can acquire without unreasonable effort or expense necessary to verify the accuracy of the information described in the SEC Documents. 3.02 Stock Ownership. Such Visionary Shareholder has the full legal right, --------------- power and authority to enter into this Agreement. Such Visionary Shareholder owns beneficially (subject only to any community property interest of such shareholder's spouse) and of record the shares of Visionary Common Stock set forth opposite such Visionary Shareholder's name on Schedule 3.02 and such ------------- shares of Visionary Common Stock, together with the other shares of Visionary Common Stock set forth on Schedule 3.02, constitute all of the outstanding ------------- shares of capital stock of Visionary, and such shares of Visionary Common Stock owned by such Visionary Shareholder are owned free and clear of all liens other than standard state and federal securities laws private offering restrictions. Such Visionary Shareholder has owned Visionary Common Stock since the date set forth on Schedule 3.02. ------------- 3.03 Waiver of Preemptive Rights. Other than as contemplated by this --------------------------- Agreement or any agreement to be executed in connection with this Agreement, such Visionary Shareholder has no, or hereby waives, any preemptive or other right to acquire shares of Visionary Common Stock. 3.04 No Claims. Such Visionary Shareholder has no claims against Visionary. --------- ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EDGE TECHNOLOGY GROUP, INC. Edge hereby represents and warrants that, except as set forth in the Schedules provided by Edge attached to this Agreement: 4.01 Organization and Good Standing. Edge is a corporation duly organized, ------------------------------ validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted and as proposed to be conducted. Edge is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership of its properties, the employment of its personnel or the conduct of its business requires it to be so qualified, except where the failure to so qualify would not have a material adverse effect on Edge, its assets, properties or financial condition. 4.02 Power, Authorization and Validity. --------------------------------- AGREEMENT AND PLAN OF MERGER - Page 24 (a) Edge has the corporate right, power, legal capacity and authority to enter into and perform its obligations under this Agreement and all agreements to which Edge is or will be a party as contemplated by this Agreement (the "Edge Ancillary Agreements"). The execution, delivery and ------------------------- performance of this Agreement and the Edge Ancillary Agreements have been duly and validly approved by the Edge Board of Directors as required by applicable law. (b) No filing, authorization or approval, governmental or otherwise, is necessary to enable Edge to enter into, and to perform its obligations under, this Agreement and the Edge Ancillary Agreements, except for (i) the filing of the Plan of Merger with the Secretary of State of the State of Texas (which filing has been authorized by all necessary corporate action) and (ii) consents disclosed in Schedule 4.02 (b). ----------------- (c) This Agreement and the Edge Ancillary Agreements are, or when executed and delivered by Edge will be, valid and binding obligations of Edge, enforceable against Edge in accordance with their respective terms, except as to the effect, if any, of: (i) Applicable bankruptcy and other similar laws affecting the rights of creditors generally, (ii) Rules of law governing specific performance, injunctive relief and other equitable remedies; and (iii) Any rights to indemnification being limited under applicable securities laws; provided, however, that the Edge Ancillary Agreements will not be effective until the earlier of the date set forth therein or the Effective Time. 4.03 Information Delivered. Edge has: --------------------- (a) Delivered to the Visionary Shareholders copies of the SEC Documents; and (b) Provided the Visionary Shareholders the opportunity to ask questions of and receive answers from Edge concerning the terms and conditions of this Agreement and to obtain from Edge any additional information that Edge possesses or can acquire without unreasonable effort or expense necessary to verify the accuracy of the information described in the SEC Documents. AGREEMENT AND PLAN OF MERGER - Page 25 ARTICLE V CLOSING MATTERS 5.01 The Closing. The closing of this Agreement and the transactions ----------- contemplated hereunder (the "Closing") shall take place contemporaneously with the execution hereof and on the date hereof (the "Closing Date") but for all purposes shall be deemed to occur as of the close of business on the Closing Date. Prior to or concurrently with the Closing, the Plan of Merger and such other documents as may be required to effectuate the Merger will be filed in the office of the Secretary of State of the State of Texas, and the Merger will become effective at the Effective Time. 5.02 Exchange of Certificates. ------------------------ (a) As of the Effective Time, all shares of Visionary Common Stock that are outstanding immediately prior thereto will, by virtue of the Merger and without further action, cease to exist, and each share of Visionary Common Stock will be converted into the right to receive from Edge that portion of the Merger Consideration, subject to the withholding provisions of Section 1.03, that each such share bears to the total of all shares of Visionary Common Stock issued and outstanding as of the Effective Time (the "Pro Rata Portion"). (b) Upon the Effective Time, the holder of shares of Visionary Common Stock will surrender (i) the certificates of such shares (the "Visionary --------- Certificates") to Edge for cancellation or (ii) an affidavit of lost (or ------------ non-issued) certificate and agreement to indemnify in form satisfactory to Edge (an "Affidavit"). Further, all rights to acquire capital stock of --------- Visionary (whether in the form of options, warrants, or rights to convert securities) shall be terminated upon the Effective Time, such that upon the payment of the Merger Consideration, Edge will hold 100% of the capital stock of Visionary and no rights or options to purchase or receive any shares of Visionary's capital stock shall be outstanding. Immediately following the Effective Time and receipt of Visionary Certificates and of any Affidavits, Edge will deliver such holder's Pro Rata Portion of the Merger Consideration less any amounts withheld pursuant to Section 1.03. (c) After the Effective Time, there will be no further registration of transfers of the shares of Visionary Common Stock on the stock transfer books of Visionary. ARTICLE VI SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING COVENANTS 6.01 Survival of Representations. --------------------------- (a) Visionary's Representations. All representations and warranties of --------------------------- Visionary contained in Articles II and III of this Agreement (other than the representations and warranties contained in Sections 2.03 and 2.09) (the "General Representations") will remain operative and in full force and effect (but only as of the Closing Date) for a period AGREEMENT AND PLAN OF MERGER - Page 26 of two (2) years and one day after the Closing Date, regardless of any investigation made by or on behalf of the parties to this Agreement. The representations and warranties contained in Sections 2.03 and 2.09 (the "Special Representations") will remain operative and in full force and effect (but only as of the Closing Date) for a period of five (5) years and one day after the Closing Date (such time period to be referred to hereafter as the "Post-Closing Period"), regardless of any investigation made by or on behalf of the parties to this Agreement. Notwithstanding the preceding provisions of this Section 6.01(a), any act or omission constituting fraud shall have no limit as to time. (b) Edge's Representations. All representations and warranties of Edge ---------------------- contained in Article IV of this Agreement will remain operative and in full force and effect (but only as of the Closing Date) for a period of two (2) years and one day after the Closing Date, regardless of any investigation made by or on behalf of the parties to this Agreement other than any act or omission constituting fraud, which shall have no limitation as to time. 6.02 Visionary Agreement to Indemnify. -------------------------------- (a) The Visionary Shareholders Indemnity. Subject to the limitations ------------------------------------ set forth in Section 6.02(b), the Visionary Shareholders will indemnify and hold harmless Edge and its respective officers, directors, agents and employees, and each person, if any, who controls or may control Edge (hereinafter in this Section 6.02 referred to individually as an "Indemnified Person" and collectively as "Indemnified Persons") from and ------------------ ------------------- against any and all claims, demands, actions, causes of action, losses, costs, damages, liabilities and expenses including, without limitation, reasonable legal fees, arising out of any misrepresentation or breach of or default in connection with any of the representations, warranties and covenants given or made by Visionary and/or the Visionary Shareholders in this Agreement or any certificate, document or instrument delivered by or on behalf of Visionary and/or by the Visionary Shareholders pursuant hereto (hereafter in this Section 6.02 referred to as the "Edge Damages"). In ------------ addition to and apart from the Edge Damages, the Visionary Shareholders jointly and severally shall indemnify, defend and hold harmless Visionary and the Indemnified Persons from and against any and all claims, demands, actions, causes of action, losses, costs, damages, liabilities and expenses including, without limitation, reasonable legal fees, arising out of or resulting from any adverse judgment, action, claim, penalty, or any loss whatsoever of any kind relating to the Brower Matter. (b) Withheld Merger Consideration. Except for the Adjustment Amounts ----------------------------- set forth in Section 1.03 above, Indemnified Persons shall make no deductions in the Withheld Merger Consideration and shall have no claims against the Visionary Shareholders unless and until the Edge Damages exceed $10,000, (the "Threshold Amount"), at which point the Indemnified Persons shall be entitled to indemnification for all claims, including those within the Threshold Amount. In seeking indemnification for Edge Damages under this Section 6.02 following the Closing, the Indemnified Persons shall be entitled to, including, without limitation, available amounts of the Withheld Merger Consideration and all other remedies available at law or in equity. AGREEMENT AND PLAN OF MERGER - Page 27 (c) Peter Gurian shall act as the representative of the Visionary Shareholders for purposes of Sections 6.02 and 6.03 of this Agreement (the "Claims Representative"), and is duly authorized to be such Claims Representative and may bind the Visionary Shareholders. Promptly after the receipt by Edge of notice or discovery of any claim, damage or legal action or proceeding giving rise to indemnification rights under this Section 6.02, Edge will give the Claims Representative written notice of such claim, damage, legal action or proceeding (for purposes of this Section 6.02, a "Claim") in accordance with Section 6.02 of this Agreement. Within seven days of delivery of such written notice, the Claims Representative may, with Edge's written consent, which shall not be unreasonably withheld, at the expense of the Visionary Shareholders, elect to take all necessary steps properly to contest any Claim involving third parties or to prosecute or defend such Claim to conclusion or settlement. If the Claims Representative makes the foregoing election, then the Claims Representative will take all necessary steps to contest any such Claim or to prosecute or defend such Claim to conclusion or settlement, and will notify Edge of the progress of any such Claim, will permit Edge, at its expense, to participate in such prosecution or defense (provided; however, that if a -------- ------- conflict of interest exists which would make it inappropriate, in the reasonable opinion of Edge, for the same counsel to represent both Edge and the Visionary Shareholders in the resolution of such Claim, then Edge may retain separate counsel, the fees and expenses of which shall not be borne by Edge but shall instead be borne by the Visionary Shareholders) and will provide Edge with reasonable access to all relevant information and documents relating to the Claim and the Claims Representative's prosecution or defense thereof. If the Claims Representative does not make such election, then Edge shall be free to handle the prosecution or defense of any such Claim, will take all necessary steps to contest any such Claim involving third parties or to prosecute or defend such Claim to conclusion or settlement, will notify the Claims Representative of the progress of any such Claim, and will permit the Claims Representative, at the expense of the Visionary Shareholders (which expense shall be paid for from sources other than the Withheld Merger Consideration), to participate in such prosecution or defense and will provide the Claims Representative with reasonable access to all relevant information and documents relating to the Claim and Edge's prosecution or defense thereof. In either case, the party not in control of a Claim will fully cooperate, and will cause its counsel, if any, to fully cooperate, with the other party in the conduct of the prosecution or defense of such Claim. Neither party will compromise or settle any such Claim without the written consent of either Edge (if the Claims Representative defends the Claim) or the Claims Representative (if Edge defends the Claim), such consent not to be unreasonably withheld. (d) Any written notice of a Claim required under this Section 6.02 (for purposes of this Section 6.02, a "Notice of Claim") will be in writing and will contain the following information to the extent reasonably available to Edge : (i) Edge's good faith estimate of the reasonably foreseeable maximum amount of the alleged Edge Damages (which amount may be the amount of damages claimed by a third party plaintiff in an action brought against Edge or Visionary); and AGREEMENT AND PLAN OF MERGER - Page 28 (ii) A brief description in reasonable detail of the facts, circumstances or events giving rise to the alleged Edge Damages based on Edge's good faith belief thereof and the basis under this Agreement for such Claim, including, without limitation, the identity and address of any third-party claimant (to the extent reasonably available to Edge) and copies of any formal demand or complaint. (e) For purposes of Sections 6.02 and 6.03, the Visionary Shareholders hereby consent to the appointment of the Claims Representative, as representative of the Visionary Shareholders, and as the attorney-in-fact for and on behalf of each Visionary Shareholder, and, subject to the express limitation set forth below, the taking by the Claims Representative of any and all actions and the making of any decisions required or permitted to be taken by the Claims Representative under Sections 6.02 and 6.03, including, without limitation, the exercise of the power to: (i) Agree to Edge's deductions against the Withheld Merger Consideration, or any portion thereof, in satisfaction of any Claims (for purposes of this Section 6.02, the term "Claims" is as defined in Sections 6.02 and 6.03); (ii) Agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to any Claims; (iii) Resolve any Claims; and (iv) Take all actions necessary in the judgment of the Claims Representative for the accomplishment of the foregoing and all of the other terms, conditions and limitations of this Agreement. (f) The Claims Representative will have unlimited authority and power to act on behalf of each Visionary Shareholder with respect to Sections 6.02 and 6.03 and the disposition, settlement or other handling of all Claims, rights or obligations arising under this Agreement so long as all Visionary Shareholders are treated in the same manner. The Visionary Shareholders will be bound by all actions taken by the Claims Representative in connection with Sections 6.02 and 6.03, and Edge will be entitled to rely on any action or decision of the Claims Representative. In performing the functions specified in Sections 6.02 and 6.03, the Claims Representative will not be liable to the Visionary Shareholders in the absence of gross negligence or willful misconduct. Peter Gurian hereby accepts the position of Representative subject to the right to resign as set forth below. The Claims Representative may resign from such position, effective upon a new representative being appointed in writing by Visionary Shareholders who beneficially own a majority of the withheld portion of the Visionary Common Stock. The Claims Representative will not be entitled to receive any compensation from Edge or the Visionary Shareholders in connection with this Agreement. Each Visionary Shareholder will pay to the Claims Representative his or her Pro Rata Portion of any out-of-pocket costs and expenses AGREEMENT AND PLAN OF MERGER - Page 29 reasonably incurred by the Claims Representative in connection with actions taken pursuant to the terms of Sections 6.02 and 6.03, and such amounts shall not be deducted against the Withheld Merger Consideration. 6.03 Edge Agreement to Indemnify. --------------------------- (a) Edge Indemnity. Subject to the limitations set forth in Section -------------- 6.03(b), Edge will indemnify and hold harmless the Visionary Shareholders (hereinafter in this Section 6.03 referred to individually as an "Edge ---- Indemnified Person" and collectively as "Edge Indemnified Persons") from ------------------ ------------------------ and against any and all claims, demands, actions, causes of action, losses, costs, damages, liabilities and expenses including, without limitation, reasonable legal fees, net of any recoveries under insurance policies or tax savings known to any Visionary Shareholder at the time of making of claim hereunder, arising out of any misrepresentation or breach of or default in connection with any of the representations, warranties and covenants given or made by Edge in this Agreement or any certificate, document or instrument delivered by or on behalf of Edge pursuant hereto (hereafter in this Section 6.03 referred to as "Visionary Damages"). ----------------- (b) Edge Indemnification Limitations. The indemnification provided for -------------------------------- in Section 6.02(b) will not apply unless and until the aggregate Visionary Damages for which one or more Edge Indemnified Persons seeks indemnification under Section 6.03(a) exceeds $10,000 in which event the indemnification provided for in Section 6.03(a) will include all Visionary Damages in excess of such sum. The provisions of this Section 6.03 shall be the sole remedy against Edge for breach of Article IV. (c) Process. Promptly after the receipt by any Visionary Shareholder ------- of notice or discovery of any claim, damage or legal action or proceeding giving rise to indemnification rights under this Section 6.03, such Visionary Shareholder will give Edge written notice of such claim, damage, legal action or proceeding (for purposes of this Section 6.03, a "Claim") in accordance with this Section 6.03. Within seven days of delivery of such written notice, Edge may, with such Visionary Shareholder's written consent, which shall not be unreasonably withheld, at the expense of Edge, elect to take all necessary steps properly to contest any Claim involving third parties or to prosecute or defend such Claim to conclusion or settlement. If Edge makes the foregoing election, then Edge will take all necessary steps to contest any such Claim or to prosecute or defend such Claim to conclusion or settlement, and will notify such Visionary Shareholder of the progress of any such Claim, will permit such Visionary Shareholder, at its expense, to participate in such prosecution or defense (PROVIDED, HOWEVER, that if a conflict of interest exists which would make it inappropriate, in the reasonable opinion of such Visionary Shareholder, for the same counsel to represent both such Visionary Shareholder and Edge in the resolution of such Claim, then such Visionary Shareholder may retain separate counsel, and the fees and expenses of one such counsel for all applicable Visionary Shareholders shall be borne by Edge rather than by any such Visionary Shareholder) and will provide such Visionary Shareholder with reasonable access to all relevant information and documents relating to the Claim and Edge's prosecution or defense thereof. If Edge does not make such election, then such Visionary Shareholder AGREEMENT AND PLAN OF MERGER - Page 30 shall be free to handle the prosecution or defense of any such Claim, will take all necessary steps to contest any such Claim involving third parties or to prosecute or defend such Claim to conclusion or settlement, will notify Edge of the progress of any such Claim, and will permit Edge, at the expense of Edge, to participate in such prosecution or defense and will provide Edge with reasonable access to all relevant information and documents relating to the Claim and such Visionary Shareholder's prosecution or defense thereof. In either case, the party not in control of a Claim will fully cooperate with, and will cause its counsel, if any, to fully cooperate with, the other party in the conduct of the prosecution or defense of such Claim. Neither party will compromise or settle any such Claim without the written consent of either such Visionary Shareholder (if Edge defends the Claim) or Edge (if such Visionary Shareholder defends the Claim), such consent not to be unreasonably withheld. Notwithstanding the foregoing provisions of this Section 6.03(c), if two or more Visionary Shareholders deliver, whether separately or together, a Claim to Edge arising from or relating to the same or a reasonably similar matter, then the Claims Representative shall act on behalf of each such Visionary Shareholder bringing such a Claim for purposes of this Section 6.03. (d) Notice. Any written notice of a Claim required under this Section ------ 6.03 (for purposes of this Section 6.03, a "Notice of Claim") will be in writing and will contain the following information to the extent reasonably available to such Visionary Shareholder: (i) Such Visionary Shareholder's good faith estimate of the reasonably foreseeable maximum amount of the alleged Visionary Damages (which amount may be the amount of damages claimed by a third party plaintiff in an action brought against such Visionary Shareholder); and (ii) A brief description in reasonable detail of the facts, circumstances or events giving rise to the alleged Visionary Damages based on such Visionary Shareholder's good faith belief thereof and the basis under this Agreement for such Claim, including, without limitation, the identity and address of any third-party claimant (to the extent reasonably available to such Visionary Shareholder) and copies of any formal demand or complaint. 