-----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, QHmDnGQzys0oyl/WYy1ZMDDgcuKS3v1UiCM9C9fVetTMZNsa2GAueZKU7PEql9xk QhozdGWjKWF1Pydq6yMx9A== 0000897101-01-500346.txt : 20010606 0000897101-01-500346.hdr.sgml : 20010606 ACCESSION NUMBER: 0000897101-01-500346 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010605 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SINGLEPOINT SYSTEMS CORP CENTRAL INDEX KEY: 0000783738 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 411523657 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-14692 FILM NUMBER: 1654347 BUSINESS ADDRESS: STREET 1: 2917 W 133 STREET CITY: SHAKOPEE STATE: MN ZIP: 55379 BUSINESS PHONE: 9524020200 MAIL ADDRESS: STREET 1: 2917 W 133 STREET CITY: SHAKOPEE STATE: MN ZIP: 55379 FORMER COMPANY: FORMER CONFORMED NAME: GLOBAL MAINTECH CORP DATE OF NAME CHANGE: 19950628 FORMER COMPANY: FORMER CONFORMED NAME: MIRROR TECHNOLOGIES INC /MN/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTER AIDED TIME SHARE INC DATE OF NAME CHANGE: 19900122 10KSB 1 global011838_10ksb.txt GLOBAL MAINTECH CORPORATION FORM 10-KSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 10-KSB ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2000 Commission File Number 0-14692 GLOBAL MAINTECH CORPORATION Minnesota 41-1703940 (State of Incorporation) (I.R.S. Employer Identification No.) ------------------------ 7836 Second Avenue South, Suite 1 Bloomington, MN 55420 (Address of principal executive offices) Telephone Number: (952) 887-0092 ------------------------ SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT: COMMON STOCK, NO PAR VALUE Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such 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 ___ No _X_ Check if disclosure of delinquent filers in response to Item 405 of Regulations S-B is not contained in this form, and no disclosure will be contained, to the best of 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. __ The Company's revenues for the Fiscal Year Ended December 31, 2000 totaled $4,232,482. The aggregate market value of voting common stock held by non-affiliates of the registrant as of May 15, 2001 was approximately $1,326,317 based upon the closing bid price on the Over The Counter Bulletin Board ("OTCBB") on that date. The number of shares of the Company's no par value common stock outstanding as of May 15, 2001 was 10,052,155. Transitional Small Business Disclosure Format (Check One): Yes ___ No _X_ SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Except for historical information, this document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties that may cause the Company's actual results to differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, inability of the Company to compete in the industry in which it operates; failure of the Company to successfully integrate the operations of newly acquired businesses; failure to successfully adjust the Company's product mix and product sales following divestiture of some businesses; failure of the Company to meet its future additional capital requirements; lack of market acceptance of the Company's products, including products under development; the uncertainty in the Company's ability to continue to operate profitably in the future; loss of key personnel; failure of the Company to secure adequate protection for the Company's intellectual property rights; failure of the Company to respond to evolving industry standards and technological changes; and the Company's exposure to product liability claims. The forward-looking statements are qualified in their entirety by these factors and the cautions and risk factors set forth in Exhibit 99, under the caption "Cautionary Statement," to this Annual Report on Form 10-KSB for the year ended December 31, 2000. Copies of the Company's Annual Reports on Form 10-KSB, as filed with the Securities and Exchange Commission, may be obtained free of charge from Sue Korsgarden at the Company, 7836 Second Avenue South, Suite 1, Bloomington, Minnesota 55420, phone (952) 887-0092. PART I Item 1. Description of Business. GENERAL The Company supplies world class systems (device and system consolidation, systems and network management, professional services and storage products) and network management products primarily to computer data centers and provides professional services to help our customers implement enterprise system management solutions. These products and services provide solutions that enable companies to better use their IT management tools. One of the Company's two divisions produces the Global MAINTECH Virtual Command Center ("VCC"), a master console that provides simultaneous control, operation, monitoring and console consolidation for mainframe, midrange, UNIX, Microsoft NT and networks. Singlepoint Systems, Inc., our subsidiary until December 21, 2000 (see "Divestitures," below), manufactures and sells event notification software and provides professional services to help implement enterprise management solutions. The Company's VCC customers include Acxiom Corporation, A.I.G. (American International Group), Alaska USA Federal Credit Union, Altell Information Services, American Home Products, Banc One Services, Bear Stearns, Burlington Northern Railroad, Citicorp Global Technology, General Electric Information Systems, 3M (Minnesota Mining and Manufacturing), Marconi NER Data Products, SAP America, Inc., Sempra, Southern California Edison, and Wellpoint Health Networks. The Company has established partnerships with HP, IBM, BMC and Compaq. The Company's second division is Lavenir Technology, a printed circuit board division which manufactures and sells printed circuit board design software and plotters. The Company's top ten Lavenir customers include Lockheed Martin Vought Systems, EVI Incorporated, Dong IL CAD System, Inc., Cordova Circuits, Kinetics, Janco Electronics (P/C Div.), Printed Circuit Corp., PIU Printex, Axon Circuit, Inc., and Beta Board GMBH. Together, the Company's products and services provide solutions that enhance the IT Framework solutions provided by these and other partner companies. The Company was incorporated under the laws of the State of Minnesota in 1985 under the name Computer Aided Time Share, Inc. Effective February 28, 2001, the Board of Directors of the Company approved a change in 2 the Company's name from Singlepoint Systems, Inc. to Global MAINTECH Corporation. The name change will be adopted upon shareholder approval. PRODUCTS AND SERVICES VCC. This product is a computer system, consisting of hardware and software, which monitors and controls diverse computers in a data center from a single, master console. A console is a computer terminal with access to the internal operation of other computers. The VCC can simultaneously manage servers, networks, mainframes and mid-range computers such as those with MVS, VM, OS390, UNIX, Microsoft and Windows NT platforms. We believe our VCC is a platform to which we can add new products to meet other systems and network management needs not currently met by existing competitive products. We intend to continue to provide new products through our internal research and development efforts or through acquisitions to meet changes in customer needs. FUNCTIONS AND FEATURES. Our VCC product is designed to perform three primary functions: * consolidate consoles into one monitor, known as a virtual console or single point of control; * monitor and control the computers connected to the virtual console; and * automate most or all of the routine processes performed by computer operators in data centers. The VCC is an external system that monitors and controls the mainframe and other data center computers from a workstation-quality reduced instruction set, RISC-based UNIX system computer, which is housed separately from the computers it controls. The primary feature of this product is that it allows centralized management and automated operations of multiple hardware platforms and networks on a local and remote basis. Users of our VCC product can consolidate the management of entire data centers into a single workstation that provides the complete inter-connectivity and control over a network. This can be accomplished regardless of whether the computing devices comprising the data center are located in one location or distributed across the world. The product's ability to consolidate operational computer consoles reduces the need for operational staff, technical support and software licenses. Our VCC product is easy to install and use and is scalable to accommodate data center growth. Other features include: * access to enterprise-wide reports at various levels of the network; * management of any task or computer console on local or remote basis; and * automated warnings of potential or actual system problems. DIFFERENTIATION FROM SOFTWARE-ONLY PRODUCTS. The majority of systems and network management products are represented by software-only products employing invasive software agents, known as active agents. Active agents are installed on each of the mission critical computing devices. Software agents can be either passive collectors of information or active searchers for information. Software that employs active agents is time consuming to install and by its nature activates the need for change control, which is one of the functions of systems and network management. Any new software must go through the change control process to determine compatibility with all other software deployed on the device. This process may be extensive depending on which systems and network management software is used. The VCC is not designed to compete with the active agent software now prevalent in the industry. It is an external system that accepts the signals and information output of each of the devices to which it is connected. Consequently, it can use the infrastructure provided by native and non-native operational software to control the enterprise computing operations. The greater the information issuing from these devices, the more useful the VCC becomes. Some of the other products we offer employ passive agents to collect information from host devices or networks before passing that information on to the VCC. GLOBAL WATCH MVS/SNA. This product manages a customer's networked environment for IBM's mainframe-based NetView application, and can operate on a stand-alone or fully integrated basis with the VCC. Customers have confirmed it uses only approximately 5% of the processing capacity required by NetView. In 3 addition, it reduces exposure to network outages, improves average repair times on network problems and provides many analytic problem-solving tools. When Global Watch MVS/SNA is combined with the VCC, the customer can take advantage of the MVS Logical Console. The logical console enables the customer to receive and respond to status messages, in real time, from all logical partitions (logical partitions divide a mainframe device into multiple internal devices). The logical console allows the user to look at all partitions without having to access each partition. The status messages from each partition are displayed in a single logical console alert window in the VCC. There is no need for any customization of the host computer's devices and messages can be collected from a nearly infinite number of central processing units and logical partitions. PROFESSIONAL SERVICES. We offer system management services that help our customers to design and implement network and system management products to manage their information technology environment. We specialize in integrating multiple products into a complete enterprise-wide solution for corporate data centers. We support our VCC product as well as implement the industry's leading system and network management products, including Hewlett-Packard's OpenView, BMC Software's COMMAND/POST and IBM's Tivoli TME. Our capabilities include strategic planning and implementation, installation of enterprise system management tools, product training, product conversions, and consulting. LAVENIR. The Company's Lavenir division develops, manufactures and supports CAM (Computer Aided Manufacturing), and test software and raster photoplotters for use by Printed Circuit Board (PCB) manufacturers. Lavenir's products are used at every stage of the printed circuit board manufacturing process. The Company's software products allow the PCB manufacturer to generate the files necessary to produce and test bare circuit boards. Lavenir's CAM products (ViewMaster Pro and CAMMaster) allow the PCB manufacturer to generate panelized PCB data files from data originally provided by printed circuit board designers. Additionally, these products generate the data files needed to drive PCB drilling and routing equipment. Our test software (FixMaster and ProbeMaster for Windows), generate files utilized to construct test fixtures and to drive various bed of nails and flying probe testers. Lavenir's raster photoplotters (which image with light on film, at resolutions up to 400,000,000 dots per square inch) generate accurate master photo tools for use in PCB manufacturing. DIVESTITURES VOLUNTARY FORECLOSURE OF BREECE HILL TECHNOLOGIES, INC. On February 3, 2000, the Company entered into a stock purchase agreement with Tandberg Data ASA of Oslo, Norway ("Tandberg"), GMI, Hambrecht & Quist Guaranty Finance LLC, Greyrock Capital and Cruttenden Roth, Incorporated, pursuant to which Tandberg would purchase the Company's Breece Hill subsidiary. Tandberg terminated the Stock Purchase Agreement on the grounds that its shareholders did not approve the transaction. On December 22, 2000, Hambrecht and Quist Guaranty Finance ("H&QGF"), as secured lender, foreclosed on the assets of the Breece Hill subsidiary. H&QGF felt it necessary to accelerate foreclosure on the Breece Hill subsidiary in order to cover outstanding loans and earn out provisions totaling $24.87 million, and the Company's Board of Directors determined that the only other alternative to such foreclosure was to file for bankruptcy protection and/or discontinue operating. Through the foreclosure process, H&QGF was able to find a buyer for the Breece Hill subsidiary and was able to sell the asset to MaxOptix Corporation of Fremont, California. This sale satisfied the outstanding loan amount to H&QGF and the Company captured additional consideration in the form of MaxOptix stock and warrants. RESCISSION OF ENTERPRISE SOLUTIONS, INC. ASSET PURCHASE AGREEMENT Effective December 20, 2000 the Company and Enterprise Solutions Inc. ("ESI") d.b.a. Singlepoint Systems, Inc. executed a Rescission and Settlement Agreement rescinding the acquisition of ESI by the Company. The acquisition had an earn-out component to determine the ultimate price for ESI, which at the end of the earn-out period was determined to be approximately $11.1 million (unaudited figure). The Company was unable to pay this amount, and determined that ESI was not worth this amount. Both companies exhausted every option to find a 4 workable solution to benefit both companies' shareholders, ultimately determining that the best course of action was to rescind the acquisition agreement. All assets and liabilities belonging to ESI were returned to ESI's shareholders. SALES AND MARKETING We currently employ several different sales channels to sell the VCC. The VCC is sold primarily through direct sales and through our business partnerships using our sales force. This requires appropriate training for each sales person and direct, consultative sales techniques. The direct sales team is supported by a dedicated telemarketing process and sales support in the form of written materials, CD-ROM presentations, VCR tape presentations and remote PC-based presentation routines available on the salespersons laptop computer. Lavenir products are utilized worldwide. We use a combination of direct sales and a dealer network to sell our products. Our largest customer accounted for 6% of our revenue. No other single customer accounted for more than 5% of revenue Our other products, excluding storage management products, are sold through resellers and strategic arrangements with other companies that have products complementary to ours. The direct sales team and the telemarketing staff sell these other products to allow an entry point to a customer at any level in which the customer may become engaged. Our professional services are sold directly to the customer. COMPETITION The VCC competes with internal monitoring software, which monitors certain pieces of hardware and software applications in the computer in which such internal software is installed. Annual sales of systems and network management software were estimated to be $ 10 billion as of December 1999. It is believed this market will grow to almost $11 billion by 2002. Major products and companies in the system and network management industry are as follows: Product Maker Base Platform - ------- ----- ------------- NetView IBM Mainframe TME IBM/Tivoli Mid-range server Unicenter Computer Associates Mainframe Command/Post Boole & Babbage Mainframe Open View Hewlett-Packard Mid-range server The majority of the makers listed above are expanding their base focus to include other platforms through partnerships, acquisition or further internal development. In all cases these products use active agents and often take months or years to deploy throughout a company's computer network. The mainframe products of other makers can consolidate from 7 to 16 computer consoles. Their architecture, however, does not allow significant console consolidation into one monitor. We believe each of these products requires a significant number of people to install, maintain and to complete the installation due primarily to the invasive nature of the active software agents. Additionally, the ability of these other products to be expanded with the addition of new devices and data center sites adds to the complexity of the initial installation. The VCC and related products are all designed to be initially installed in hours or at most days and to automatically recognize the addition or removal of devices after installation. One VCC can consolidate from two to several hundred devices and our other software products such as Global Watch MVS/SNA can monitor from two to thousands of devices. Each of our products performs at least one of eight functions of the systems and network management market described above. The VCC performs all eight of such functions. We have positioned ourselves initially in the professional services marketplace as niche oriented. This has allowed us to build a reputation without competing with the large consulting services organizations such as IBM and EDS. As our customer base grows, we believe we will compete more directly with these companies. 