6.04 Certain Agreements. The Visionary Shareholders will use all reasonable ------------------ efforts to cause all present employees of Visionary to execute Edge's forms of assignments of copyright and other intellectual property rights, noncompetition and trade secret agreements and confidentiality agreements. 6.05 Regulatory Approvals by Visionary Shareholders. The Visionary ---------------------------------------------- Shareholders will execute and file, or join in the execution and filing, of any application or other document that may be necessary in order to obtain the authorization, approval or consent of any governmental body, federal, state, local or foreign, which may be reasonably required, or which Edge may reasonably request, in connection with the consummation of the transactions provided for in this Agreement. AGREEMENT AND PLAN OF MERGER - Page 31 The Visionary Shareholders will use all reasonable efforts to obtain or assist Edge in obtaining all such authorizations, approvals and consents. 6.06 Regulatory Approvals by Edge. Edge will execute and file, or join in ---------------------------- the execution and filing, of any application or other document that may be necessary in order to obtain the authorization, approval or consent of any governmental body, federal, state, local or foreign, which may be reasonably required, or which Visionary may reasonably request, in connection with the consummation of the transactions provided for in this Agreement. Edge will use all reasonable efforts to obtain or assist Visionary in obtaining all such authorizations, approvals and consents. 6.07 Non-Disclosure of Visionary Proprietary Information. --------------------------------------------------- (a) Each of the Visionary Shareholders, by virtue of his involvement with and ownership of Visionary, had and may continue to have access, to confidential, proprietary, and highly sensitive information relating to the business of Visionary and which is a competitive asset of Visionary (the "Visionary Proprietary Information"). The Visionary Proprietary Information sought to be protected includes, without limitation, information pertaining to: (i) The identities of customers and clients with which or whom Visionary does or seeks to do business, as well as the point of contact persons and decision-makers at these customers and clients, including their names, addresses, e-mail addresses and positions; (ii) The past or present purchasing history and the past and/or current job requirements of each past and/or existing customer and client; (iii) The volume of business and the nature of the business relationship between Visionary and its customers and clients; (iv) The business plans and strategy of Visionary, including customer or client assignments and rearrangements, sales and administrative staff expansions, marketing and sales plans and strategy, proposed adjustments in compensation of sales personnel, revenue, expense and profit projections, industry analyses, and any proposed or actual implemented technology changes; (v) Information regarding the employees of Visionary, including their identities, skills, talents, knowledge, experience, and compensation; (vi) The financial results and business condition of Visionary; (vii) Computer programs and software developed by Visionary and tailored to its needs by its employees, independent contractors, consultants or vendors; AGREEMENT AND PLAN OF MERGER - Page 32 (viii) Information relating to the Visionary' engineers, designers, contractors, or persons likely to become engineers, designers, or contractors; (ix) Any past, present or future merchandise or supply sources; and (x) System designs, procedure manuals, automated data programs, reports and personnel procedures. (b) In light of the foregoing, and in connection with and in consideration for the Merger Consideration to be received pursuant to the terms of this Agreement, each Visionary Shareholder hereby agrees that for the duration of the Post-Closing Period such Visionary Shareholder will not use, publish, disclose or divulge, directly or indirectly, at any time, any Visionary Proprietary Information for his own benefit or for the benefit of any person, entity, or corporation other than Visionary, to any person who is not a current employee of Visionary, without the express, written consent of Edge. To the extent that any Visionary Shareholder has obligations similar to those outlined in this Section 6.07 in any other agreement with Edge and/or the Successor Corporation, including, without limitation, any employment agreement, then the terms of this Section 6.07 shall control the scope and duration of such obligations. 6.08 Non-Competition. In connection with and in consideration for the --------------- Merger Consideration to be received pursuant to the terms of this Agreement, each Visionary Shareholder hereby agrees that for the duration of the Post-Closing Period such Visionary Shareholder will not, without the prior written consent of Edge, directly or indirectly, alone or for his own account, or as owner, partner, investor, member, trustee, officer, director, shareholder, employee, consultant, distributor, advisor, representative or agent of any partnership, joint venture, corporation, trust, or other business organization or entity engage in any business or activity within a 100 mile radius of the municipal boundaries of Dallas, Texas if such business or activity relates to the business of, or involves the provision of services or products which directly or indirectly competes with the business of, Visionary, as now conducted or as may be conducted in the future. To the extent that any Visionary Shareholder has obligations similar to those outlined in this Section 6.08 in any other agreement with Edge and/or the Successor Corporation (including, without limitation, any employment agreement) then the terms of this Section 6.08 shall control the scope and duration of such obligations. 6.09 Non-Solicitation of Employees and Consultants; Non-Solicitation of ------------------------------------------------------------------ Clients. - ------- (a) In connection with and in consideration for the Merger Consideration to be received pursuant to the terms of this Agreement, each Visionary Shareholder hereby agrees that for the duration of the Post-Closing Period such Visionary Shareholder will not, without the prior written consent of Edge, recruit, hire, solicit, or attempt to recruit, hire or solicit, directly or by assisting others, any employees or consultants employed by or associated with Visionary, nor shall he contact or communicate with any employees or consultants of Visionary for the purpose of inducing employees or consultants to terminate their employment or association with Visionary. For purposes of this covenant, "employees or AGREEMENT AND PLAN OF MERGER - Page 33 consultants" shall refer to permanent employees, temporary employees, or consultants who were employed by, doing business with, or associated with Visionary within six (6) months of the time of the attempted recruiting, hiring or solicitation. (b) In connection with and in consideration for the Merger Consideration to be received pursuant to the terms of this Agreement, each Visionary Shareholder hereby agrees that for the duration of the Post-Closing Period such Visionary Shareholder will not, without the prior written consent of Edge, directly or indirectly, alone or for his own account, or as owner, partner, investor, member, trustee, officer, director, shareholder, employee, consultant, distributor, advisor, representative or agent of any partnership, joint venture, corporation, trust, or other business organization or entity, contact, solicit, or seek to divert the business or patronage of any person, association, corporation, or other business organization or entity with whom or which either Edge, Visionary, and/or the Successor Corporation had a business relationship, including, without limitation a customer, client, supplier, or vendor relationship, within the period six months before the Closing Date or will have during the Post-Closing Period. (c) To the extent that any Visionary Shareholder has obligations similar to those outlined in this Section 6.09 in any other agreement with Edge and/or the Successor Corporation (including, without limitation, any employment agreement) then the terms of this Section 6.09 shall control the scope and duration of such obligations. 6.10 Continuation of Certain Lease Obligations. After the Effective Time, ----------------------------------------- Edge will cause the Surviving Corporation to continue and maintain the following lease obligations until the expiration of the current term of each lease in effect as of the Closing Date, without giving effect to any automatic renewals provisions that may be contained in the terms of such lease: (a) Lease for Mercedes CLK automobile for use by the employees of the Company; and (b) Lease for BMW 740i automobile for use by Peter Gurian (including up to a $500 payment for excess usage charges, if any, that may be due and owing upon the expiration of the lease). ARTICLE VII MISCELLANEOUS 7.01 Governing Law; Specific Performance; Dispute Resolution. The laws of ------------------------------------------------------- the State of Texas (without regard to its choice of law principles that might apply the law of another jurisdiction) will govern the validity of this Agreement, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties. Notwithstanding any other provision of this Agreement, it is understood and agreed that the remedy of indemnity payments and other remedies at law would be inadequate in the case of any breach of the covenants contained herein and each party agrees that any other party shall be entitled to equitable relief, including the remedy of specific performance, without posting of bond or other security, with respect to any breach or attempted breach of such covenants. Any dispute hereunder ("Dispute") ------- shall be settled by AGREEMENT AND PLAN OF MERGER - Page 34 arbitration in Dallas, Texas and, except as herein specifically stated, in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA Rules") then in effect. However, in all events, these --------- arbitration provisions shall govern over any conflicting rules that may now or hereafter be contained in the AAA Rules. Any judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction over the subject matter thereof. The arbitrator shall have the authority to grant any equitable and legal remedies that would be available in any judicial proceeding instituted to resolve a Dispute. (a) Compensation of Arbitrator. Any such arbitration will be conducted -------------------------- before a single arbitrator who will be compensated for his or her services at a rate to be determined by the parties or by the American Arbitration Association, but based upon a reasonable hourly or daily consulting rate for the arbitrator if the parties are not able to agree upon his or her rate of compensation. (b) Selection of Arbitrator. The American Arbitration Association will ----------------------- have the authority to select an arbitrator from a list of arbitrators who are lawyers familiar with Texas contract law and experienced in mergers and acquisitions; provided, however, that such lawyers cannot work for a firm then performing services for either party, that each party will have the opportunity to make such reasonable objection to any of the arbitrators listed as such party may wish and that the American Arbitration Association will select the arbitrator from the list of arbitrators as to whom neither party makes any such objection. If the foregoing procedure is not followed, each party will choose one person from the list of arbitrators provided by the American Arbitration Association (provided that such person does not have a conflict of interest), and the two persons so selected will select from the list provided by the American Arbitration Association the person who will act as the arbitrator. (c) Payment of Costs. Edge and the Visionary Shareholders will each ---------------- pay 50% of the initial compensation to be paid to the arbitrator in any such arbitration and 50% of the costs of transcripts and other normal and regular expenses of the arbitration proceedings; provided, however, that the prevailing party in any arbitration will be entitled to an award of attorneys' fees and costs, and all costs of arbitration, including those provided for above, will be paid by the non-prevailing party, and the arbitrator will be authorized to make such determinations. (d) Burden of Proof. For any Dispute submitted to arbitration, the --------------- burden of proof will be as it would be if the claim were litigated in a Texas judicial proceeding. (e) Award. Upon the conclusion of any arbitration proceedings ----- hereunder, the arbitrator will render findings of fact and conclusions of law and a written opinion setting forth the basis and reasons for any decision reached and will deliver such documents to each party to this Agreement along with a signed copy of the award. (f) Terms of Arbitration. The arbitrator chosen in accordance with -------------------- these provisions will not have the power to alter, amend or otherwise affect the terms of these arbitration provisions or the provisions of this Agreement. AGREEMENT AND PLAN OF MERGER - Page 35 (g) Exclusive Remedy. Except as specifically otherwise provided in ---------------- this Agreement, arbitration will be the sole and exclusive remedy of the parties for any Dispute arising out of this Agreement. 7.02 Assignment; Binding Upon Successors and Assigns. No party may assign ----------------------------------------------- any of its rights or obligations hereunder without the prior written consent of the other party. This Agreement will be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. 7.03 Severability. If any provision of this Agreement, or the application ------------ thereof, is for any reason held to any extent to be invalid or unenforceable, then the remainder of this Agreement and application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties. The parties further agree to replace such unenforceable provision of this Agreement with valid and enforceable provisions that will achieve, to the extent possible, the economic, business and other purposes of the invalid or unenforceable provisions. 7.04 Counterparts. This Agreement may be executed in counterparts, each of ------------ which will be an original as regards any party whose signature appears thereon and all of which together will constitute one and the same instrument. This Agreement will become binding when one or more counterparts hereof, individually or taken together, bear the signatures of all parties reflected hereon as signatories. This Agreement may be executed by facsimile signature. 7.05 Other Remedies. Except as otherwise provided herein, any and all -------------- remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby or by law on such party, and the exercise of any one remedy will not preclude the exercise of any other. 7.06 Amendment and Waivers. Any term or provision of this Agreement may be --------------------- amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only by a writing signed by the party to be bound thereby. The waiver by a party of any breach hereof or default in the performance hereof will not be deemed to constitute a waiver of any other default of any succeeding breach or default. This Agreement may be amended by the parties at any time. 7.07 No Waiver. The failure of any party to enforce any of the provisions --------- hereof will not be construed to be a waiver of the right of such party thereafter to enforce such provisions. The waiver by any party of the right to enforce any of the provisions hereof on any occasion will not be construed to be a waiver of the right of such party to enforce such provisions on any other occasion. 7.08 Expenses. Unless otherwise provided in the Agreement, each party will -------- bear its respective expenses and fees of its own accountants, attorneys, investment bankers and other professionals incurred with respect to this Agreement and the transactions contemplated hereby; provided, however, that Visionary will not incur, in connection with the Merger and the related transactions contemplated hereby, expenses for fees and expenses of lawyers, accountants and AGREEMENT AND PLAN OF MERGER - Page 36 other professionals in excess of $24,000 for the period of time from the December 31,2001 until the Closing Date, unless any such fees or expenses are paid by the Visionary Shareholders on or before the Closing Date. 7.09 Notices. Any notice or other communication required or permitted to be ------- given under this Agreement will be in writing, will be delivered personally or by facsimile, mail or express delivery, postage prepaid, and will be deemed given upon actual delivery or, if mailed by registered or certified mail, on the third business day following deposit in the mails, addressed as follows: (i) If to Edge : Edge Technology Group, Inc. 6611 Hillcrest, No. 223 Dallas, Texas 75205 Attention: Graham C. Beachum II with a copy, which does not constitute notice, to: Arter & Hadden LLP 1717 Main Street, Suite 4100 Dallas, Texas 75201 Attention: Victor B. Zanetti, Esq. Phone: (214) 761-4475 Fax: (214) 741-7139 (ii) If to Visionary or the Visionary Shareholders: The Visionary Group, Inc. 12222 Merit Drive, Suite 910 Dallas, Texas 75251 Attention: Peter Gurian Phone: (972) 770-4520 Fax: (972) 770-4530 with a copy, which does not constitute notice, to: Holman Robertson Eldridge, PC 5949 Sherry Lane, Suite 1700 Dallas, Texas 75225 Attention: Robert Solomon Phone: (214) 361-9494 Fax: (214) 691-2109 AGREEMENT AND PLAN OF MERGER - Page 37 or to such other address as the party in question may have furnished to the other party by written notice given in accordance with this Section 7.09. 7.10 Construction of Agreement; Knowledge. The language hereof will not be ------------------------------------ construed for or against either party. A reference to a section, schedule or exhibit refers to a section in, or a schedule or an exhibit to, this Agreement, unless otherwise explicitly set forth. The titles and headings in this Agreement are for reference purposes only and will not in any manner limit the construction of this Agreement. For the purposes of such construction, this Agreement will be considered as a whole. References in this Agreement to the knowledge of Visionary (or similar phrases) refer to the actual knowledge of any one or more of the officers and directors of Visionary and any of the Visionary Shareholders, each after due inquiry of its internal records or publicly available information; references in this Agreement to the knowledge of Edge (or similar phrases) refer to the actual knowledge of Graham C. Beachum, II, President and Chief Executive Officer, or David N. Pilotte, Executive Vice President and Chief Financial Officer, after due inquiry of its internal records or publicly available information. 7.11 No Joint Venture. Nothing contained in this Agreement will be deemed ---------------- or construed as creating a joint venture or partnership among the parties. No party is by virtue of this Agreement authorized as an agent, employee or legal representative of any other party. No party will have the power to control the activities and operations of any other, and the parties' status is, and at all times, will continue to be, that of independent contractors with respect to each other. Except as provided in Section 6.02(c), no party will have any power or authority to bind or commit any other. No party will hold itself out as having any authority or relationship in contravention of this Section 7.11. 7.12 Further Assurances. Each party agrees to cooperate fully with the ------------------ other party and to execute such further instruments, documents and agreements and to give such further written assurances as may be reasonably requested by the other party to evidence and reflect the transactions provided for herein and to carry into effect the intent of this Agreement. 7.13 Absence of Third Party Beneficiary Rights. No provisions of this ----------------------------------------- Agreement are intended, nor will be interpreted, to provide or create any third party beneficiary rights or any other rights of any kind in any client, customer, affiliate, partner or employee of any party or any other person or entity, unless specifically provided otherwise herein, and, except as so provided, all provisions hereof will be personal solely among the parties to this Agreement. 7.14 Public Announcement. Edge and Visionary will issue a press release ------------------- approved by both parties announcing the Merger as soon as practicable following the execution of this Agreement; provided, however, that Edge may make such press releases or other public filings or announcements without the approval of the other parties hereto upon the determination of Edge's counsel that such action is necessary to comply with any relevant laws related thereto. 7.15 Confidentiality. --------------- (a) Except as expressly authorized by Edge in writing, Visionary and each Visionary Shareholder will not directly or indirectly divulge to any person or entity or use AGREEMENT AND PLAN OF MERGER - Page 38 any Edge Confidential Information, except as required for the performance of its duties under this Agreement. As used herein, "Edge Confidential ----------------- Information" consists of: ----------- (i) Any information designated by Edge as confidential whether developed by Edge or disclosed to Edge by a third party; (ii) The source code to any Edge software, and any trade secrets relating to any of the foregoing; and (iii) Any information relating to Edge's product plans, product designs, product costs, product prices, product names, finances, marketing plans, business opportunities, personnel, research development or know-how. (b) Neither Edge nor Visionary shall divulge the terms and conditions of this Agreement, except as disclosed in accordance with Section 7.14, as necessary to effect the terms and conditions of this Agreement, or as otherwise required by law. (c) The foregoing restriction will apply to information about a party whether or not it was obtained from such party's employees, acquired or developed by the other party during such other party's performance under this Agreement, or otherwise learned. The foregoing restrictions will not apply to information that: (i) Has become publicly known through no wrongful act of the receiving party; (ii) Has been rightfully received from a third party authorized by the party which is the owner, creator or compiler to make such disclosure without restriction; (iii) Has been approved or released by written authorization of the party which is the owner, creator or compiler; or (iv) Is being or has therefore been disclosed pursuant to a valid court order after a reasonable attempt has been made to notify the party which is the owner, creator or compiler. 7.16 Entire Agreement. This Agreement, the schedules and exhibits hereto ---------------- constitute the entire understanding and agreement of the parties hereto with respect to the subject matter hereof and supersede all prior and contemporaneous agreements or understandings, inducements or conditions, express or implied, written or oral, among the parties with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance or usage of trade inconsistent with any of the terms hereof. [Signature Page Follows] AGREEMENT AND PLAN OF MERGER - Page 39 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. EDGE TECHNOLOGY GROUP, INC. THE VISIONARY GROUP, INC. By: /s/ Graham C. Beachum, II By: /s/ Peter Gurian ------------------------------------- ------------------------- Name: Graham C. Beachum, II Name: Peter Gurian Title: President and Chief Executive Officer Title: President VISIONARY ACQUISITION CORP. By: /s/ Graham C. Beachum, II ------------------------------------- Name: Graham C. Beachum, II Title: President and Chief Executive Officer THE VISIONARY GROUP, INC. SHAREHOLDERS: /s/ Peter Gurian - ------------------------- Peter Gurian /s/ Lindsay L. Purvis - ------------------------- Lindsay L. Purvis AGREEMENT AND PLAN OF MERGER - Page 40 EX-10.24 9 dex1024.txt AGREEMENT AND PLAN OF MERGER - APRIL 11, 2002 EXHIBIT 10.24 AGREEMENT AND PLAN OF MERGER AMONG EDGE TECHNOLOGY GROUP, INC., ETG ACQUISITION CORP., MEDIA RESOLUTIONS, INCORPORATED AND MEDIA RESOLUTIONS SHAREHOLDERS as of April 11, 2002 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as --------- of April 11, 2002, among Edge Technology Group, Inc., a Delaware corporation ("Edge"), ETG Acquisition Corp., a Texas corporation and a wholly owned ---- subsidiary of Edge ("Acquisition Corp."), Media Resolutions, Incorporated, a ---------------- Texas corporation ("Media Resolutions"), and Phillip B. Holmes and Jerry ----------------- Martilik (collectively, the "Media Resolutions Shareholders"). ------------------------------ RECITALS A. The parties intend that, subject to the terms and conditions hereinafter set forth, Acquisition Corp. will merge with and into Media Resolutions (the "Merger"). Media Resolutions will be the surviving corporation ------ (the "Surviving Corporation") and will become a wholly owned subsidiary of Edge. --------------------- The merger will occur pursuant to a Plan of Merger substantially in the form of Exhibit A (the "Plan of Merger") and the applicable provisions of the laws of - --------- -------------- the State of Texas. Upon the Merger, all outstanding Common Stock of Media Resolutions will be converted into a combination of cash and Common Stock of Edge, as set forth herein, and all outstanding Common Stock of Acquisition Corp. will be converted into Common Stock of Media Resolutions, in each case in the manner and on the basis determined herein and as provided in the Plan of Merger. B. Concurrently with the execution and delivery of this Agreement, the Media Resolutions Shareholders are executing and delivering to Media Resolutions' Secretary their unanimous written consents, as all of Media Resolutions' shareholders, to the Merger, this Agreement, the Plan of Merger and the transactions provided for herein. NOW, THEREFORE, in consideration of the foregoing and the mutual agreements of Edge, Media Resolutions, the Media Resolutions Shareholders and Acquisition Corp. contained herein, the parties agree as follows: ARTICLE I PLAN OF MERGER 1.01 The Merger. The Plan of Merger will be filed with the office of ---------- the Secretary of State of Texas as soon as practicable after the "Closing" (as defined in Section 5.01, below). The Merger shall be effective upon the filing of the Plan of Merger with the State of Texas (the "Effective Time"). Subject to --------------- the terms and conditions of this Agreement and the Plan of Merger, Acquisition Corp. will be merged with and into Media Resolutions pursuant to the Plan of Merger and in accordance with applicable provisions of the laws of the State of Texas as follows: (a) Merger Consideration. In exchange for all of the issued and -------------------- outstanding common stock of Media Resolutions (the "Media Resolutions Common Stock"), Edge shall deliver, in the aggregate, the following to the Media Resolutions Shareholders (the "Merger Consideration"): (i) $330,000 in cash (the "Cash Consideration"); AGREEMENT AND PLAN OF MERGER - Page 2 (ii) 500,000 shares of unregistered, restricted, privately placed shares of common stock of Edge (the "Edge ---- Common Stock") (the "Stock Consideration"); and ------------ (iii) an additional $30,000 in cash to be paid if and only if the conditions set forth in Section 1.06 have been met (the "Earnout Commission"). (b) Conversion of Shares. The shares of Media Resolutions -------------------- Common Stock, $1.00 par value per share (the "Media Resolutions Common ------------------------ Stock"), that are issued and outstanding immediately prior to the ----- Effective Time will by virtue of the Merger and at the Effective Time, and without further action on the part of any holder thereof, be converted into the right to receive the Merger Consideration, subject to all terms and conditions of this Agreement, including, without limitation, the provisions for withholding a portion of the Merger Consideration as provided in Section 1.03, below. (c) Media Resolutions Treasury Stock. All shares of Media -------------------------------- Resolutions Common Stock that are held by Media Resolutions as treasury stock, if any, shall be cancelled and retired and no Merger Consideration shall be delivered or paid in exchange therefore. 1.02 Fractional Shares. No fractional shares of Edge Common Stock will ----------------- be issued in connection with the Merger, but in lieu thereof, the holder of any shares of Media Resolutions Common Stock who would otherwise be entitled to receive a fraction of a share of Edge Common Stock would receive from Edge, promptly after the Effective Time, an amount of cash equal to $0.753 multiplied by the fraction of a share of Edge Common Stock to which such holder would otherwise be entitled. 1.03 Withheld Merger Consideration. At the Closing, Edge shall retain ----------------------------- $150,000 of the Cash Consideration (the "Withheld Merger Consideration"). (a) Edge may deduct from the Withheld Merger Consideration, in an amount not to exceed $75,000, any of the following amounts upon delivery of a notice to Media Resolutions and the accompanying documentation to evidence such deduction (each an "Adjustment Amount"): (i) any Media Resolutions Pre-Closing Date Tax Obligations, as defined in Section 2.08(b), that remain unpaid as of the Closing Date; (ii) any amounts of Collectible A/R Deficiency, as defined in Section 2.27; and (iii) the amount of any indebtedness of Media Resolutions existing on its balance sheet as of the Closing Date in excess of $10,000. (b) In addition to any Adjustment Amounts set forth above, Edge shall also have the right to deduct amounts from the Withheld Merger Consideration for any Claims, pursuant to the indemnification procedures set forth in Section 6.02. AGREEMENT AND PLAN OF MERGER - Page 3 (c) On the date that is six months and one day after the Effective Date, Edge shall release $75,000 of the Withheld Merger Consideration to the Media Resolutions Shareholders; provided, that on such date there are no current, pending or threatened Claims for indemnification under Section 6.02 that would exceed, in the aggregate, $75,000. (d) Edge shall release any remaining amounts of Withheld Merger Consideration to the Media Resolutions Shareholders on the date that is twelve months and one day from the Effective Date; provided, however, -------- ------- that on such date there are current, pending or threatened Claims ("Current Claims") for indemnification under Section 6.02, then Edge shall not release any amounts (the "Holdback") which Edge believes in good faith may be required to satisfy such Current Claims. Edge shall release the remaining balance of the Holdback within three (3) business days after the date that all Current Claims are finally resolved. (e) If all or a portion of any payment to be made pursuant to Sections 1.03(c) and 1.03(d) has not be paid when due, then any and all amounts payable due and payable at such time under this Agreement by Edge shall thereafter bear interest at a rate per annum equal to 12% until such overdue amount is paid in full. In addition thereto, Edge's obligations to make payment to the Media Resolutions Shareholders under Sections 1.03(c) and 1.03(d) shall be secured by a stock pledge, the form of which is attached hereto as Exhibit B. --------- (f) The deductions against the Withheld Merger Consideration set forth in this Section 1.03 shall not be deemed to be Edge's exclusive remedy for any breach by Media Resolutions or any Media Resolutions Shareholder of any term, condition, provision, or obligation hereunder. 1.04 Effects of the Merger. At the Effective Time: --------------------- (a) the separate existence of Acquisition Corp. will cease and Acquisition Corp. will be merged with and into Media Resolutions and Media Resolutions will be the surviving corporation pursuant to the terms of the Plan of Merger; (b) the Articles of Incorporation and Bylaws of Acquisition Corp. will become the Articles of Incorporation and Bylaws of the Surviving Corporation; (c) each share of Acquisition Corp. Common Stock outstanding immediately prior to the Effective Time will continue to be an identical outstanding share of the Surviving Corporation; (d) the composition of the Board of Directors of Media Resolutions shall be as set forth in Annex 1 to Exhibit A; ------- --------- (e) the officers of Media Resolutions shall be the persons set forth in Annex 1 to Exhibit A; and ------- --------- AGREEMENT AND PLAN OF MERGER - Page 4 (f) the Merger will, at and after the Effective Time, have all of the effects provided by applicable law. 1.05 Further Assurances. Media Resolutions agrees that if, at any time ------------------ after the Effective Time, Edge considers or is advised that any further deeds, assignments or assurances are reasonably necessary or desirable to vest, perfect or confirm in the Surviving Corporation title to any property or rights of Media Resolutions, Edge and any of its officers are hereby authorized by Media Resolutions to execute and deliver all such proper deeds, assignments and assurances and do all other things reasonably necessary or desirable to vest, perfect or confirm title to such property or rights in the Surviving Corporation and otherwise to carry out the purposes of this Agreement, in the name of Media Resolutions or otherwise. 1.06 Earnout Commissions. ------------------- (a) In the event that "RadCart Gross Revenue" (as defined below) during the period beginning on the Closing Date and continuing until the date that is twelve months after the Closing Date (the "Earnout Period") equals to or exceeds $60,000, then Edge shall make an earnout payment in the amount of $30,000 (the "Earnout Commission"), to the Media Resolutions Shareholders as set forth below. (b) For purposes of this Agreement, the term "RadCart Gross Revenue" shall mean an amount equal to the gross revenue actually received by the Surviving Corporation during the Earnout Period from the sale of, or provision of services related to, the RadCart web site shopping cart, whether in the form of a PC or PDA based shopping cart, including, but not limited to proceeds from any licenses granted or royalties received in connection with such products and services. (c) Edge shall pay to the Media Resolutions Shareholders an amount in cash equal to the Earnout Commission earned, if any, by the later of (i) sixty (60) days following the end of the Earnout Period or (ii) the final determination of the RadCart Gross Revenue. (d) As promptly as practicable, but in no event later than thirty (30) days after the end of the Earnout Period, Edge shall deliver to the Media Resolutions Shareholders a calculation of RadCart Gross Revenue. Media Resolution Shareholders shall, at their own expense, have an opportunity to audit the calculation and such audit shall be the final determination of said RadCart Gross Revenue. 1.07 Incidental Registration (a) If at any time after the date hereof ----------------------- but before the fifth anniversary of the date hereof, Edge proposes to register any of its common stock under the Securities Act of 1933 (the "Securities Act") (other than by a registration in connection with an acquisition in a manner which would not permit registration of the common stock for sale to the public, on Form S-8, or any successor form thereto, on Form S-4, or any successor form thereto), on an underwritten basis (either best-efforts or firm-commitment), then, Edge will each such time give prompt written notice to each of the Media Resolutions Shareholders of its intention to do so and of such Media Resolutions Shareholder's rights under this Section 1.07. Upon the written request of any such Media Resolutions Shareholder made within ten (10) days AGREEMENT AND PLAN OF MERGER - Page 5 after the receipt of any such notice (which request shall specify the Edge Common Stock intended to be disposed of by such Holder), Edge will, subject to the terms of this Agreement, effect the registration under the Securities Act of the requested Edge Common Stock, to the extent requisite to permit the disposition of such Edge Common Stock so to be registered, by inclusion of such Edge Common Stock in the registration statement which covers the securities which Edge proposes to register, provided that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, Edge shall determine for any reason either not to register or to delay registration of such securities, Edge may, at its election, give written notice of such determination to each Media Resolutions Shareholder and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Edge Common Stock in connection with such registration (but not from its obligation to pay the reasonable registration expenses in connection therewith), and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Edge Common Stock, for the same period as the delay in registering such other common stock of Edge. Edge will pay all registration expenses in connection with each registration of Edge Common Stock requested pursuant to this Section 1.07. (b) If the managing underwriter of the underwritten offering contemplated by this Section 1.07 shall inform Edge and the Media Resolutions Shareholders requesting registration of the Edge Common Stock by letter of its belief that the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, then Edge will include in such registration, to the extent of the number which Edge is so advised can be sold in such offering, (i) first securities proposed by Edge to be sold for its own account, and (ii) second Edge Common Stock and securities of other selling security holders requested to be included in such registration pro rata on the basis of the number of shares of such securities so proposed to be sold and so requested to be included; provided, however, the holders of Edge Common Stock shall have priority to all shares sought to be included by officers and directors of Edge as well as holders of ten percent (10%) or more of the common stock of Edge unless the holders of such shares are exercising their own registration rights. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE MEDIA RESOLUTIONS SHAREHOLDERS Each of the Media Resolutions Shareholders hereby jointly and severally represents and warrants that: 2.01 Organization and Good Standing. Media Resolutions is a corporation ------------------------------ duly organized, validly existing and in good standing under the laws of the State of Texas and has the corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted. Media Resolutions is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction listed in Schedule 2.01, which is each ------------- jurisdiction in which the ownership of its properties, the employment of its personnel or the conduct of its business requires it to be so qualified, except where the failure to so qualify would not have a material adverse effect on Media Resolutions, its assets, properties or financial condition. AGREEMENT AND PLAN OF MERGER - Page 6 2.02 Power, Authorization and Validity. --------------------------------- (a) Media Resolutions has the corporate right, power, legal capacity and authority to enter into and perform its obligations under this Agreement and all agreements to which Media Resolutions is or will be a party as contemplated by this Agreement (the "Media Resolutions ----------------- Ancillary Agreements"). The execution, delivery and performance of this -------------------- Agreement and the Media Resolutions Ancillary Agreements have been duly and validly approved by Media Resolutions Board of Directors and the Media Resolutions Shareholders, as required by applicable law. (b) No filing, authorization or approval, governmental or otherwise, is necessary to enable Media Resolutions to enter into, and to perform its obligations under, this Agreement and the Media Resolutions Ancillary Agreements, except for (i) the filing of the Plan of Merger with the Secretary of State of the State of Texas (which filing has been authorized by all necessary corporate approvals), and (ii) all Required Consents, as defined in Section 2.05 below (which Required Consents have been obtained). (c) This Agreement and the Media Resolutions Ancillary Agreements are, or when executed and delivered by Media Resolutions will be, valid and binding obligations of Media Resolutions, enforceable against Media Resolutions in accordance with their respective terms, except as to the effect, if any, of (i) applicable bankruptcy and other similar laws affecting the rights of creditors generally, (ii) rules of law governing specific performance, injunctive relief and other equitable remedies and (iii) any rights to indemnification being limited under applicable securities laws; provided, however, that the Media Resolutions Ancillary Agreements will not be effective until the earlier of the date set forth therein or the Effective Time. 2.03 Capitalization. -------------- (a) Authorized/Outstanding Capital Stock. The authorized ------------------------------------ capital stock of Media Resolutions consists of 1,000 shares of Media Resolutions Common Stock, $1.00 par value per share, of which 1,000 shares are issued and outstanding as of the Closing Date, and all of which issued and outstanding shares are held of record and owned by the Media Resolutions Shareholders. Media Resolutions has no authorized or issued shares of Preferred Stock. All issued and outstanding shares of Media Resolutions Common Stock have been duly authorized and validly issued, are fully paid and nonassessable, are not subject to any right of rescission and have been offered, issued, sold and delivered by Media Resolutions in compliance with all registration or qualification requirements (or applicable exemptions therefrom) of applicable federal and state securities laws. (b) Options/Rights. There are no stock appreciation rights, -------------- options, warrants, conversion privileges or preemptive or other rights or agreements outstanding to purchase or otherwise acquire any of Media Resolutions' authorized but unissued capital stock, there are no options, warrants, conversion privileges or preemptive or other rights or agreements to which Media Resolutions or any Media Resolutions Shareholder is a party involving the purchase or other acquisition of any share of Media Resolutions capital AGREEMENT AND PLAN OF MERGER - Page 7 stock, and there is no liability for dividends accrued but unpaid; and there are no voting agreements, rights of first refusal or other restrictions (other than normal restrictions on transfer under applicable federal and State of Texas securities laws) applicable to any of Media Resolutions' outstanding securities. 2.04 Subsidiaries. Except as disclosed on Schedule 2.04, Media ------------ ------------- Resolutions does not have any subsidiaries or any equity interests, direct or indirect, in any corporation, partnership, joint venture or other business entity. 2.05 No Violation of Existing Agreements. Neither the execution and ----------------------------------- delivery of this Agreement or any Media Resolutions Ancillary Agreement, nor the consummation of the transactions provided for herein or therein, will conflict with, or (with or without notice or lapse of time, or both) result in a termination, breach, impairment or violation of, (a) any provision of the Articles of Incorporation or Bylaws of Media Resolutions, as currently in effect, (b) any material instrument or contract to which Media Resolutions is a party or by which Media Resolutions is bound, or (c) any federal, state, local or foreign judgment, writ, decree, order, statute, rule or regulation applicable to and that would have a material adverse effect on Media Resolutions or its assets or properties. Other than as set forth in Schedule 2.05 (the "Required Consents"), the consummation of the Merger by Media Resolutions will not require the consent of any third party and will not have a material adverse effect upon any such rights, licenses, franchises, leases or agreements pursuant to the terms of those agreements. 2.06 Litigation; Legal Impediments. Except as set forth in Schedule ----------------------------- -------- 2.06, - ---- (a) There is no action, proceeding or investigation pending or, to the knowledge of Media Resolutions or the Media Resolutions Shareholders, threatened against Media Resolutions before any court or administrative agency. (b) No person, firm, corporation or entity has a claim against Media Resolutions (or a successor in interest to Media Resolutions) based upon: (i) ownership or rights to ownership of any shares of Media Resolutions Common Stock, (ii) any rights as a Media Resolutions securities holder, including, without limitation, any option or other right to acquire any Media Resolutions securities, any preemptive rights or any rights to notice or to vote, or (iii) any rights under any agreement between Media Resolutions and any Media Resolutions securities holder or former Media Resolutions securities holder in such holder's capacity as such. (c) There is no order, decree or ruling by any court or governmental agency or threat thereof, or any other fact or circumstance that would prohibit or render illegal the transactions provided for in this Agreement. (d) There is no litigation or proceeding pending or threatened that would have the probable effect of enjoining or preventing the consummation of any of the transactions provided for in this Agreement. 2.07 Media Resolutions Financial Statements. Media Resolutions has -------------------------------------- delivered to Edge the financial statements as set forth in Schedule 2.07 (the ------------- "Media Resolutions Interim ------------------------- AGREEMENT AND PLAN OF MERGER - Page 8 Financial Statements"). Media Resolutions Interim Financial Statements fairly - -------------------- and accurately represent the financial condition of Media Resolutions on the basis of accounting historically used by Media Resolutions, at the respective dates specified therein and the results of operations for the respective periods specified therein. Except as set forth in Schedule 2.07, Media Resolutions has ------------- no material debt, liability or obligation of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, that is not reflected or disclosed in Media Resolutions Interim Financial Statements, except for those that may have been incurred after the issuance of the audited balance sheet of Media Resolutions as of December 31, 2001 (the "Balance Sheet Date") in ------------------ the ordinary course of its business. The Media Resolutions Interim Financial Statements reflect all material transactions of the business of Media Resolutions during the periods covered thereby consistent with the basis of accounting historically used by Media Resolutions, and all documentation that is necessary to support such transactions has been made, and after the Closing will be, available to Edge. 2.08 Tax Matters. Except as disclosed in Schedule 2.08: ----------- ------------- (a) Returns and Reports. (i) All Tax Returns required to be ------------------- filed with any Taxing Authority in any jurisdiction by or for Media Resolutions on or before the Closing Date have been duly and timely filed, or extensions of time within which to file such Tax Returns have been obtained; and (ii) all such Tax Returns are true, correct and complete in all material respects. (b) Payment. (i) Media Resolutions has timely paid or has made ------- adequate provision for the payment of all Taxes for which Media Resolutions is or may become liable for payment, insofar as such Taxes are, were or will be due and payable on or prior to the Closing Date; (ii) all Tax deficiencies assessed against Media Resolutions as a result of any examination of Tax Returns of Media Resolutions have been paid or are being contested in good faith (collectively, all payment obligations under Section 2.08(b)(i) and (ii) shall be referred to as the "Media Resolutions Pre-Closing Date Tax Obligations"); and (iii) Media Resolutions is not the subject of, nor has it been notified that is the subject of, any investigation, assessment, adjustment, audit or other proceeding proposing any deficiency in respect of any Tax, and to the knowledge of Media Resolutions and the Media Resolutions Shareholders, no investigation, assessment, adjustment, or audit has been threatened. (c) Taxes. Media Resolutions has made adequate provisions on ----- the Media Resolutions Interim Financial Statements for all Taxes payable by Media Resolutions for any period for which no Tax Return has yet been filed or for which Tax Returns have been filed but payment of the Tax shown to be due thereon is not yet due. Furthermore, adequate reserves have been maintained to pay such Taxes as they are due. (d) Extensions. No agreements, waivers, or other arrangements ---------- exist providing for an extension of time or statutory periods of limitation with respect to payment by, or assessment against, Media Resolutions of any Tax and no request for any such arrangements, waivers, or other agreements have been made; furthermore, no unrevoked power of attorney with respect to any Tax has been executed or filed with the Internal Revenue Service or any other Taxing Authority. AGREEMENT AND PLAN OF MERGER - Page 9 (e) Proceedings. No suit, actions, claims or proceedings ----------- have been asserted as of the date hereof against Media Resolutions in respect of any Tax. (f) Section 341(f) Election. No election under Section ----------------------- 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"), has been or will be filed by or on behalf of Media Resolutions. (g) Tax Liens. There are no Tax liens as of the date --------- hereof upon any of the assets properties of Media Resolutions except for statutory liens for Taxes not yet due or delinquent. (h) Withholding. The amounts of Taxes withheld by or on ----------- behalf of Media Resolutions with respect to all amounts paid to employees of Media Resolutions or creditors or other parties for all periods ending on or before the Closing Date have been proper and accurate in all material respects, and all deposits required with respect to amounts paid to such employees, creditors or other parties have been made in compliance in all material respects with the provisions of all applicable Tax laws. (i) Tax Sharing Agreements. Media Resolutions is not party ---------------------- to, nor has any obligations under, any tax sharing or similar agreement or arrangement. (j) Records. Media Resolutions has made available for ------- inspection by Edge: (i) complete and correct copies of all Tax Returns of Media Resolutions that have been required to be filed for taxable periods ending with or within the last five calendar years and for such longer period as Edge has requested in writing not to exceed the period of the relevant statute of limitations; (ii) complete and correct copies of all ruling requests, private letter rulings, revenue agent reports, information document requests and responses thereto, notices of proposed deficiencies, deficiency notices, applications for changes in method of accounting, protests, petitions, closing agreements, settlement agreements and any similar documents submitted by, received by or agreed to by or on behalf of Media Resolutions and relating to taxable periods ending with or within the last five calendar years and for such longer period as Edge has requested in writing, not to exceed the period of the relevant statute of limitations; and (iii) copies of all record retention agreements currently in effect between Media Resolutions and any Taxing Authority. (k) Accounting Methods. (i) Media Resolutions has not ------------------ agreed to make any adjustment by reason of a change in its accounting method that would affect the taxable income or deductions of Media Resolutions for any period following the Closing Date; (ii) except as a result of its utilization of this cash method of reporting, Media Resolutions will not be required to include in a taxable period on or after the Closing Date taxable income attributable to income that economically accrued in a taxable period ending on or before the Closing Date; and (iii) Media Resolutions is not required to include income in any amount under Section 481 of the Code (or any comparable provisions of state, local or foreign law), by reason of a change in accounting methods or therwise, as a result of actions taken prior to the Closing Date. Media Resolutions is and was entitled under the Code to report its taxable income on the cash method of reporting for all taxable years for which the statute of limitations has not expired. AGREEMENT AND PLAN OF MEREGR - Page 10 (l) Transfer Pricing Agreements. There are no transfer pricing --------------------------- agreements made by Media Resolutions with any Taxing Authority. (m) Excess Parachute Payments. Media Resolutions is not a party ------------------------- to any agreement, contract, arrangement or plan that would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code. (n) Controlled Foreign Corporation. Media Resolutions does not ------------------------------ own any interest in any "controlled foreign corporation" (within the meaning of Section 957 of the Code), "passive foreign investment company" (within the meaning of Section 1297 of the Code) or other entity the income of which is required to be included in the income of Media Resolutions whether or not distributed. (o) For the purposes of this Agreement the following terms shall have the meanings set forth below: "Tax" or "Taxes" means all taxes, charges, fees, levies or other --- ----- assessments, including, without limitation, any net income tax or franchise tax based on net income, any alternative or add-on minimum taxes, any gross income, gross receipts, premium, sales, use, ad valorem, value added, transfer, profits, license, social security, Medicare, payroll, employment, excise, severance, stamp, occupation, property, environmental or windfall profit tax, custom duty or other tax, governmental fee or other like assessment, together with any interest, penalty, addition to tax or additional amount imposed by any Taxing Authority. "Tax Return" or "Tax Returns" shall mean all returns, declarations of ---------- ----------- estimated tax payments, reports, forms, estimates, information returns, statements and other documentation, including any related or supporting information filed with respect to any of the foregoing, maintained, filed or to be filed with any Taxing Authority in connection with the determination, assessment, collection or administration of any Taxes. "Taxing Authority" shall mean any domestic, foreign, federal, national, ---------------- state, provincial, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising any Taxing Authority or any other authority exercising Tax regulatory authority. 2.09 Title to Properties. ------------------- (a) Media Resolutions has good and valid title to all of its assets as shown on the balance sheet as of the Balance Sheet Date and again included in Media Resolutions Interim Financial Statements, free and clear of all liens, charges or encumbrances (other than for Taxes not yet due and payable and Permitted Liens (as defined below)), other than such material assets set forth on Schedule 2.09 as were sold by ------------- Media Resolutions in the ordinary course of business since the Balance Sheet Date or which are subject to capitalized leases. "Permitted --------- Liens" means any lien, mortgage, encumbrance or restriction that is ----- reflected in the Media Resolutions Interim Financial Statements and is AGREEMENT AND PLAN OF MERGER - Page 11 not in excess of $10,000 and which does not materially detract from the value or materially interfere with the use, as currently used, of the properties subject thereto or affected thereby or otherwise materially impair the business operations being conducted thereon. There are no UCC financing statements of record naming Media Resolutions as debtor. (b) The machinery and equipment included in such assets are in good condition and repair, normal wear and tear excepted, and all leases of real or personal property to which Media Resolutions is a party are fully effective and afford Media Resolutions peaceful and undisturbed possession of the subject matter of the lease. To its knowledge having made no investigations, Media Resolutions is not in violation of any material zoning, building, safety or environmental ordinance, regulation or requirement or other law or regulation applicable to the operation of owned or leased or occupied properties, and Media Resolutions has not received any notice of such violation with which it has not complied or had waived. 