5 Our Lavenir division competes against several companies that provide software and hardware products to the PCB manufacturer. Principal software competitors include Frontline PCB Solutions, Barco, Innoveda and Everett Charles Technologies. Our primary competitors include First EIE SA and Barco. RESEARCH AND DEVELOPMENT The systems and network management industry is characterized by rapid technological change, including changes in customer requirements, frequent new product introductions and enhancements, and evolving industry standards. We believe that continued research and development efforts are an important factor in our ability to maintain technological competitiveness. Our research and development activities have been substantial. Other than the VCC and the Global Watch MVS/SNA products, all of our products were developed in 1998. In addition, we introduced our new E-bus technology for the VCC in 1998. In 1999, we introduced single E-bus units that can be used to connect up to five devices per unit and allow remote access from a primary VCC unit via a customer's LAN or WAN. The single E-bus allows economic access of the VCC technology to any company with widely dispersed devices that tie into a central VCC in another location. Retail organizations with numerous devices dispersed across a wide geographic area and computer outsourcers can economically achieve full operational control over the dispersed devices and keep operating expertise centrally located. We are currently focusing our product development efforts on extending the application of our software products across multiple platforms, including the various versions of UNIX and Linux. We are currently working on the development of a new generation of the VCC software called Camelot, which will run on multiple platforms. Camelot is due to be released in the fourth quarter of 2001. The Company upgrades and will continue to upgrade the Global Watch MVS/SNA, which was re-introduced in February of 2001 using the TCP/IP communications protocol and the ability to link management information from mainframes and UNIX workstations. This brings the functionality of Global Watch to additional platforms. The Company is continually developing enhanced versions of our existing software products and raster photoplotters. Our most recent software efforts have focused on system automation. Our CAMMaster product now features Visual Basic scripting capability, which allows the user to customize and automate the tedious data preparation task. Data flows that previously required several hours to complete are now automated and completed in a few minutes. We are nearing completion of a new software product called AutoFix. This software (currently in beta test) automates the process of generating bare board test files from netlist data. Lavenir has entered into a collaboration with Jetmask Limited, a U.K. based, venture backed, startup company, to produce a series of inkjet printers for use by PCB manufacturers. Jetmask Limited is providing expertise in ink formulation and inkjet processes and Lavenir is providing intellectual property related to image processing and motion control and is responsible for the manufacture of the system. A prototype of the DLP direct legend printer (the first product resulting from the joint collaboration) was introduced in early April, at the IPC tradeshow in Anaheim, CA. The DLP printer is utilized to apply legend directly to a printed circuit board, replacing numerous steps inherent in a more traditional silkscreen process. Lavenir is responsible for DLP sales and marketing in the USA and Canada. Jetmask Limited is responsible for sales and marketing in the markets not served by Lavenir. Revenue from worldwide product sales will be shared by Jetmask Limited and Lavenir. Our research and development costs were approximately $2.8 million in 1999, and approximately $0 in 2000. See also "Item 6. Management's Discussion and Analysis or Plan of Operations -Recent Developments." PATENTS, TRADEMARKS AND COPYRIGHTS We have three patents issued and one patent pending for the VCC and related products. Our trademark is Global MAINTECH(TM). On June 1, 1999, we registered the three following copyrights with the U.S. copyright office: Virtual Command (version 2.14), The Coordinator (version 1.6), and Cap Trend (version 2.1). 6 We license hardware that is used in the VCC from Circle Corporation. Under the license, we can distribute the hardware worldwide, except in Japan. This hardware is not sold as part of our current products, but we do support it with respect to existing customers to whom we distributed it. The initial term of this license expires on December 20, 2004. EMPLOYEES As of May 15, 2001, we had 32 total employees and 30 full-time employees. ITEM 2. DESCRIPTION OF PROPERTY. The Company's headquarters is located at 7836 Second Avenue South, Suite 1, Bloomington, Minnesota 55420. The sublease for this location, entered into on April 18, 2001, is for approximately 3,073 square feet and terminates on July 31, 2002 with an option for the Company to extend the sublease until April 30, 2004. This property is used administratively as the Company's corporate headquarters, and is also used to house the Company's technical support department. The rent is $2,645.00 per calendar month. The Company entered into an Extension of Lease agreement on July 23, 1999 which extends the lease originally entered into by Lavenir Technology, Inc. on April 3, 1990. The property is utilized for warehouse space, manufacturing purposes (including the assembly of photoplotters and direct legend printers), research and development, administrative functions, and for Lavenir's CNC machine center. The lease extension provides for the two-year lease of approximately 7,940 square feet of property located at 2440 Estand Way, Pleasant Hill, California 94523 commencing on September 1, 1999 and ending on August 31, 2001. The current monthly rent is $8,880.00. The Company or one of its subsidiaries is responsible for utilities, insurance, and other operating expenses at all locations. We relocated our headquarters to the current location on May 1, 2001. ITEM 3. LEGAL PROCEEDINGS. Breece Hill/Tandberg Data Claim. The Company is currently involved in the following litigation: GLOBAL MAINTECH, INC. (NOW GLOBAL MAINTECH CORPORATION) AND BREECE HILL TECHNOLOGIES, INC. V. TANDBERG DATA ASA; and TANDBERG DATA INC. V. BREECE HILL TECHNOLOGIES, INC. On February 3, 2000, we entered into a stock purchase agreement with Tandberg Data ASA, Hambrecht & Quist Guaranty Finance LLC, Greyrock Capital and Cruttenden Roth, Incorporated, under which Tandberg agreed to purchase our Breece Hill Technologies subsidiary. Our shareholders approved the transaction at a special meeting held on April 5, 2000. Shortly thereafter, Tandberg informed us that it did not believe that its shareholders would approve the transaction and, in a meeting on May 4, 2000, Tandberg's shareholders failed to approve the acquisition. On July 17, 2000, the Company and Breece Hill filed a lawsuit against Tandberg in the United States District Court for the District of Minnesota (Global MAINTECH, Inc. (now Global MAINTECH Corporation) and Breece Hill Technologies, Inc. v. Tandberg Data ASA) for various claims arising out of Tandberg's shareholders' failure to approve the acquisition. On August 4, 2000, Tandberg Data, Inc. filed suit against Breece Hill, also in the United States District Court for the District of Minnesota, alleging that Breece Hill failed to pay for approximately $800,000 in tape drives that Tandberg Data had delivered to Breece Hill. Breece Hill denies Tandberg Data, Inc.'s claims and damages. Breece Hill has brought a counterclaim