2.10 Absence of Certain Changes. Since the Balance Sheet Date, except -------------------------- as set forth in Schedule 2.10, there has not been with respect to Media ------------- Resolutions: (a) any change in the financial condition, properties, assets, liabilities business, results of operations or prospects of Media Resolutions, which change by itself or in conjunction with all other such changes, whether or not arising in the ordinary course of business, has had or can reasonably be expected to have a material adverse effect on Media Resolutions; (b) any contingent liability incurred by Media Resolutions as guarantor or surety with respect to the obligations of others; (c) any material mortgage, encumbrance or lien placed on any of the properties of Media Resolutions; (d) any material obligation or liability incurred by Media Resolutions other than in the ordinary course of business; (e) any purchase or sale or other disposition, or any agreement or other arrangement for the purchase, sale or other disposition, of any of the properties or assets of Media Resolutions other than in the ordinary course of business; (f) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the properties, assets or business of Media Resolutions; (g) any declaration, setting aside or payment of any dividend on, or the making of any other distribution in respect of, the capital stock of Media Resolutions, any split, stock dividend, combination or recapitalization of the capital stock of Media Resolutions or any direct or indirect redemption, purchase or other acquisition by Media Resolutions of the capital stock of Media Resolutions; AGREEMENT AND PLAN OF MERGER - Page 12 (h) any material labor dispute or claim of material unfair labor practices, any change in the compensation payable or to become payable to any of Media Resolutions' officers, employees or agents earning compensation at an anticipated annual rate in excess of $1,000, or any bonus payment or arrangement made to or with any of such officers, employees or agents; or any change in the compensation payable or to become payable to any of Media Resolutions' other officers, employees or agents other than normal annual compensation increases in accordance with past practices or any bonus payment or arrangement made to or with any of such other officers, employees or agents other than normal bonuses or other arrangements made in accordance with past practices; (i) any material change with respect to the management, supervisory, development or other key personnel of Media Resolutions (the management, supervisory, development and other key personnel of Media Resolutions being listed on Schedule 2.10(i)); ----------------- (j) any payment or discharge of a material lien or liability thereof, which lien or liability was not either (i) shown on the balance sheet as of the Balance Sheet Date included in Media Resolutions Interim Financial Statements or (ii) incurred in the ordinary course of business after the Balance Sheet Date; or (k) any obligation, or material liability incurred by Media Resolutions to any of its officers, directors or shareholders, or any loans or advances made to any of its officers, directors, shareholders or affiliate except normal compensation and expense allowances payable to officers. 2.11 Agreements and Commitments. Except as set forth in Schedule 2.11, -------------------------- ------------- or as listed in Schedule 2.12, Schedule 2.15 (c) or Schedule 2.15 (f) as ------------- ----------------- ----------------- required by Section 2.12, Section 2.15 (c) or Section 2.15 (f), respectively, ------------ ---------------- ---------------- Media Resolutions is not a party or subject to any oral or written agreement, obligation or commitment that is material to Media Resolutions, its financial condition, business or prospects or which is described below: (a) Any contract, commitment, letter agreement, quotation or purchase order providing for payments by or to Media Resolutions in an aggregate amount of (i) $10,000 or more in the ordinary course of business or (ii) $10,000 or more not in the ordinary course of business; (b) Any license agreement as licensor (except for any nonexclusive software license granted by Media Resolutions to end-user customers where the form of the license, excluding standard immaterial deviations, has been provided to Edge); (c) Any agreement by Media Resolutions to encumber, transfer or sell rights in or with respect to any Media Resolutions Intellectual Property (as defined in Section 2.12); (d) Any agreement for the sale or lease of real or personal property involving more than $1,000 per year; AGREEMENT AND PLAN OF MERGER - Page 13 (e) Any dealer, distributor, sales representative, original equipment manufacturer, value added remarketer or other agreement for the distribution of Media Resolutions' products; (f) Any franchise agreement or financing statement; (g) Any stock redemption or purchase agreement; (h) Any joint venture contract or arrangement or any other agreement that involves a sharing of profits with other persons; (i) Any instrument evidencing indebtedness for borrowed money by way of direct loan, sale of debt securities, purchase money obligations, conditional sale, guarantee or otherwise, except for trade indebtedness or any advance to any employee of Media Resolutions incurred or made in the ordinary course of business, and except as disclosed in the Media Resolutions Interim Financial Statements; or (j) Any contract containing covenants purporting to limit the freedom of Media Resolutions to compete in any line of business in any geographic area. All agreements, obligations and commitments listed in Schedule -------- 2.11, Schedule 2.12, Schedule 2.15 (c), or Schedule 2.15 (f) as ---- ------------- ----------------- ----------------- required by Section 2.11, Section 2.12, Section 2.15 (c) or Section 2.15 (f), as the case may be, are valid and in full force and effect in all material respects, and except as expressly noted in writing, a true and complete copy of each has been delivered or been made available to Edge or its counsel. Except as noted on Schedule 2.11 neither Media ------------- Resolutions nor, to the knowledge of Media Resolutions or the Media Resolutions Shareholders, any other party is in breach of or default under any material terms of any such agreement, obligation or commitment. Media Resolutions is not a party to any contract or arrangement that it reasonably expects will have a material adverse effect on its business or prospects. 2.12 Intellectual Property. Media Resolutions owns all right, title --------------------- and interest in, or has the right to use, all domestic and foreign patent applications, patents, patent licenses, trademark applications, trademarks, service marks, trade names, copyrights applications, copyrights, trade secrets, know-how, technology, material software licenses and other intellectual property and proprietary rights used in or reasonably necessary to the conduct of its business as presently conducted and the business of the development, production, marketing, licensing and sale of commercial products using such intellectual property and proprietary rights ("Media Resolutions Intellectual Property"). --------------------------------------- Media Resolutions has taken reasonable measures to protect all Media Resolutions Intellectual Property, and, except as set forth on Schedule 2.12, neither Media ------------- Resolutions nor any Media Resolutions Shareholder has any knowledge of any infringement of any Media Resolutions Intellectual Property by any third party. As to the third party products listed on Schedule 2.12 (the "Media Resolutions ------------- ----------------- Third Party Products"), Media Resolutions has obtained appropriate licensing - -------------------- rights to the same and the use by Media Resolutions of Media Resolutions Third Party Products does not infringe the rights of Media Resolutions' licensors. Set forth on Schedule 2.12 delivered to Edge herewith is a true and complete list of ------------- all copyright and trademark registrations (and any applications therefor) and all AGREEMENT AND PLAN OF MERGER - Page 14 patents (and any applications therefor) for Media Resolutions Intellectual Property owned by Media Resolutions. Neither Media Resolutions nor any Media Resolutions Shareholder has any knowledge of any material loss, cancellation, termination or expiration of any such registration or patent except as set forth on Schedule 2.12. To the knowledge of Media Resolutions or the Media Resolutions ------------- Shareholders, the business of Media Resolutions as conducted as of the date hereof, including (without limitation) the business of development, production, marketing, licensing and sale of commercial products using Media Resolutions Intellectual Property and proprietary rights, does not infringe or violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets, proprietary rights or other intellectual property of any other person, and Media Resolutions has not received any written or oral claim or notice of infringement or potential infringement of the intellectual property of any other person or entity. With respect to Media Resolutions Third Party Products, Media Resolutions has obtained appropriate licensing rights to such Media Resolutions Third Party Products and the use by Media Resolutions of Media Resolutions Third Party Products does not infringe the rights of Media Resolutions' licensors. Media Resolutions has the right to manufacture all of its products and the right to use all of its registered user lists, and to the knowledge of Media Resolutions or the Media Resolutions Shareholders, is not using any confidential information or trade secrets of any former employer of any past or present employees. 2.13 Compliance with Laws. Except as set forth in Schedule 2.13, to its -------------------- ------------- knowledge having made no investigation, Media Resolutions has complied and is and will be at the Closing Date in full compliance with all material laws, ordinances, regulations and rules, and all orders, writs, injunctions, awards, judgements and decrees (collectively, "Laws"), applicable to Media Resolutions or to the assets, properties and business of Media Resolutions, including, without limitation (a) all applicable federal and state securities laws and regulations, (b) all applicable federal state and local Laws, pertaining to (i) the sale, licensing, leasing, ownership or management of Media Resolutions' owned, leased, occupied or licensed real or personal property, products or technical data, (ii) employment or employment practices, terms and conditions of employment or wages and hours, or (iii) safety, health, fire prevention, environmental protection (including toxic waste disposal and related matters described in Section 2.21), building standards, zoning or other similar matters, (c) the Export Administration Act and regulations promulgated thereunder or other laws, regulations, rules, orders, writs, injunctions, judgements or decrees applicable to the export or re-export of controlled commodities or technical data, or (d) the Immigration Reform and Control Act; provided, however, that this Section 2.13 shall not apply to any Law to the extent Media Resolutions and the Media Resolutions Shareholders have provided a representation and warranty elsewhere in this Agreement as to full past and present compliance by Media Resolutions with such Law. Media Resolutions has received all material permits and approvals from and has made all material filings with third parties, including government agencies and authorities, that are necessary to the conduct of its business as presently conducted. 2.14 Certain Transactions and Agreements. No person who is an officer ----------------------------------- or director of Media Resolutions, or a member of any officer's or director's immediate family, has any direct or indirect ownership interest in any firm or corporation that competes with Media Resolutions or Edge (except with respect to any interest in less than 1% of the outstanding voting shares of any corporation the stock of which is publicly traded). Except as set forth in Schedule 2.14, no ------------- person who is an officer or director of Media Resolutions, or any member of any officer's or AGREEMENT AND PLAN OF MERGER - Page 15 director's immediate family, is directly or indirectly interested in any material contract or informal arrangement with Media Resolutions, except for compensation for services as an officer, director or employee of Media Resolutions and except for the normal rights of a shareholder. Except at set forth in Schedule 2.14, none of such officers or directors or family members has ------------- any interest in any property, real or personal, tangible or intangible, including, without limitation, inventions, patents, copyrights, trademarks, trade names or trade secrets, used in the business of Media Resolutions, except for the normal rights of a shareholder. 2.15 Employees. --------- (a) Except as set forth in Schedule 2.15 (a), Media Resolutions ----------------- has no employment contract or material consulting agreement currently in effect that is not terminable at will without penalty or payment of compensation by Media Resolutions. (b) Media Resolutions (i) has never been and is not now subject to a union organizing effort, (ii) is not subject to any collective bargaining agreement with respect to any of its employees, (iii) is not subject to any other contract, written or oral, with any trade or labor union, employees' association or similar organization, and (iv) to the knowledge of Media Resolutions or the Media Resolutions Shareholders, has no material current labor dispute. Neither Media Resolutions nor any Media Resolutions Shareholder has any knowledge of any facts indicating that the consummation of the transactions provided for herein will have a material adverse effect on its labor relations. (c) Except as set forth in Schedule 2.15(c), Media Resolutions ---------------- has no pension, retirement, disability, medical, dental or other health plans, life insurance or other death benefit plans, profit sharing, deferred compensation agreements, stock, option, bonus or other incentive plans, vacation, sick, holiday or other paid leave plans, severance plans or other similar employee benefits plan maintained, contributed to, or required to be contributed to, by Media Resolutions for the benefit of any Media Resolutions employee, former employee or retired employee (the "Employee Plans"), including without limitation -------------- all "employee benefit plans" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ----- (d) To the knowledge of Media Resolutions or the Media Resolutions Shareholders, no employee of Media Resolutions is in material violation of (i) any term of any employment contract, patent disclosure agreement or noncompetition agreement or (ii) any other contract or agreement, or any restrictive covenant, relating to the right of any such employee to be employed by Media Resolutions or to use trade secrets or proprietary information of others. To the knowledge of Media Resolutions or the Media Resolutions Shareholders, the employment of any employee of Media Resolutions does not of itself subject Media Resolutions to any liability to any third party. (e) Except as set forth in Schedule 2.15 (e), Media Resolutions ----------------- is not a party to any (i) agreement with any executive officer or other key employee of Media Resolutions (A) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving Media Resolutions in the nature of any of the transactions contemplated by this Agreement and the Plan of Merger, or any AGREEMENT AND PLAN OF MERGER - Page 16 other business combination transaction, (B) providing any term of employment or compensation guarantee, or (C) providing severance benefits or other benefits after the termination of employment of such employee regardless of the reason for such termination of employment or (ii) agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be materially increased, or the vesting of benefits of which will be materially accelerated, by the occurrence of any of the transactions contemplated by this Agreement and the Plan of Merger or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement and the Plan of Merger. (f) A list of all employees, officers and development consultants of Media Resolutions and their current compensation and benefits or related agreements with employer as of the date of this Agreement is set forth on Schedule 2.15 (f) and on the Closing Date each of the ----------------- Media Resolutions Shareholders will execute a written employment agreement with the Surviving Corporation containing usual and customary terms of employment. (g) Except as set forth in Schedule 2.15 (g), all contributions ----------------- due from Media Resolutions with respect to any of the Employee Plans have been made or accrued on Media Resolutions' Financial Statements, and no further contributions will be due or will have accrued thereunder as of the Closing Date. (h) As of the Closing Date, there are no outstanding payment obligations due to any employee of Media Resolution, nor any claims outstanding by any employee, for accrued and unpaid wages, salaries, bonuses, pensions, severance pay or other benefits. 2.16 Corporate Documents. Media Resolutions has made available to Edge ------------------- for examination all documents and information listed in Article II or reflected in the schedules called for by this Agreement, including, without limitation, the following: (a) copies of Media Resolutions' Articles of Incorporation and Bylaws as currently in effect; (b) Media Resolutions' minute book containing all records of all proceedings, consents, actions and meetings of Media Resolutions' directors and shareholders; (c) Media Resolutions' stock ledger, journal and other records reflecting all stock issuances and transfers; and (d) all permits, orders and consents issued by any regulatory agency with respect to Media Resolutions, or any securities of Media Resolutions, and all applications for such permits, orders and consents. 2.17 No Brokers. Media Resolutions is not obligated for the payment of ---------- fees or expenses of any investment banker, broker or finder in connection with the origin, negotiation or execution of this Agreement or the Plan of Merger or in connection with any transaction provided for herein or therein. 2.18 Disclosure. The representations and warranties contained in this ---------- Agreement and the schedules thereto delivered to Edge by Media Resolutions or the Media Resolutions Shareholders or both under this Agreement, taken together, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements AGREEMENT AND PLAN OF MERGER - Page 17 contained herein and therein, in light of the circumstances under which such statements were made, not misleading. 2.19 Books and Records. The books, records and accounts of Media ----------------- Resolutions (a) are in all material respects true and complete, (b) have been maintained in accordance with reasonable business practices on a basis consistent with prior years, (c) are stated in reasonable detail and accurately and fairly reflect the transactions and disposition of the assets of Media Resolutions in all material respects, and (d) accurately and fairly reflect in all material respects the basis for Media Resolutions Interim Financial Statements. 2.20 Insurance. Media Resolutions maintains fire and casualty, workers --------- compensation, general liability, "key man" and other insurance policies as listed on Schedule 2.20. Neither Media Resolutions nor any Media Resolutions ------------- Shareholder has any knowledge that any such insurance policy will not be renewed in the normal course. 2.21 Environmental Matters. --------------------- (a) During the period that Media Resolutions has leased or occupied the premises currently occupied by it and those premises occupied by it since the date of its incorporation, there have been no disposals, releases or threatened releases of Hazardous Materials (as defined below) from or any presence thereof on any such premises that would have a material adverse effect upon the business or financial statements of Media Resolutions. "Hazardous Materials" mean any ------------------- hazardous or toxic substance, material or waste which is or becomes prior to the Closing Date regulated under, or defined as a "hazardous substance," "pollutant," "contaminant," "toxic chemical," "hazardous material," "toxic substance" or "hazardous chemical" under (i) CERCLA; (ii) the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. (S) 11001 et seq.; (iii) the Hazardous Material Transportation Act, 49 ------ U.S.C. (S) 1801, et seq.; (iv) the Toxic Substances Control Act, 15 ------ U.S.C. (S) 2601 et seq.; (v) the Occupational Safety and Health Act of ------ 1970, 29 U.S.C. (S) 651 et seq.; (vi) regulations promulgated under any ------ of the above statutes; or (vii) any applicable state or local statute, ordinance, rule or regulation that has a scope or purpose similar to those identified above. (b) During the time that Media Resolutions has leased or occupied the premises currently occupied by it or any premises previously occupied by Media Resolutions, neither Media Resolutions nor, to the knowledge of Media Resolutions or the Media Resolutions Shareholders, any third party, has used, generated, manufactured or stored in such premises or transported to or from such premises any Hazardous Materials that would have a material adverse effect upon the business or financial statements of Media Resolutions. 