in the same suit for various claims arising out of promises Tandberg, Inc., made in connection with the proposed acquisition of Breece Hill, and Tandberg's failure to consummate the acquisition. We are seeking a judgment against Tandberg in an amount in excess of $75,000 to be determined at trial for damages resulting from Tandberg's breach of the stock purchase agreement and its failure to acquire Breece Hill. We and Breece Hill are further seeking a judgment against Tandberg in an amount in excess of $75,000 to be determined at trial for damages resulting from Tandberg's failure to honor its promises to us and Breece Hill. At a board meeting on January 12, 2001, the board of directors voted to authorize management to offer the former Breece Hill shareholders 2,000,000 shares of Global Maintech Corporation stock subject to a three-year lock up, the stocks and warrants of Max Optix that were received as consideration for the voluntary foreclosure of Breece Hill assets, and proceeds from the Tandberg litigation (if proceeds are recovered). Bill Howdon and Jim Watson, directors of Global and former Breece Hill shareholders, stated that the former Breece Hill shareholders would fund the litigation and they would require that Jim Watson would be appointed to oversee the litigation. There was also discussion of the proceeds in the event that the case was litigated, but no agreement if there was a settlement. There was no resolution of disbursement of the funds in the event of a settlement. If the case were litigated and a finding, then it would be contributed according to the determined damages. During the board meeting, there was no reference of Tandberg's claim of $800,000 for a product that was delivered and received by the Breece Hill subsidiary or that the law firm of Dorsey & Whitney had disputed whether there was an entitlement to an earn out and the calculations that Bill Howdon and Jim Watson had submitted relating to shares or sums owed. Breece Hill Earn Out. The Company entered into an agreement and plan of merger with Breece Hill in March 1999. The terms of the merger agreement include a provision for an earn out payment to Breece Hill. The 7 earn out is determined by a complex formula and the parties have disputed both the amount and entitlement. At a meeting on January 12, 2001, the Board of Directors agreed to offer the former Breece Hill shareholders 2,000,000 shares of Global MAINTECH Corporation, subject to a three-year lockup, along with the stock and warrants of MaxOptix that were received as consideration for the voluntary foreclosure of the Breece Hill assets and an undetermined amount of proceeds obtained in the Tandberg litigation (if proceeds were recovered), if the former Breece Hill shareholders would agree to fund the Tandberg litigation. There have been discussions regarding the formalization of an agreement with the former Breece Hill shareholders, but there remain unresolved issues and the Board of Directors is reconsidering its options. Highline Capital Corp. Litigation. The Company is involved in the following litigation: HIGHLINE CAPITAL CORP. V. SINGLEPOINT SYSTEMS, INC. (F/K/A GLOBAL MAINTECH CORP.). Highline Capital Corp. ("Highline") served the Company on March 20, 2000 with a complaint filed in the District Court for the County of Boulder, in the State of Colorado, seeking $142,876.96 in damages for an alleged default by the Company on a software license agreement, as well as $18,717.27 in attorney's fees and costs, and interest. Highline Capital Corp. was granted summary judgment in the amount of $ 142,876.96, attorney's fees and costs currently totaling $18,717.27, and interest. Highline has taken steps to collect on the judgment. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of the Company's shareholders during the fourth quarter of fiscal 2000. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Until May 23, 2001, the Company's common stock traded on the Over The Counter Bulletin Board ("OTCBB") under the symbol "GBMT" ("GBMTE" following the Company's failure to timely file this annual report on Form 10-KSB). The quotations for the Company's shares are currently available on Pink Sheets. The Company expects quotation of its shares to resume on the OTCBB after the Company has filed this annual report on Form 10-KSB and its quarterly report on Form 10-QSB for the quarter ended March 31, 2001. The following are the high and low bid quotations for the Company's common stock as reported on the OTC Bulletin Board during each quarter of the fiscal years ended December 31, 2000 and 1999, and through May 15, 2001 for the fiscal year ending December 31, 2001. These quotations represent prices quoted between dealers, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. Year Ending December 31, 2001 ------------------------------------------------------------- Quarter High Low ------------------------------------------------------------- First $ .500 $ .200 Second (through May 15, 2001) .560 .320 Year Ended December 31, 2000 ------------------------------------------------------------- Quarter High Low ------------------------------------------------------------- First $ 10.375 $ 6.250 Second 5.750 2.094 Third 2.500 .750 Fourth .800 .095 Year Ended December 31, 1999 ------------------------------------------------------------- Quarter High Low ------------------------------------------------------------- First $ 21.19 $ 7.19 Second 9.84 5.94 Third 12.25 6.09 Fourth 8.16 5.13 8 As of May 15, 2001, the Company had approximately 356 shareholders of record. The Company has not paid cash dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future. RECENT SALES OF UNREGISTERED SECURITIES. February 1998 Offering. During the second quarter of 1998, the Company issued 29,300 shares of common stock to accredited investors at a purchase price of $9.50 per share in a private offering pursuant to the terms of a private placement agreement dated February 19, 1998. Maven Securities, Inc. acted as placement agent for this sale and was paid a 10% commission and a 3% fee for expenses. As additional compensation, the Company issued to the placement agent a warrant to purchase 8,530 shares of common stock at an exercise price of $9.50 per share. The aggregate offering price for the shares issued in the second quarter of 1998 was $278,350 and the aggregate placement agent commissions and expenses were approximately $36,200. All share numbers and price per share numbers are adjusted for the reverse stock split. The shares issued were exempt from registration under Rule 506 of Regulation D of the Securities Act. This offering terminated on July 9, 1998 and a total of 85,300 shares were sold. July 1998 Offering. On July 21, 1998, the Company began a private placement of 333,400 units, each consisting of one share of common stock, subject to possible adjustment, and one warrant to purchase a fraction of a share of common stock, at a price of $11.00 per unit. Each warrant entitles the holder to purchase .05334 shares of common stock at $13.00 per share for each $5 invested in the offering. In addition, the number of shares purchased in the offering may be increased based on the future market price of the common stock. If the average closing price per share for the Company's common stock for all trading days in December 1998 is less than $14.65, then the number of shares issued to an investor in the offering will be adjusted in accordance with the following formula: the number of adjusted shares will equal the result obtained by dividing the aggregate investment by 75% of the average closing price. However, the average closing price is subject to a minimum value of $10.00. This offering terminated on August 11, 1998 and a total of 90,000 units were sold for a total offering price of $990,000. The Company offered this private placement without the assistance of a placement agent. All share numbers and price per share numbers are adjusted for the reverse stock split. The shares of common stock issued pursuant to this offering were exempt from registration under Rule 506 of Regulation D of the Securities Act. August 1998 Series B Stock. At the end of August 1998, the Company began a private placement of up to 123,077 units, as adjusted for the reverse stock split, each consisting of one share of Series B cumulative convertible preferred stock and one warrant to purchase shares of common stock. The purchase price per unit was $32.50. Each share of Series B stock entitles the holder thereof to receive an annual dividend equal to $2.60. Until February 15, 1999, each share of Series B stock was convertible into that number of shares of common stock equal to the per unit purchase price divided by $16.25, subject to adjustments and as adjusted for the reverse stock split. Thereafter, each share of Series B stock is convertible into that number of shares of common stock equal to the per unit purchase price divided by 80% of the average closing bid price of the common stock for the 20 consecutive trading days prior to the conversion date, subject to adjustments. However, the average price may not be greater than $12.50 nor less than $3.75, as adjusted for the reverse stock split. All outstanding shares of Series B stock will be automatically converted, on September 23, 2001, into such number of shares of common stock as is determined by dividing the Series B original issue price by the Series B Conversion Price in effect on that date. The Series B Conversion Price is the average closing bid price of one share of Common Stock as quoted by the Nasdaq SmallCap Market, the Nasdaq National Market or the principal exchange upon which shares of Common Stock may be listed, or, if the Company's common stock is not then quoted on the Nasdaq SmallCap Market or the Nasdaq National Market or listed on a national securities exchange, but is otherwise traded in the over-the-counter market, on such over-the-counter market, for the 20 consecutive trading days prior to the conversion date multiplied by .8; PROVIDED, HOWEVER, that the Conversion price will in no event exceed $12.50 per share or be less than $3.75 per share. Each warrant is a five-year callable warrant to purchase common stock at $16.25 per share, as adjusted for the reverse stock split. The number of shares of common stock for which the warrant will be exercisable will equal the number of shares of common stock into which the associated share of Series B stock contained in the unit will have been converted. The warrants are callable by the Company provided the common stock has not traded below 9 $21.875, as adjusted for the reverse stock split, for 20 consecutive trading days prior to the call exercise date and the underlying shares are registered under the Securities Act and the common stock is traded on Nasdaq. The Company agreed to use its best efforts to register the shares of common stock underlying the Series B stock and the warrants and to pay a penalty if the registration is not effective by February 28, 1999. This penalty is equal to 1% of the purchase price of the units for the first 30-day period following February 28, 1999 and 3% for every 30-day period thereafter until the registration statement has been declared effective. The units were sold only to accredited investors and this offering was exempt from registration under Rule 506 of Regulation D of the Securities Act. Miller, Johnson & Kuehn Incorporated acted as the placement agent. In consideration for MJK's services, it received a cash fee equal to 10% of the proceeds from the units it sold and a cash fee equal to 2% of the proceeds from the units sold by the Company. In addition, at each closing held in connection with the offering, MJK received a warrant to purchase that number of shares of common stock equal to 10% of the number of units it sold and 2% of the number of units the Company sold, with a per share exercise price equal to 110% of the average closing bid price of the common stock for the 20 trading day period immediately prior to such closing. This resulted in the Company issuing to MJK warrants to purchase 456, 2,700 and 319 shares of common stock at per share exercise prices equal to $7.05, $7.35 and $5.80, respectively, as adjusted for the reverse stock split. The Company issued 67,192 units for total gross proceeds of $2,183,747. Commissions paid to MJK on this amount totaled $126,687 for placement agent commissions and $23,302 for the payment of MJK's accountable expenses, including legal fees, incurred in connection with the offering. Unregistered Issuance in Connection with Asset Purchase from Enterprise Solutions, Inc. The Company, through its wholly owned subsidiary Singlepoint Systems, Inc., purchased substantially all of the assets and assumed specified liabilities of Enterprise Solutions, Inc., an Ohio corporation, pursuant to an Asset Purchase Agreement effective as of November 1, 1998. The purchase price was paid as follows: $200,000 was paid in cash to Enterprise Solutions; options to purchase a maximum of 340,000 shares of common stock or a minimum of 80,000 shares of common stock, subject to earnings events over the 18 months following the closing, were issued to the shareholders of Enterprise Solutions; and options to purchase a maximum of 16,000 shares of common stock were issued to the employees of Enterprise Solutions. All of these options, as adjusted for the reverse stock split, have an exercise price equal to $6.25 and expire on December 9, 2003. The purchase price of the assets is subject to adjustment depending on the after-tax earnings generated by the Company using the purchased assets during the 18-month period following the closing of the transaction. In the event the after-tax earnings are less than specified amounts set forth in the Purchase Agreement, the number of shares that may be purchased under the shareholder options may be reduced by up to 260,000 shares, as adjusted for the reverse stock split. Conversely, the Company will pay Enterprise Solutions the excess, if any, of the earnout amount over the option value. Earnout amount means the greater of (a) 18 times the sum of the after-tax earnings for the first, second, third and tenth through eighteenth months following the acquisition or (b) 16 times the sum of the after-tax earnings for the seventh month through the eighteenth month following the acquisition. Option value means $200,000 plus the product of the number of shares subject to the shareholder options (after any adjustments as described above) multiplied by the spread between the exercise price thereof and the average daily closing price of the Company's common stock during the month immediately preceding the last month of the earnout period. Notwithstanding the foregoing, in the event the earnout amount minus the option value is less than $5,000,000, the Company, at its option, will either pay the difference to Enterprise Solutions or return the purchased assets and related liabilities to Enterprise Solutions as of the end of the earnout period. In the event the assets are returned to Enterprise Solutions, the shareholder options and the employee options will be canceled. All securities issued in connection with this transaction were issued under Section 4(2) of the Securities Act. February 1999 Note and Warrants. On February 23, 1999, the Company received a loan in the amount of $500,000 from five partners in the investment firm of Andersen, Weinroth & Co. In exchange for the loan, the Company issued a promissory note in the amount of $500,000 and warrants to purchase up to 110,000 shares of 10 common stock, as adjusted for the reverse stock split. The promissory note bore interest at an annual rate of 10%. This note was paid in November 1999. Holders of the warrants may exercise them by paying the exercise price in cash or by converting the warrants under a cashless exercise option. Holders of the warrants also have the right to demand piggyback registration rights under specified circumstances. The warrants are exercisable at $5.40 per share, subject to adjustment and as adjusted for the reverse stock split. Warrants with respect to 26,760 shares, as adjusted for the reverse stock split, are callable by the Company upon the occurrence of specified conditions set forth in the warrants. Warrants with respect to the remaining shares are noncallable. The note and warrants were exempt from registration under Section 4(2) of the Securities Act. March 1999 Offering. In March 1999, the Company began a private placement of common stock at a purchase price of $5.625 per share, as adjusted for the reverse stock split. The Company completed this private placement on May 12, 1999. A total of 265,222 shares were sold for total gross proceeds of $1,491,875. Aethlon Capital acted as the placement agent. The Company paid the placement agent a cash commission equal to 10% of the gross proceeds and reimbursed the agent for out-of-pocket expenses incurred in connection with the offering. The Company also issued to the agent a warrant to purchase up to 26,522 shares of the common stock sold in the offering with an exercise price of $5.625 per share. The shares of common stock issued pursuant to this offering were exempt from registration under Rule 506 of Regulation D of the Securities Act. March 1999 Note. On March 9, 1999, the Company issued a $100,000 convertible note payable to an accredited investor, convertible into common stock at $4.00 per share, as adjusted for the reverse stock split, at a 6% per annum rate of interest. The convertible note payable was converted into common stock in October 1999. The note was exempt from registration under Section 4(2) of the Securities Act. March 1999 Series C