2.22 Government Contracts. Except as set forth on Schedule 2.22, Media -------------------- ------------- Resolutions has no business contracts with any independent or executive agency, division, subdivision, audit group or procuring office of the federal government or of a state government, including any prime contractor of the federal government and any higher level subcontractor of a prime contractor of the federal government, and including any employees or agents thereof, in each case acting in such capacity. AGREEMENT AND PLAN OF MERGER - Page 18 2.23 Product Liability and Warranty Proceedings. No product liability, ------------------------------------------ warranty or similar actions, suits or proceedings have been asserted against Media Resolutions since the Balance Sheet Date other than as set forth in the Media Resolutions Interim Financial Statements. 2.24 WARN Compliance. Since the Balance Sheet Date, Media Resolutions --------------- has not incurred any liability or obligation under the Worker Adjustment and Retraining Notification Act (WARN) or similar state laws. Media Resolutions has not laid-off more than ten percent (10%) of its employees at any single site of employment in any ninety (90) day period during the period from January 1, 2001 through the Closing Date. It shall be the obligation of Media Resolutions and the Media Resolutions Shareholders to provide any notice required by said Act by reason of the provisions, execution or operation of this Agreement. 2.25 ADA Compliance. Except as set forth in Schedule 2.25, to its -------------- ------------- knowledge having made no investigation, Media Resolutions has complied and is in material compliance with the provisions of the Americans with Disabilities Act (the "ADA"). --- 2.26 Year 2000 Compliance. Except as set forth in Schedule 2.26, no -------------------- ------------- customer contract, license agreement or other document by which Media Resolutions writes, creates or otherwise generates software code or other intellectual property contains language by which Media Resolutions is obligated to ensure that its product is Year 2000 Compliant. 2.27 Accounts Receivable. Except as set forth in Schedule 2.27, the ------------------- ------------- accounts receivable set forth in the Media Resolutions Interim Financial Statements and those accounts receivable accruing through the Closing Date (the "Collectible A/R") represent valid and bona fide sales to third parties incurred in the ordinary course of business, subject to no defenses, set-offs or counterclaims other than those resulting from applicable insolvency laws. Each of the Media Resolution Shareholders warrant the Surviving Corporation's collection of the Collectible A/R within ninety (90) days of the Closing Date; provided, however, that any portion of the Collectible A/R that is not collected within such 90 day period (the "Collectible A/R Deficiency") shall be assigned to the Media Resolution Shareholders after the end of such 90 day period and after the Collectible A/R Deficiency has either been deducted from the Withheld Merger Consideration or been paid to Edge pursuant to the indemnification provisions of Section 6.02. 2.28 Interests in Customers, Suppliers, Etc. No shareholder, officer, -------------------------------------- director or affiliate of Media Resolutions possesses, directly or indirectly, any financial interest in, or is a director, officer, employee or affiliate of, any corporation, firm, association or business organization that is a client, supplier, customer, lessor, lessee or competitor of Media Resolutions. Ownership of securities of a corporation whose securities are registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), not in excess of one percent (1%) of any class of such securities shall not be deemed to be a financial interest for purposes of this Section 2.28. ------------ 2.29 Business Relations. Schedule 2.29 contains an accurate list of all ------------------ ------------- significant customers of Media Resolutions (i.e., those customers representing 5% or more of Media Resolutions' revenues for the 24 month period ended December 31, 2001 or who have paid to Media Resolutions $10,000 or more over any two consecutive fiscal quarters in the 24 month period ended December 31, 2001). Except as set forth in Schedule 2.29, to the knowledge of Media Resolutions or ------------- the Media Resolutions Shareholders having made no inquiry, no customer AGREEMENT AND PLAN OF MERGER - Page 19 or supplier of Media Resolutions will cease to do business with Media Resolutions after the consummation of the transactions contemplated hereby, which cessation would have a material adverse effect on the business, operations or financial condition of Media Resolutions. 2.30 Bank Accounts and Powers of Attorney. Schedule 2.30 sets forth ------------------------------------ ------------- each bank, savings institution and other financial institution with which Media Resolutions has an account or safe deposit box and the names of all persons authorized to draw thereon or to have access thereto. Each person holding a power of attorney or similar grant of authority on behalf of Media Resolutions is identified on Schedule 2.30. Except as disclosed on such Schedule, Media ------------- Resolutions has not given any revocable or irrevocable powers of attorney to any person, firm, corporation or organization relating to its business for any purpose whatsoever. 2.31 Deleted in its entirety. ----------------------- ARTICLE III INVESTMENT REPRESENTATIONS Each Media Resolutions Shareholder jointly and severally represents and warrants to Edge as of the date of this Agreement that: 3.01 Information Delivered. Such Media Resolutions Shareholder (a) has --------------------- received from Edge copies of Edge's Reports (the "Reports") on Form 10-KSB for ------- the fiscal year ended December 31, 2000, the Form 10-KSB/A filed on April 30, 2001, Form 10-QSB for the fiscal quarters ended March 31, 2001, June 30, 2001 and September 30, 2001 (the Reports collectively referred to herein as the "SEC --- Documents") and (b) has had the opportunity to ask questions of and receive - --------- answers from Edge concerning the terms and conditions of this Agreement and to obtain from Edge any additional information that Edge possesses or can acquire without unreasonable effort or expense necessary to verify the accuracy of the information described in the SEC Documents. 3.02 Deleted in its entirety. ----------------------- 3.03 Investment Purposes. Such Media Resolutions Shareholder further ------------------- represents, warrants, acknowledges and agrees that (a) he is acquiring the shares of Edge's Common Stock under this Agreement for his 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, (b) he will not sell or otherwise transfer such shares unless, in the opinion of counsel who is reasonably satisfactory to Edge, 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 (c) the certificate representing such shares will also bear the following legend (the "Restrictive 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 AGREEMENT AND PLAN OF MERGER - Page 20 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. 3.04 Stock Ownership. Such Media Resolutions Shareholder has the full legal --------------- right, power and authority to enter into this Agreement. Such Media Resolutions Shareholder owns beneficially (subject only to any community property interest of such shareholder's spouse) and of record the shares of Media Resolutions Common Stock set forth opposite such Media Resolutions Shareholder's name on Schedule 3.04 and such shares of Media Resolutions Common Stock, together with - ------------- the other shares of Media Resolutions Common Stock set forth on Schedule 3.04, ------------- constitute all of the outstanding shares of capital stock of Media Resolutions, and such shares of Media Resolutions Common Stock owned by such Media Resolutions Shareholder are owned free and clear of all liens other than standard state and federal securities laws private offering restrictions. Such Media Resolutions Shareholder has owned Media Resolutions Common Stock since the date set forth on Schedule 3.04. ------------- 3.05 Waiver of Preemptive Rights. Other than as contemplated by this --------------------------- Agreement or any agreement to be executed in connection with this Agreement, such Media Resolutions Shareholder has no, or hereby waives, any preemptive or other right to acquire shares of Media Resolutions Common Stock or Edge Common Stock that the Media Resolutions Shareholder has or may have had other than rights of the Media Resolutions Shareholder to acquire Edge Common Stock pursuant to (a) this Agreement or (b) any option granted by Edge. 3.06 No Disposal of Shares. Such Media Resolutions Shareholder represents --------------------- that there is no current plan or intention by such Media Resolutions Shareholder to sell, exchange or otherwise dispose of any of the shares of Edge Common Stock received by such Media Resolutions Shareholder in the Merger as of the Effective Time of the Merger. Shares of Media Resolutions Common Stock and shares of Edge Common Stock held by the Media Resolutions Shareholder and otherwise sold, redeemed, or disposed of prior to or subsequent to the Closing Date will be considered in making this representation. 3.07 No Claims. Such Media Resolutions Shareholder has no claims against --------- Media Resolutions. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EDGE TECHNOLOGY GROUP, INC. Edge hereby represents and warrants that, except as set forth in the Schedules provided by Edge attached to this Agreement: 4.01 Organization and Good Standing. Edge is a corporation duly organized, ------------------------------ validly existing and in good standing under the laws of the State of Delaware and has the corporate AGREEMENT AND PLAN OF MERGER - Page 21 power and authority to own, operate and lease its properties and to carry on its business as now conducted and as proposed to be conducted. Edge is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership of its properties, the employment of its personnel or the conduct of its business requires it to be so qualified, except where the failure to so qualify would not have a material adverse effect on Edge, its assets, properties or financial condition. 4.02 Power, Authorization and Validity. --------------------------------- (a) Edge has the corporate right, power, legal capacity and authority to enter into and perform its obligations under this Agreement and all agreements to which Edge is or will be a party as contemplated by this Agreement (the "Edge Ancillary Agreements"). The execution, delivery and ------------------------- performance of this Agreement and the Edge Ancillary Agreements have been duly and validly approved by the Edge Board of Directors as required by applicable law. (b) No filing, authorization or approval, governmental or otherwise, is necessary to enable Edge to enter into, and to perform its obligations under, this Agreement and the Edge Ancillary Agreements, except for (i) the filing of the Plan of Merger with the Secretary of State of the State of Texas (which filing has been authorized by all necessary corporate action) and (ii) consents disclosed in Schedule 4.02 (b). ----------------- (c) This Agreement and the Edge Ancillary Agreements are, or when executed and delivered by Edge will be, valid and binding obligations of Edge, enforceable against Edge in accordance with their respective terms, except as to the effect, if any, of (i) applicable bankruptcy and other similar laws affecting the rights of creditors generally, (ii) rules of law governing specific performance, injunctive relief and other equitable remedies, and (iii) any rights to indemnification being limited under applicable securities laws; provided, however, that the Edge Ancillary Agreements will not be effective until the earlier of the date set forth therein or the Effective Time. 4.03 Edge Common Stock. The Edge Common Stock to be delivered to the Media ----------------- Resolutions Shareholders at the Closing Date shall constitute valid and legally issued shares of Edge, fully paid and nonassessable, and except as set forth in this Agreement (a) will be owned free and clear of all liens created by Edge, and (b) subject to registration of such shares with the SEC and holding periods established by SEC rule (or state securities law or rule), will be legally equivalent in all respects to the Edge Common Stock issued and outstanding as of the date hereof. 4.04 Information Delivered. Edge (a) has delivered to the Media Resolutions --------------------- Shareholders copies of the SEC Documents and (b) has provided the Media Resolutions Shareholders the opportunity to ask questions of and receive answers from Edge concerning the terms and conditions of this Agreement and to obtain from Edge any additional information that Edge possesses or can acquire without unreasonable effort or expense necessary to verify the accuracy of the information described in the SEC Documents. AGREEMENT AND PLAN OF MERGER - Page 22 4.05 No Violation of Existing Agreements. Neither the execution and ----------------------------------- delivery of this Agreement or any agreement executed by Edge in connection with the delivery of this Agreement, nor the consummation of the transactions provided for herein or therein, will conflict with, or (with or without notice or lapse of time, or both) result in a termination, breach, impairment or violation of, (a) any provision of the Articles of Incorporation or Bylaws of Edge, as currently in effect, (b) any material instrument or contract to which Edge is a party or by which Edge is bound, or (c) any federal, state, local or foreign judgment, writ, decree, order, statute, rule or regulation applicable to and that would have a material adverse effect on Edge or its assets or properties. The consummation of the Merger by Edge will not require the consent of any third party and will not have a material adverse effect upon any such rights, licenses, franchises, leases or agreements pursuant to the terms of those agreements. 4.06 Litigation; Legal Impediments. Except as set forth in Schedule 4.06, ----------------------------- ------------- (a) There is no material action, proceeding or investigation pending or, to the knowledge of Edge, threatened against Edge before any court or administrative agency. (b) There is, to the knowledge of Edge, no order, decree or ruling by any court or governmental agency or threat thereof, or any other fact or circumstance that would prohibit or render illegal the transactions provided for in this Agreement. (d) There is, to the knowledge of Edge, no litigation or proceeding pending or threatened that would have the probable effect of enjoining or preventing the consummation of any of the transactions provided for in this Agreement. 4.07 Edge Resolutions Interim Financial Statements. In addition to the SEC --------------------------------------------- documents, Edge has delivered to the Media Resolutions Shareholders additional financial statements (the "Edge Interim Financial Statements"). The Edge Interim --------------------------------- Financial Statements have been prepared on an accrual basis and, in all material respects, (a) are in accordance with generally accepted accounting principles and (b) fairly and accurately represent the financial condition of Edge at the respective dates specified therein and the results of operations for the respective periods specified therein. Except as set forth in the Edge Interim Financial Statements, Edge has no material debt, liability or obligation of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, that is not reflected in the Edge Interim Financial Statements. The Edge Interim Financial Statements reflect all material transactions of the business of Edge during the periods covered thereby consistent with the basis of accounting historically used by Edge. ARTICLE V CLOSING MATTERS 5.01 The Closing. The closing of this Agreement and the transactions ----------- contemplated hereunder (the "Closing") shall take place contemporaneously with the execution hereof and on the date hereof (the "Closing Date") but for all purposes shall be deemed to occur as of the close of business on the Closing Date. Prior to or concurrently with the Closing, the Plan of Merger AGREEMENT AND PLAN OF MERGER - Page 23 and such other documents as may be required to effectuate the Merger will be filed in the office of the Secretary of State of the State of Texas, and the Merger will become effective at the Effective Time. 5.02 Exchange of Certificates. ------------------------ (a) As of the Effective Time, all shares of Media Resolutions Common Stock that are outstanding immediately prior thereto will, by virtue of the Merger and without further action, cease to exist, and each share of Media Resolutions Common Stock will be converted into the right to receive from Edge that portion of the Merger Consideration, subject to the withholding provisions of Section 1.03, that each such share bears to the total of all shares of Media Resolutions Common Stock issued and outstanding as of the Effective Time (the "Pro Rata Portion"). (b) At and after the Effective Time, each certificate representing outstanding shares of Media Resolutions Common Stock will represent the number of shares of Edge Common Stock into which such shares of Media Resolutions Common Stock have been converted, and such shares of Edge Common Stock will be deemed registered in the name of the holder of such certificate. Upon the Effective Time, the holder of shares of Media Resolutions Common Stock will surrender (i) the certificates of such shares (the "Media Resolutions Certificates") to Edge for cancellation or (ii) an ------------------------------ affidavit of lost (or non-issued) certificate and agreement to indemnify in form satisfactory to Edge (an "Affidavit"). Further, all rights to acquire --------- capital stock of Media Resolutions (whether in the form of options, warrants, or rights to convert securities) shall be terminated upon the Effective Time, such that upon the payment of the Merger Consideration, Edge will hold 100% of the capital stock of Media Resolutions and no rights or options to purchase or receive any shares of Media Resolutions' capital stock shall be outstanding. At Closing, Edge will deliver such Holder's Pro Rata Portion of the Cash Consideration less the amount withheld pursuant to Section 1.03 and as soon as practicable after the Effective Time and receipt of Media Resolutions Certificates and of any Affidavits, will issue to such surrendering holder certificate(s) representing such holder's Pro Rata Portion of the Stock Consideration and any cash for fractional shares payable under Section 1.02. (c) All shares of Edge Common Stock (and, if applicable, cash in lieu of fractional shares) delivered upon the surrender of Media Resolutions Certificates in accordance with the terms hereof will be delivered to the registered holder. After the Effective Time, there will be no further registration of transfers of the shares of Media Resolutions Common Stock on the stock transfer books of Media Resolutions. If, after the Effective Time, Media Resolutions Certificates are presented for transfer or for any other reason, they will be canceled and exchanged and certificates for Edge Common Stock will be delivered pursuant to the terms and conditions set forth in this Section 5.02. (d) Until certificates representing Media Resolutions Common Stock outstanding prior to the Merger are surrendered pursuant to Section 5.02 (b) above, such certificates will be deemed, for all purposes, to evidence ownership of (i) the number of shares of Edge Common Stock into which the shares of Media Resolutions Common AGREEMENT AND PLAN OF MERGER - Page 24 Stock will have been converted, subject to the obligation to withhold a portion thereof as required hereby, and (ii) if applicable, cash in lieu of fractional shares. 5.03 Delivery of Lease Agreement. At the Closing, Media Resolutions --------------------------- shall deliver to Edge an executed lease agreement between Media Resolutions and Allegiance Telecom, upon terms and conditions that are acceptable to Edge, in the exercise of its sole discretion, including, without limitation, a lease term expiring not less than six months from the Closing Date. ARTICLE VI SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING COVENANTS 6.01 Survival of Representations. --------------------------- (a) Media Resolutions' Representations. All representations ---------------------------------- and warranties of Media Resolutions contained in Articles II and III of this Agreement (other than the representations and warranties contained in Sections 2.03 and 2.09(a)) (the "General Representations") will remain operative and in full force and effect (but only as of the Closing Date) for a period of two (2) years and one day after the Closing Date, regardless of any investigation made by or on behalf of the parties to this Agreement. The representations and warranties contained in Sections 2.03 and 2.09(a) (the "Special Representations") will remain operative and in full force and effect (but only as of the Closing Date) for a period of five (5) years and one day after the Closing Date (such time period to be referred to hereafter as the "Post-Closing Period"), regardless of any investigation made by or on behalf of the parties to this Agreement. Notwithstanding the preceding provisions of this Section 6.01(a), any act or omission constituting fraud shall have no limit as to time. (b) Edge's Representations. All representations and warranties ---------------------- of Edge contained in Article IV of this Agreement will remain operative and in full force and effect (but only as of the Closing Date) for a period of five (5) years and one day after the Closing Date, regardless of any investigation made by or on behalf of the parties to this Agreement other than any act or omission constituting fraud, which shall have no limitation as to time. 6.02 Media Resolutions Agreement to Indemnify. ---------------------------------------- (a) The Media Resolutions Shareholders Indemnity. Subject to -------------------------------------------- the limitations set forth in Section 6.02(b), the Media Resolutions Shareholders will indemnify and hold harmless Edge and its respective officers, directors, agents and employees, and each person, if any, who controls or may control Edge (hereinafter in this Section 6.02 referred to individually as an "Indemnified Person" and collectively as ------------------ "Indemnified Persons") from and against any and all claims, demands, ------------------- actions, causes of action, losses, costs, damages, liabilities and expenses including, without limitation, reasonable legal fees, arising out of any misrepresentation or breach of or default in connection with any of the representations, warranties and covenants given or made by Media Resolutions and/or the Media Resolutions Shareholders in this Agreement or any certificate, document or AGREEMENT AND PLAN OF MERGER - Page 25 instrument delivered by or on behalf of Media Resolutions and/or by the Media Resolutions Shareholders pursuant hereto (hereafter in this Section 6.02 referred to as the "Edge Damages"); provided; however, that in no ------------ -------- ------- event shall the aggregate liability of the Media Resolutions Shareholders under this Agreement exceed an amount greater than $730,000. (b) Withheld Merger Consideration. Except for the Adjustment Amounts set ----------------------------- forth in Section 1.03(a)(i) and (iii) above, Indemnified Persons shall make no deductions in the Withheld Merger Consideration and shall have no claims against the Media Resolutions Shareholders unless and until the Edge Damages exceed $10,000, (the "Threshold Amount"), at which point the Indemnified Persons shall be entitled to indemnification for all claims, including those within the Threshold Amount. In seeking indemnification for Edge Damages under this Section 6.02 following the Closing, the Indemnified Persons shall be entitled to, including, without limitation, available amounts of the Withheld Merger Consideration and all other remedies available at law or in equity. (c) Phillip B. Holmes shall act as the representative of the Media Resolutions Shareholders for purposes of Sections 6.02 and 6.03 of this Agreement (the "Claims Representative"), and is duly authorized to be such Claims Representative and may bind the Media Resolutions Shareholders. Promptly after the receipt by Edge of notice or discovery of any claim, damage or legal action or proceeding giving rise to indemnification rights under this Section 6.02, Edge will give the Claims Representative written notice of such claim, damage, legal action or proceeding (for purposes of this Section 6.02, a "Claim") in accordance with Section 6.02 of this Agreement. Within seven days of delivery of such written notice, the Claims Representative may, with Edge's written consent, which shall not be unreasonably withheld, at the expense of the Media Resolutions Shareholders, elect to take all necessary steps properly to contest any Claim involving third parties or to prosecute or defend such Claim to conclusion or settlement. If the Claims Representative makes the foregoing election, then the Claims Representative will take all necessary steps to contest any such Claim or to prosecute or defend such Claim to conclusion or settlement, and will notify Edge of the progress of any such Claim, will permit Edge, at its expense, to participate in such prosecution or defense (PROVIDED, HOWEVER, that if a conflict of interest exists which would make it inappropriate, in the reasonable opinion of Edge, for the same counsel to represent both Edge and the Media Resolutions Shareholders in the resolution of such Claim, then Edge may retain separate counsel, the fees and expenses of which shall not be borne by Edge but shall instead be borne by the Media Resolutions Shareholders) and will provide Edge with reasonable access to all relevant information and documents relating to the Claim and the Claims Representative's prosecution or defense thereof. If the Claims Representative does not make such election, then Edge shall be free to handle the prosecution or defense of any such Claim, will take all necessary steps to contest any such Claim involving third parties or to prosecute or defend such Claim to conclusion or settlement, will notify the Claims Representative of the progress of any such Claim, and will permit the Claims Representative, at the expense of the Media Resolutions Shareholders (which expense shall be paid for from sources other than the Withheld Merger Consideration) to participate in such prosecution or defense and will provide the Claims Representative with reasonable access to all relevant information and documents AGREEMENT AND PLAN OF MERGER - Page 26 relating to the Claim and Edge's prosecution or defense thereof. In either case, the party not in control of a Claim will fully cooperate, and will cause its counsel, if any, to fully cooperate, with the other party in the conduct of the prosecution or defense of such Claim. Neither party will compromise or settle any such Claim without the written consent of either Edge (if the Claims Representative defends the Claim) or the Claims Representative (if Edge defends the Claim), such consent not to be unreasonably withheld. (d) Any written notice of a Claim required under this Section 6.02 (for purposes of this Section 6.02, a "Notice of Claim") will be in writing and will contain the following information to the extent reasonably available to Edge: (1) Edge's good faith estimate of the reasonably foreseeable maximum amount of the alleged Edge Damages (which amount may be the amount of damages claimed by a third party plaintiff in an action brought against Edge or Media Resolutions); and (2) A brief description in reasonable detail of the facts, circumstances or events giving rise to the alleged Edge Damages based on Edge's good faith belief thereof and the basis under this Agreement for such Claim, including, without limitation, the identity and address of any third-party claimant (to the extent reasonably available to Edge) and copies of any formal demand or complaint. (e) For purposes of Sections 6.02 and 6.03, the Media Resolutions Shareholders hereby consent to the appointment of the Claims Representative, as representative of the Media Resolutions Shareholders, and as the attorney-in-fact for and on behalf of each Media Resolutions Shareholder, and, subject to the express limitation set forth below, the taking by the Claims Representative of any and all actions and the making of any decisions required or permitted to be taken by the Claims Representative under Sections 6.02 and 6.03, including, without limitation, the exercise of the power to (i) agree to Edge's deductions against the Withheld Merger Consideration, or any portion thereof, in satisfaction of any Claims (for purposes of this Section 6.02(e), the term "Claims" is as defined in Sections 6.02 and 6.03), (ii) agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to any Claims, (iii) resolve any Claims, and (iv) take all actions necessary in the judgment of the Claims Representative for the accomplishment of the foregoing and all of the other terms, conditions and limitations of this Agreement. The Claims Representative will have unlimited authority and power to act on behalf of each Media Resolutions Shareholder with respect to Sections 6.02 and 6.03 and the disposition, settlement or other handling of all Claims, rights or obligations arising under this Agreement so long as all Media Resolutions Shareholders are treated in the same manner. The Media Resolutions Shareholders will be bound by all actions taken by the Claims Representative in connection with Sections 6.02 and 6.03, and Edge will be entitled to rely on any action or decision of the Claims Representative. In performing the functions specified in Sections 6.02 and 6.03, the Claims Representative will not be liable to the Media Resolutions Shareholders in the absence of gross negligence or willful AGREEMENT AND PLAN OF MERGER - Page 27 misconduct. Phillip B. Holmes hereby accepts the position of Claims Representative subject to the right to resign as set forth below. The Claims Representative may resign from such position, effective upon a new representative being appointed in writing by Media Resolutions Shareholders who beneficially own a majority of the withheld portion of the Media Resolutions Common Stock. The Claims Representative will not be entitled to receive any compensation from Edge or the Media Resolutions Shareholders in connection with this Agreement. Each Media Resolutions Shareholder will pay to the Claims Representative his or her Pro Rata Portion of any out-of-pocket costs and expenses reasonably incurred by the Claims Representative in connection with actions taken pursuant to the terms of Sections 6.02 and 6.03, and such amounts shall not be deducted against the Withheld Merger Consideration). 6.03 Edge Agreement to Indemnify. --------------------------- (a) Edge Indemnity. Subject to the limitations set forth in Section -------------- 6.03(b), Edge will indemnify and hold harmless the Media Resolutions Shareholders (hereinafter in this Section 6.03 referred to individually as an "Edge Indemnified Person" and collectively as "Edge Indemnified ----------------------- ---------------- Persons") from and against any and all claims, demands, actions, causes of ------- action, losses, costs, damages, liabilities and expenses including, without limitation, reasonable legal fees, arising out of any misrepresentation or breach of or default in connection with any of the representations, warranties and covenants given or made by Edge in this Agreement or any certificate, document or instrument delivered by or on behalf of Edge pursuant hereto (hereafter in this Section 6.03 referred to as "Media ----- Resolutions Damages"). ------------------- (b) Edge Indemnification Limitations. The indemnification provided for -------------------------------- in Section 6.02(b) will not apply unless and until the aggregate Media Resolutions Damages for which one or more Edge Indemnified Persons seeks indemnification under Section 6.03(a) exceeds $10,000 (the "Edge Threshold Amount"), in which event the indemnification provided for in Section 6.03(a) will include all Media Resolutions Damages, including those within the Edge Threshold Amount The provisions of this Section 6.03 shall be the sole remedy against Edge for breach of Article IV. (c) Process. Promptly after the receipt by any Media Resolutions ------- Shareholder of notice or discovery of any claim, damage or legal action or proceeding giving rise to indemnification rights under this Section 6.03, such Media Resolutions Shareholder will give Edge written notice of such claim, damage, legal action or proceeding (for purposes of this Section 6.03, a "Claim") in accordance with this Section 6.03. Within seven days of delivery of such written notice, Edge may, with such Media Resolutions Shareholder's written consent, which shall not be unreasonably withheld, at the expense of Edge, elect to take all necessary steps properly to contest any Claim involving third parties or to prosecute or defend such Claim to conclusion or settlement. If Edge makes the foregoing election, then Edge will take all necessary steps to contest any such Claim or to prosecute or defend such Claim to conclusion or settlement, and will notify such Media Resolutions Shareholder of the progress of any such Claim, will permit such Media Resolutions Shareholder, at its expense, to participate in such prosecution or defense (PROVIDED, HOWEVER, that if a conflict of interest exists which would make it inappropriate, in the AGREEMENT AND PLAN OF MERGER - Page 28 reasonable opinion of such Media Resolutions Shareholder, for the same counsel to represent both such Media Resolutions Shareholder and Edge in the resolution of such Claim, then such Media Resolutions Shareholder may retain separate counsel, and the fees and expenses of one such counsel for all applicable Media Resolutions Shareholders shall be borne by Edge rather than by any such Media Resolutions Shareholder) and will provide such Media Resolutions Shareholder with reasonable access to all relevant information and documents relating to the Claim and Edge's prosecution or defense thereof. If Edge does not make such election, then such Media Resolutions Shareholder shall be free to handle the prosecution or defense of any such Claim, will take all necessary steps to contest any such Claim involving third parties or to prosecute or defend such Claim to conclusion or settlement, will notify Edge of the progress of any such Claim, and will permit Edge, at the expense of Edge, to participate in such prosecution or defense and will provide Edge with reasonable access to all relevant information and documents relating to the Claim and such Media Resolutions Shareholder's prosecution or defense thereof. In either case, the party not in control of a Claim will fully cooperate with, and will cause its counsel, if any, to fully cooperate with, the other party in the conduct of the prosecution or defense of such Claim. Neither party will compromise or settle any such Claim without the written consent of either such Media Resolutions Shareholder (if Edge defends the Claim) or Edge (if such Media Resolutions Shareholder defends the Claim), such consent not to be unreasonably withheld. Notwithstanding the foregoing provisions of this Section 6.03(c), if two or more Media Resolutions Shareholders deliver, whether separately or together, a Claim to Edge arising from or relating to the same or a reasonably similar matter, then the Claims Representative shall act on behalf of each such Media Resolutions Shareholder bringing such a Claim for purposes of this Section 6.03. (d) Notice. Any written notice of a Claim required under this Section ------ 6.03 (for purposes of this Section 6.03, a "Notice of Claim") will be in writing and will contain the following information to the extent reasonably available to such Media Resolutions Shareholder: (i) such Media Resolutions Shareholder's good faith estimate of the reasonably foreseeable maximum amount of the alleged Media Resolutions Damages (which amount may be the amount of damages claimed by a third party plaintiff in an action brought against such Media Resolutions Shareholder); and (ii) A brief description in reasonable detail of the facts, circumstances or events giving rise to the alleged Media Resolutions Damages based on such Media Resolutions Shareholder's good faith belief thereof and the basis under this Agreement for such Claim, including, without limitation, the identity and address of any third-party claimant (to the extent reasonably available to such Media Resolutions Shareholder) and copies of any formal demand or complaint. 6.04 Certain Agreements. The Media Resolutions Shareholders will use all ------------------ reasonable efforts to cause all present employees of Media Resolutions to execute Edge's forms of assignments of copyright and other intellectual property rights, noncompetition and trade secret agreements and confidentiality agreements. AGREEMENT AND PLAN OF MERGER - Page 29 6.05 Regulatory Approvals by Media Resolutions Shareholders. The Media ------------------------------------------------------ Resolutions Shareholders will execute and file, or join in the execution and filing, of any application or other document that may be necessary in order to obtain the authorization, approval or consent of any governmental body, federal, state, local or foreign, which may be reasonably required, or which Edge may reasonably request, in connection with the consummation of the transactions provided for in this Agreement. The Media Resolutions Shareholders will use all reasonable efforts to obtain or assist Edge in obtaining all such authorizations, approvals and consents. 6.06 Regulatory Approvals by Edge. Edge will execute and file, or join in ---------------------------- the execution and filing, of any application or other document that may be necessary in order to obtain the authorization, approval or consent of any governmental body, federal, state, local or foreign, which may be reasonably required, or which Media Resolutions may reasonably request, in connection with the consummation of the transactions provided for in this Agreement. Edge will use all reasonable efforts to obtain or assist Media Resolutions in obtaining all such authorizations, approvals and consents. 6.07 Non-Disclosure of Media Resolutions Proprietary Information. ----------------------------------------------------------- (a) Each of the Media Resolutions Shareholders, by virtue of his involvement with and ownership of Media Resolutions, had and may continue to have access, to confidential, proprietary, and highly sensitive information relating to the business of Media Resolutions and which is a competitive asset of Media Resolutions (the "Media Resolutions Proprietary Information"). The Media Resolutions Proprietary Information sought to be protected includes, without limitation, information pertaining to: (i) the identities of customers and clients with which or whom Media Resolutions does or seeks to do business, as well as the point of contact persons and decision-makers at these customers and clients, including their names, addresses, e-mail addresses and positions; (ii) the past or present purchasing history and the past and/or current job requirements of each past and/or existing customer and client; (iii) the volume of business and the nature of the business relationship between Media Resolutions and its customers and clients; (iv) the business plans and strategy of Media Resolutions, including customer or client assignments and rearrangements, sales and administrative staff expansions, marketing and sales plans and strategy, proposed adjustments in compensation of sales personnel, revenue, expense and profit projections, industry analyses, and any proposed or actual implemented technology changes; (v) information regarding the employees of Media Resolutions, including their identities, skills, talents, knowledge, experience, and compensation; (vi) the financial results and business condition of Media Resolutions; and (vii) computer programs and software developed by Media Resolutions and tailored to its needs by its employees, independent contractors, consultants or vendors; (viii) information relating to the Media Resolutions' engineers, designers, contractors, or persons likely to become engineers, designers, or contractors; (ix) any past, present or future merchandise or supply sources; and (x) system designs, procedure manuals, automated data programs, reports and personnel procedures. (b) In light of the foregoing, and in connection with and in consideration for the Merger Consideration to be received pursuant to the terms of this Agreement, each AGREEMENT AND PLAN OF MERGER - Page 30 Media Resolution Shareholder hereby agrees that for the duration of the Post-Closing Period such Media Resolutions Shareholder will not use, publish, disclose or divulge, directly or indirectly, at any time, any Media Resolutions Proprietary Information for his own benefit or for the benefit of any person, entity, or corporation other than Media Resolutions, to any person who is not a current employee of Media Resolutions, without the express, written consent of Edge. To the extent that any Media Resolutions Shareholder has obligations similar to those outlined in this Section 6.07 in any other agreement with Edge and/or the Successor Entity, including, without limitation, any employment agreement, then the terms of this Section 6.07 shall control the scope and duration of such obligations. 