Stock. On March 25, 1999, the Company issued 1,600 shares of its Series C convertible preferred stock to accredited investors in a private offering. The Company also issued warrants to the investors to purchase up to 20,000 shares of common stock, as adjusted for the reverse stock split. Intercoastal Financial Services Corp., the placement agent, received 75 shares of Series C stock and a warrant to purchase an aggregate of 20,000 shares of common stock, in addition to $96,000 in fees for costs incurred in connection with the offering, including legal fees. On January 19, 2000, the holders of Series C stock and warrants to purchase shares of common stock exchanged their Series C shares and warrants for shares of Series D stock and new warrants, adjusted for the reverse stock split, as described below under "January 19, 2000 Series D Stock." Unregistered Issuance in Connection with Merger with Breece Hill Technologies, Inc. On April 14, 1999, the Company acquired all of the issued and outstanding common stock and Series A convertible preferred stock of Breece Hill Technologies, Inc. in connection with the merger of BHT Acquisition, Inc., a subsidiary of the Company, Inc., with and into Breece Hill. Breece Hill was the surviving corporation. In exchange for the cancellation of their outstanding shares, the Breece Hill shareholders received rights to proportionate interests in the merger consideration, which consisted of warrants to purchase a total of 900,000 shares of the Company's common stock and the right to receive an earn out payment based in part on the sales of Breece Hill over the twelve months following the acquisition. This earnout payment will be made, if at all, in the form of the Company's common stock in the maximum amount of 1,100,000 shares, a portion of the fair value of which may be satisfied with cash. Subsequent to the date of acquisition, the Breece Hill subsidiary issued 400,000 shares of Preferred Stock Series B to Hambrecht & Quist Guaranty Fund LLP in exchange for a reduction of debt secured by certain assets of Breece Hill in the amount of $1 million. The preferred stock has a monthly dividend of $10,000 payable in cash or common stock of the Company and is convertible at the option of the holder into common stock of the Company. The Company has recorded this Preferred Stock as a minority interest in Breece Hill. All securities issued in connection with this transaction were issued under Section 4(2) of the Securities Act. May 1999 Offering. On May 7, 1999, the Company issued convertible notes payable to two accredited investors in the aggregate principal amount of $161,372. The notes are convertible into common stock at $6.25 per share, as adjusted for the reverse stock split, and bear interest at the rate of 6% per annum. The notes are subordinate to current and future debt issued by the Company. The notes were due on November 7, 1999; however, on 11 September 9, 1999, the notes were converted, in accordance with their terms, into 26,554 shares of common stock. The notes were exempt from registration under Section 3(a)(9) of the Securities Act. June 1999 Offering. On June 28, 1999, the Company began a second private placement of common stock at a purchase price of $5.00 per share. A total of 144,430 shares were sold for total gross proceeds of $722,150. Under the terms of this private placement, 36,108 additional shares were issued to the investors in February 2000. Aethlon Capital acted as the placement agent. The Company paid the placement agent a cash commission equal to 10% of the gross proceeds and reimbursed the agent for out-of-pocket expenses incurred in connection with the offering. The Company also issued to the agent a warrant to purchase up to 10% of the number of shares of the common stock sold in the offering with an exercise price of $5.00 per share. The shares issued were exempt from registration under Rule 506 of Regulation D of the Securities Act. August 1999 Note Payable. On August 6 and again on September 30, 1999, the Company rescheduled the principal payment of $250,000 of the $500,000 note payable to Andersen, Weinroth, which originally was due on July 31, 1999. This payment was extended to November 30, 1999, and was paid in full by that date. In connection with these reschedulings, the Company issued warrants to purchase a total of 20,000 shares of common stock at an exercise price of $5.40 per share to Andersen, Weinroth. These warrants have a term of five years and were issued pursuant to Section 4(2) of the Securities Act. August 1999 Offering. On August 26, 1999, the Company issued 238,000 shares of common stock to Liviakis Financial Communications, Inc. in exchange for an agreement by Liviakis to perform public relations work for the Company. An additional 20,000 shares of common stock were issued to The Geneva Group, Inc. to perform public relations work for the Company in Europe. The agreement was amended as of November 17, 1999 to extend the term through April 1, 2001. The Company issued an additional 390,000 shares of common stock to Liviakis as consideration for extension of the term. Pursuant to the agreement, Liviakis agreed to a lock-up of the shares until the expiration of the term of the consultancy. The share numbers are as adjusted for the reverse stock split and were exempt from registration under Section 4(2) of the Securities Act. Unregistered Issuance in Connection with Asset Purchase from Lavenir Technology, Inc. On September 29, 1999, the Company, through its wholly owned subsidiary Global MAINTECH, Inc., purchased substantially all the assets of Lavenir Technology, Inc., a California corporation, pursuant to an Agreement and Plan of Reorganization. In addition, the Company assumed specified liabilities of Lavenir, including Lavenir's ongoing leases, debt and contract obligations. The total purchase price of $5,300,000 was payable as follows: 266,000 shares of the Company's common stock was paid at closing, and $400,000 was paid in the form of a note payable due on January 31, 2000. In November 1999, the $400,000 note was negotiated to a $100,000 note payable due January 31, 2000 in return for 100,000 shares of the Company's common stock. An additional 404,085 shares of common stock were issued on March 31, 2000 to cause the aggregate value of the shares previously issued and the original $400,000 liability to total $5,300,000 as of March 31, 2000. The common stock issued in connection with the acquisition is subject to customary registration rights. The Company issued 89,468 shares to Lavenir, which were registered on Amendment No. 2 to the SB-2 Registration Statement filed on June 20, 2000, as settlement of certain penalty provisions for failure to obtain an effective registration statement by June 30, 2000. The securities issued in this transaction were exempt from registration under Rule 506 of Regulation D and Section 4(2) of the Securities Act. November 1999 Offering. On November 30, 1999, in a transaction separate from the consulting agreement referenced above under "August 1999 Offering," the Company issued to John and Renee Liviakis 125,000 shares of common stock at a total purchase price of $500,000 pursuant to a subscription agreement. The parties agreed to a lock-up of the shares for the same period as the lock-up referenced under "August 1999 Offering" above. January 19, 2000 Series D Stock. On January 19, 2000, the Company issued 2,725 shares of Series D convertible preferred stock in a private placement. The shares were issued as follows: (1) 700 shares to new investors for $700,000 in the aggregate; (2) 300 shares to certain investors upon conversion of $300,000 of convertible promissory notes issued by the Company, (3) 1,600 shares to the holders of the Company's then 12 outstanding Series C convertible preferred stock in exchange for all of their Series C shares; and (4) 125 shares to the placement agent as compensation for placement agent services. In addition, the holders of warrants issued in the Series C offering were issued warrants to purchase 20,000 shares of common stock in exchange for the warrants issued to them in the Series C offering. The Company also issued 30,000 shares of common stock to the new investors and 120,000 shares of common stock to the holders of the Series C shares. As part of the Series D offering, the holders of Series C stock agreed to waive $400,000 in penalties, which were payable to them because a registration statement covering the common shares underlying the Series C stock was not filed with the SEC within the time period required by the registration rights agreement. Each share of Series D stock is convertible into the number of shares of common stock calculated by dividing the per share purchase price of $1,000 by the conversion price. The conversion price equals the lesser of 75% of the average of the three