6.08 Non-Competition. In connection with and in consideration for the --------------- Merger Consideration to be received pursuant to the terms of this Agreement, each Media Resolution Shareholder hereby agrees that for the duration of the Post-Closing Period such Media Resolutions Shareholder will not, without the prior written consent of Edge, directly or indirectly, alone or for his own account, or as owner, partner, investor, member, trustee, officer, director, shareholder, employee, consultant, distributor, advisor, representative or agent of any partnership, joint venture, corporation, trust, or other business organization or entity engage in any business or activity within a 100 mile radius of the municipal boundaries of Dallas, Texas if such business or activity relates to the business of, or involves the provision of services or products which directly or indirectly competes with the business of, Media Resolutions, as now conducted or as may be conducted in the future. 6.09 Non-Solicitation of Employees and Consultants; Non-Solicitation --------------------------------------------------------------- of Clients. - ---------- (a) In connection with and in consideration for the Merger Consideration to be received pursuant to the terms of this Agreement, each Media Resolution Shareholder hereby agrees that for the duration of the Post-Closing Period such Media Resolutions Shareholder will not, without the prior written consent of Edge, recruit, hire, solicit, or attempt to recruit, hire or solicit, directly or by assisting others, any employees or consultants employed by or associated with Media Resolutions, nor shall he contact or communicate with any employees or consultants of Media Resolutions for the purpose of inducing employees or consultants to terminate their employment or association with Media Resolutions. For purposes of this covenant, "employees or consultants" shall refer to permanent employees, temporary employees, or consultants who were employed by, doing business with, or associated with Media Resolutions within six (6) months of the time of the attempted recruiting, hiring or solicitation. (b) In connection with and in consideration for the Merger Consideration to be received pursuant to the terms of this Agreement, each Media Resolution Shareholder hereby agrees that for the duration of the Post-Closing Period such Media Resolutions Shareholder will not, without the prior written consent of Edge, directly or indirectly, alone or for his own account, or as owner, partner, investor, member, trustee, officer, director, shareholder, employee, consultant, distributor, advisor, representative or agent of any partnership, joint venture, corporation, trust, or other business organization or entity, contact, solicit, or seek to divert the business or patronage of any person, association, corporation, or other business organization or entity with whom or which either Edge, AGREEMENT AND PLAN OF MERGER - Page 31 Media Resolutions, and/or the Successor Entity had a business relationship, including, without limitation a customer, client, supplier, or vendor relationship, within the period six months before the Closing Date or will have during the Post-Closing Period. (c) To the extent that any Media Resolutions Shareholder has obligations similar to those outlined in this Section 6.09 in any other agreement with Edge and/or the Successor Entity (including, without limitation, any employment agreement) then the terms of this Section 6.09 shall control the scope and duration of such obligations. 6.10 Removal of Restrictive Legend. Edge agrees to take all steps ----------------------------- necessary to obtain the removal of the Restrictive Legend on the Edge Common Stock at such time as either (a) the shares of Edge Common Stock shall be covered by an effective registration statement under the Securities Act or (b) the shares of Edge Common Stock may be transferred by the holder thereof without registration pursuant to the terms and conditions of Rule 144, promulgated under the Securities Act; provided, however, that Edge may request an opinion of counsel, reasonably acceptable to Edge, stating that the shares of Edge Common Stock can be sold pursuant to Rule 144. ARTICLE VII MISCELLANEOUS 7.01 Governing Law; Specific Performance; Dispute Resolution. The laws ------------------------------------------------------- of the State of Texas (without regard to its choice of law principles that might apply the law of another jurisdiction) will govern the validity of this Agreement, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties. Notwithstanding any other provision of this Agreement, it is understood and agreed that the remedy of indemnity payments and other remedies at law would be inadequate in the case of any breach of the covenants contained herein and each party agrees that any other party shall be entitled to equitable relief, including the remedy of specific performance, without posting of bond or other security, with respect to any breach or attempted breach of such covenants. Any dispute hereunder ("Dispute") ------- shall be settled by arbitration in Dallas, Texas and, except as herein specifically stated, in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA Rules") then in effect. However, in all --------- events, these arbitration provisions shall govern over any conflicting rules that may now or hereafter be contained in the AAA Rules. Any judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction over the subject matter thereof. The arbitrator shall have the authority to grant any equitable and legal remedies that would be available in any judicial proceeding instituted to resolve a Dispute. (a) Compensation of Arbitrator. Any such arbitration will be -------------------------- conducted before a single arbitrator who will be compensated for his or her services at a rate to be determined by the parties or by the American Arbitration Association, but based upon a reasonable hourly or daily consulting rate for the arbitrator if the parties are not able to agree upon his or her rate of compensation. (b) Selection of Arbitrator. The American Arbitration Association ----------------------- will have the authority to select an arbitrator from a list of arbitrators who are lawyers familiar with Texas contract law and experienced in mergers and acquisitions; provided, however, that AGREEMENT AND PLAN OF MERGER - Page 32 such lawyers cannot work for a firm then performing services for either party, that each party will have the opportunity to make such reasonable objection to any of the arbitrators listed as such party may wish and that the American Arbitration Association will select the arbitrator from the list of arbitrators as to whom neither party makes any such objection. If the foregoing procedure is not followed, each party will choose one person from the list of arbitrators provided by the American Arbitration Association (provided that such person does not have a conflict of interest), and the two persons so selected will select from the list provided by the American Arbitration Association the person who will act as the arbitrator. (c) Payment of Costs. Edge and the Media Resolutions Shareholders ---------------- will each pay 50% of the initial compensation to be paid to the arbitrator in any such arbitration and 50% of the costs of transcripts and other normal and regular expenses of the arbitration proceedings; provided, however, that the prevailing party in any arbitration will be entitled to an award of attorneys' fees and costs, and all costs of arbitration, including those provided for above, will be paid by the non-prevailing party, and the arbitrator will be authorized to make such determinations. (d) Burden of Proof. For any Dispute submitted to arbitration, the --------------- burden of proof will be as it would be if the claim were litigated in a Texas judicial proceeding. (e) Award. Upon the conclusion of any arbitration proceedings ----- hereunder, the arbitrator will render findings of fact and conclusions of law and a written opinion setting forth the basis and reasons for any decision reached and will deliver such documents to each party to this Agreement along with a signed copy of the award. (f) Terms of Arbitration. The arbitrator chosen in accordance with -------------------- these provisions will not have the power to alter, amend or otherwise affect the terms of these arbitration provisions or the provisions of this Agreement. (g) Exclusive Remedy. Except as specifically otherwise provided in ---------------- this Agreement, arbitration will be the sole and exclusive remedy of the parties for any Dispute arising out of this Agreement. 7.02 Assignment; Binding Upon Successors and Assigns. No party may ----------------------------------------------- assign any of its rights or obligations hereunder without the prior written consent of the other party. This Agreement will be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. 7.03 Severability. If any provision of this Agreement, or the ------------ application thereof, is for any reason held to any extent to be invalid or unenforceable, then the remainder of this Agreement and application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties. The parties further agree to replace such unenforceable provision of this Agreement with valid and enforceable provisions that will achieve, to the extent possible, the economic, business and other purposes of the invalid or unenforceable provisions. AGREEMENT AND PLAN OF MERGER - Page 33 7.04 Counterparts. This Agreement may be executed in counterparts, each ------------ of which will be an original as regards any party whose signature appears thereon and all of which together will constitute one and the same instrument. This Agreement will become binding when one or more counterparts hereof, individually or taken together, bear the signatures of all parties reflected hereon as signatories. 7.05 Other Remedies. Except as otherwise provided herein, any and all -------------- remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby or by law on such party, and the exercise of any one remedy will not preclude the exercise of any other. 7.06 Amendment and Waivers. Any term or provision of this Agreement may --------------------- be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only by a writing signed by the party to be bound thereby. The waiver by a party of any breach hereof or default in the performance hereof will not be deemed to constitute a waiver of any other default of any succeeding breach or default. This Agreement may be amended by the parties at any time. 7.07 No Waiver. The failure of any party to enforce any of the --------- provisions hereof will not be construed to be a waiver of the right of such party thereafter to enforce such provisions. The waiver by any party of the right to enforce any of the provisions hereof on any occasion will not be construed to be a waiver of the right of such party to enforce such provisions on any other occasion. 7.08 Expenses. Other than sharing in equal portions the cost of the -------- Media Resolutions audit performed by Grant Thornton LLP, each party will bear its respective expenses and fees of its own accountants, attorneys, investment bankers and other professionals incurred with respect to this Agreement and the transactions contemplated hereby; provided, however, that Media Resolutions will not incur, in connection with the Merger and the related transactions contemplated hereunder, expenses for fees and expenses of lawyers, accountants and other professionals in excess of $15,000 for the period of time from the Balance Sheet Date until the Closing Date, unless any such fees or expenses incurred by Media Resolutions in excess of such $15,000 are paid by the Media Resolutions Shareholder on or before the Closing Date. 7.09 Notices. Any notice or other communication required or permitted ------- to be given under this Agreement will be in writing, will be delivered personally or by facsimile, mail or express delivery, postage prepaid, and will be deemed given upon actual delivery or, if mailed by registered or certified mail, on the third business day following deposit in the mails, addressed as follows: (i) If to Edge: Edge Technology Group, Inc. 6611 Hillcrest, No. 223 Dallas, Texas 75205 Attention: Graham C. Beachum II AGREEMENT AND PLAN OF MERGER - Page 34 with a copy to: Arter & Hadden LLP 1717 Main Street, Suite 4100 Dallas, Texas 75201 Attention: Victor B. Zanetti, Esq. Phone: (214) 761-4475 Fax: (214) 741-7139 (ii) If to Media Resolutions or the Media Resolutions Shareholders: Media Resolutions, Incorporated 15540 Spectrum Drive Addison, Texas 75001 Attention: Jerry Martilik and Phillip Holmes Phone: 972-889-0201 Fax: 972-490-8342 with a copy to: Brown McCarroll, LLP 2001 Ross Avenue, Suite 2000 Dallas, Texas 75201 Attention: Richard Cox, Esq. Phone: 214-999-6106 Fax: 214-999-6170 or to such other address as the party in question may have furnished to the other party by written notice given in accordance with this Section 7.09. 7.10 Construction of Agreement; Knowledge. The language hereof will not ------------------------------------ be construed for or against either party. A reference to a section, schedule or exhibit refers to a section in, or a schedule or an exhibit to, this Agreement, unless otherwise explicitly set forth. The titles and headings in this Agreement are for reference purposes only and will not in any manner limit the construction of this Agreement. For the purposes of such construction, this Agreement will be considered as a whole. References in this Agreement to the knowledge of Media Resolutions (or similar phrases) refer to the actual knowledge of any one or more of the officers and directors of Media Resolutions and any of the Media Resolutions Shareholders, each after due inquiry of its internal records or publicly available information; references in this Agreement to the knowledge of Edge (or similar phrases) refer to the actual knowledge of Graham C. Beachum II, President and Chief Executive Officer, or David N. Pilotte Executive Vice President and Chief Financial Officer, after due inquiry of its internal records or publicly available information. 7.11 No Joint Venture. Nothing contained in this Agreement will be ---------------- deemed or construed as creating a joint venture or partnership among the parties. No party is by virtue of this Agreement authorized as an agent, employee or legal representative of any other party. No AGREEMENT AND PLAN OF MERGER - Page 35 party will have the power to control the activities and operations of any other, and the parties' status is, and at all times, will continue to be, that of independent contractors with respect to each other. No party will have any power or authority to bind or commit any other. No party will hold itself out as having any authority or relationship in contravention of this Section 7.11. 7.12 Further Assurances. Each party agrees to cooperate fully with the ------------------ other party and to execute such further instruments, documents and agreements and to give such further written assurances as may be reasonably requested by the other party to evidence and reflect the transactions provided for herein and to carry into effect the intent of this Agreement. 7.13 Absence of Third Party Beneficiary Rights. No provisions of this ----------------------------------------- Agreement are intended, nor will be interpreted, to provide or create any third party beneficiary rights or any other rights of any kind in any client, customer, affiliate, partner or employee of any party or any other person or entity, unless specifically provided otherwise herein, and, except as so provided, all provisions hereof will be personal solely among the parties to this Agreement. 7.14 Public Announcement. Edge and Media Resolutions will issue a press ------------------- release approved by both parties announcing the Merger as soon as practicable following the execution of this Agreement; provided, however, that Edge may make such press releases or other public filings or announcements without the approval of the other parties hereto upon the determination of Edge's counsel that such action is necessary to comply with any relevant laws related thereto. 7.15 Confidentiality. Except as expressly authorized by Edge in --------------- writing, Media Resolutions and each Media Resolutions Shareholder will not directly or indirectly divulge to any person or entity or use any Edge Confidential Information, except as required for the performance of its duties under this Agreement. As used herein, "Edge Confidential Information" consists ----------------------------- of (a) any information designated by Edge as confidential whether developed by Edge or disclosed to Edge by a third party, (b) the source code to any Edge software, and any trade secrets relating to any of the foregoing and (c) any information relating to Edge's product plans, product designs, product costs, product prices, product names, finances, marketing plans, business opportunities, personnel, research development or know-how. Neither Edge nor Media Resolutions shall divulge the terms and conditions of this Agreement, except as disclosed in accordance with Section 7.14. The foregoing restriction will apply to information about a party whether or not it was obtained from such party's employees, acquired or developed by the other party during such other party's performance under this Agreement, or otherwise learned. The foregoing restrictions will not apply to information that (i) has become publicly known through no wrongful act of the receiving party, (ii) has been rightfully received from a third party authorized by the party which is the owner, creator or compiler to make such disclosure without restriction, (iii) has been approved or released by written authorization of the party which is the owner, creator or compiler, or (iv) is being or has therefore been disclosed pursuant to a valid court order after a reasonable attempt has been made to notify the party which is the owner, creator or compiler. 7.16 Entire Agreement. This Agreement, the schedules and exhibits ---------------- hereto constitute the entire understanding and agreement of the parties hereto with respect to the subject matter hereof and supersede all prior and contemporaneous agreements or understandings, inducements or conditions, express or implied, written or oral, among the parties with respect to the subject AGREEMENT AND PLAN OF MERGER - Page 36 matter hereof. The express terms hereof control and supersede any course of performance or usage of trade inconsistent with any of the terms hereof. [Signature Page follows] AGREEMENT AND PLAN OF MERGER - Page 37 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. EDGE TECHNOLOGY GROUP, INC. MEDIA RESOLUTIONS, INCORPORATED By: /s/ David N. Pilotte By: /s/ Phillip B. Holmes ------------------------------- ------------------------- David N. Pilotte Phillip B. Holmes Chief Financial Officer and Secretary President ETG ACQUISITION CORP. By: /s/ David N. Pilotte ------------------------------- David N. Pilotte Vice President and Secretary MEDIA RESOLUTIONS SHAREHOLDERS: /s/ Phillip B. Holmes - ------------------------------------ Phillip B. Holmes /s/ Jerry Martilik - ------------------------------------ Jerry Martilik AGREEMENT AND PLAN OF MERGER - Page 38 -----END PRIVACY-ENHANCED MESSAGE-----