lowest closing bid prices of the common stock during the 15 trading days immediately before the conversion date or $5.4375. Holders of Series D stock are entitled to receive dividends at an annual rate of 8% of the per share purchase price. The dividends are payable, upon conversion of the Series D stock, in either cash or shares of common stock, at the option of the Company. The number of shares of common stock issuable as a dividend payment will equal the total dividend payment then due divided by the conversion price calculated as of the date that the dividend payment is due. Each warrant entitles its holder to purchase common stock at $8.30 per share at any time before the fifth anniversary of the date of issuance of the warrant. The Company agreed to use its best efforts to register the shares of common stock underlying the Series D stock and the warrants and to pay a penalty if the registration statement is not effective by the 90th day after issuance of the Series D stock. This penalty is equal to 2% of the purchase price of the Series D stock for the first 30-day period following such 30-day period and 3% of the purchase price for every 30-day period thereafter until the registration statement has been declared effective. The shares issued were exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Securities Act. December 30, 1999 Series E Stock. On December 30, 1999, the Company issued 2,650 shares of its Series E convertible preferred stock and warrants to purchase 50,000 shares of common stock to accredited investors in a private offering. The Company also issued 25 shares of Series E stock to the placement agent as compensation for placement agent services. The holders of Series E stock are not entitled to vote except in the event the Company desires to issue shares of a class or series of preferred stock which could adversely effect the rights of such holders, or as may otherwise be required by law. The beneficial conversion feature present in the issuance of the Series E Stock as determined on the date of issuance of the Series E Stock totaled $1,683,453 and is treated as a reduction in earnings available (increase in loss attributable) to common stockholders upon the date of issuance of the Series E Stock since such shares may be converted at any time following issuance. The holders of Series E stock are entitled to receive dividends at an annual rate of 8% of the stated value ($1,000) of the Series E stock, subject to the prior declaration or payment of any dividend to which the holders of the Company's Series A stock, Series B stock or Series D stock are entitled. Dividends on shares of the Series E stock are cumulative and are payable only upon conversion of the Series E stock. The dividends are payable in either cash or shares of common stock, at the option of the Company. The number of shares of common stock issuable as a dividend payment will equal the total dividend payment then due divided by the conversion price calculated as of the date that the dividend payment is due. Subsequent to year-end, as a result of the Series F Convertible Preferred offering, the 75% conversion factor included in the formula described above was changed to 70%. At any time after the issuance of the Series E stock, each share of Series E stock is convertible into that number of shares of common stock equal to the stated value of each share divided by the lesser of $5.125 or 75% of the average of the three lowest closing bid prices of the common stock during the 15 trading days immediately preceding the conversion date (the "Conversion Price"). The 75% conversion factor was subsequently changed to 70% as a result of the issuance of Series F convertible preferred stock in February 2000. All outstanding shares of Series E stock will be automatically converted, at the Conversion Price, into common stock on December 30, 2001. Each warrant is a five-year callable warrant to purchase common stock at $5.125 per share. The Company agreed to use its best efforts to file a registration statement with regard to sales of the shares of common stock underlying the Series E stock and the warrants and to pay a penalty if the registration statement is not filed by the 30th day after issuance of the Series E stock or effective by the 120th day after issuance of the Series E stock. This penalty is equal to 2% of the purchase price of the Series E stock for the first 30-day period following such 30-day period and 3% of the purchase price for every 30-day period thereafter until the registration statement 13 has been declared effective. The Series E holders have waived their right to receive their penalty fee if the registration statement is filed on or before March 3, 2000. The securities issued were exempt from registration pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act. February 23, 2000 Series F Stock. On February 23, 2000, the Company issued 2,000 shares of its Series F convertible preferred stock and warrants to purchase 50,000 shares of common stock to accredited investors in a private offering. The holders of Series F stock are not entitled to vote except in the event the Company desires to issue shares of a class or series of preferred stock which could adversely effect the rights of the holders, or as may otherwise be required by law. The holders of Series F stock are entitled to receive dividends at an annual rate of 8% of the stated value ($1,000) of the Series F stock, subject to the prior declaration or payment of any dividend to which the holders of the Company's Series A stock, Series B stock, Series D stock or Series E stock are entitled. Dividends on shares of the Series F stock are cumulative and are payable only upon conversion of the Series F stock. At any time after the issuance of the Series F stock, each share of Series F stock is convertible into that number of shares of common stock equal to the stated value of each share divided by the lesser of $6.75 or 75% of the average of the three lowest closing bid prices of the common stock during the 15 trading days immediately preceding the conversion date (the "Conversion Price"). The beneficial conversion feature present in the issuance of the Series F Stock as determined on the date of issuance of the Series F Stock totaled $1,291,429 and is treated as a reduction in earnings available (increase in loss attributable) to common stockholders upon the date of issuance of the Series F Stock since such shares may be converted at any time following issuance. All outstanding shares of Series F stock will be automatically converted, at the Conversion Price, into common stock on February 23, 2002. Each warrant is a five-year callable warrant to purchase common stock at $11.00 per share. Due to certain provisions in effect with respect to the Series E Stock offering, as a result of the Series F Stock offering, the conversion formula with respect to the Series E Stock was modified. Based upon this modification, an additional beneficial conversion feature was created with respect to the Series E Stock. The value of this additional conversion benefit of $311,510 was treated as a reduction in earnings available (increase in loss attributable) to common stockholders in the first quarter of 2000. The Company agreed to use its best efforts to file a registration statement with regard to sales of the shares of common stock underlying the Series F stock and the warrants and to pay a penalty if the registration statement is not filed by the 120th day following the issuance of the Series F stock or effective by the 120th day after issuance of the Series F stock. This penalty is equal to 2% of the purchase price of the Series F stock for the first 30-day period following such 120-day period and 3% of such purchase price for every 30-day period thereafter until the registration statement has been declared effective. The shares issued were exempt from registration pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act. August 31, 2000 Series G Stock. On August 31, 2000, the Company issued 600 shares of its Series G convertible preferred stock and warrants to purchase 62,000 shares of common stock to certain accredited investors in a private offering for proceeds of $600,000. The holders of Series G stock are not entitled to vote except in the event the Company desires to issue shares of a class or series of preferred stock which could adversely affect the rights of the holders, or as may otherwise be required by law. The holders of Series G stock are entitled to receive dividends at an annual rate of 8% of the stated value ($1,000 per share) of the Series G stock, subject to the prior declaration or payment of any dividend to which the holders of the Company's Series A stock, Series B stock, Series D stock, Series E stock or Series F stock are entitled. Dividends on shares of the Series G stock are cumulative and are payable only upon conversion of the Series G stock. At any time after the issuance of the Series G Stock, each share of Series G Stock is convertible into that number of shares of common stock equal to the stated value of each such share ($1,000) divided by the lesser of $1.62 or 75% of the average of the three lowest closing bid prices of the Common Stock during the 15 trading days immediately preceding the conversion date (the "Conversion Price"). The beneficial conversion feature present in the issuance of the Series G Stock as determined on the date of issuance of the Series G Stock totaled $309,092 and is treated as a reduction in earnings available (increase in loss attributable) to common stockholders upon the date of issuance of the Series G Stock since such shares may be converted at any time following issuance. All outstanding shares of Series G Stock will be automatically converted into Common stock, at the Conversion Price, on August 1, 2002. The shares issued were exempt from registration pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act. 14 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The consolidated financial statements that accompany this discussion show the operating results from continuing operations of the Company for the years ended December 31, 2000 and 1999. Net sales from continuing operations for the year ended December 31, 2000 were $4,232,482 compared to net sales of $2,703,658 in the year ended December 31, 1999. Systems sales were $1,658,227 in 2000 compared to $1,174,846 in 1999. The increase in systems sales in 2000 is primarily due to increased marketing efforts for our VCC system. For the year ended December 31, 2000 and 1999, maintenance, consulting fees, and other revenues were $2,574,255 and $1,528,812, respectively. The increase in maintenance fees in 2000 is related to the sale of new systems. Our consulting fee revenues increased minimally. Additionally, other revenues, which primarily include software product sales, increased significantly over 1999 due increased sales at our Lavenir subsidiary. Cost of sales as a percentage of sales decreased to 37.2% in the year ended December 31, 2000 from 78.3% in the prior year. This decrease is primarily related to a decrease in software amortization, which was the result of a write-off of portions of capitalized software costs in the fourth quarter of 1999. Gross margin from continuing operations in 2000 was 62.8% compared to 21.7% in 1999. Selling, general and administrative costs from continuing operations for the year ended December 31, 2000 were $6,712,777 compared to $6,320,710 for 1999. The year-over-year increase of $392,067 is related primarily to increase in payroll and payroll related expenses, amortization of purchase technology and building leases that resulted from acquisitions we made since June 30, 1999. Professional services, including legal and accounting expenses, decreased from 1999. In 1999, legal expenses decreased due to the divestitures and earn outs of business units. Accounting expenses increased due to the complexity of acquisition and divestiture activities. Research and development costs for the year ended December 31, 2000 were $0 compared to $2,829,782 for the same period in the prior year. The decrease in 2000 is primarily due to the restructuring of the resources for research and development. Other operating expenses of $4,275,462 in 2000 consist of the write-off of purchased technology and expense incurred from the settlement of a patent dispute. Other operating expenses of $2,357,821 in 1999 consist of the write-off of purchased technology and software costs and the write-down of other assets. The increases are due to expenses for the expensing of purchased technology and the settlement of a patent dispute in the amount of $616,000. Other expenses of $1,683,755 in the year ended December 31, 2000 consisted of interest and penalty expense, interest income and other expenses as compared to $3,395,277 in 1999. Interest and penalties expense increased in 2000 to $1,724,379 as compared to $1,330,559 due to the issuance of common stock in exchange for the reduction of debt and penalties related to the preferred stock. In 1999, other expense included approximately $2,107,569 for amortization and write-off of debt issuance costs compared to $0 in 2000. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2000, we had negative working capital of $9,117,773 compared to negative working capital of $17,438,000 as of December 31, 1999. The decrease in negative working capital is related primarily to the rescission of asset purchase agreements entered into prior to fiscal 2000 and the forgiveness of debt of approximately $5,900,000. Net cash used in operating activities for the year ended December 31, 2000 was $5,250,043 compared to $2,292,769 used by such activities in the year ended December 31, 1999. The major adjustments to reconcile the 2000 net loss of $10,015,141 to the net cash used in operating activities were the loss from discontinued operations of $2,071,054 and the net change in net liabilities from discontinued operations. Additionally, in 2000, we had a write down of assets totaling $3,756,084 and issued equity instruments for services and payments of interest totaling $2,333,164. The major adjustments to reconcile the 1999 net loss of $14,316,063 to the net cash used in operating activities were the loss from discontinued operations of $4,410,000 and the loss on disposal of discontinued 15 operations of $16,357,000 and the net change in net liabilities from discontinued operations. In 1999, we had a write down of assets totaling $2,357,822 and issued equity instruments for services and payments of interest totaling $3,001,000. Depreciation and amortization was $349,101 in 2000 compared to $2,843,931 in 1999. Cash used by investing activities in the year ended December 31, 2000 was $236,954 and reflects purchases of property and equipment of $28,315, an increase in notes receivable of $214,000 and a payment on notes receivable of $50,000. Cash used by investing activities in the year ended December 31, 1999 was $6,801,000 and reflects purchases of property and equipment of $443,000, investment in software development of $2,691,000 and purchases of companies of $3,587,000. The investment in software development for 1999 represents costs incurred after technological feasibility has been established in connection with the development of enhancements to one or more particular software programs occurring in the first nine months of the Company's fiscal year. In the last quarter of fiscal year 1999 the Company decided to change the direction in its software development program. Such costs were significantly curtailed and $1,938,000 of such costs were written off as noted above. The investment in property and equipment in 1999 also occurred substantially in the first nine months of the year. Net cash of $3,398,619 and $4,590,994 was provided by financing activities in the year ended December 31, 2000 and 1999, respectively. This reflects gross proceeds before expenses from the issuance of preferred stock of approximately $3,300,000 as compared to $3,861,975 in 1999. Cash was also provided by the issuance of common stock amounting to $558,496 and $2,636,700 in 2000 and 1999, respectively, primarily from the sale of stock through a private placement and the exercise of stock options. In 2000, we used cash to pay debt amounting to $153,899 as compared to $1,827,270 in 1999. Presently, with the divestiture of substantially of our subsidiaries and the substantial reduction of our workforce, we are currently operating with a positive cash flow. We believe that we have sufficient working capital to pay our current liabilities and are currently negotiating a settlement other liabilities related to our discontinued operations. Additionally, we have restructured tour operations and are concentrating on our core business. We are currently increasing our marketing efforts and sales force. We believe that our working capital will improve as our profitability improves and we settle certain debt. Additionally, we expect our profitability to improve as a result of further increases in sales and the expense reduction programs implemented during the first quarter of 2001. Nevertheless, we can provide no assurance as to its future profitability, access to the capital markets nor the completion of its projected asset and business sales. RECENT DEVELOPMENTS NAME CHANGE Effective February 28, 2001, the Board of Directors of the Company approved a change in the Company's name from Singlepoint Systems, Inc. to Global MAINTECH Corporation. The name change will be adopted upon shareholder approval. The Company's current stock symbol is GBMT. CHANGE IN CERTAIN OFFICERS AND DIRECTORS Effective January 12, 2001, Mr. Trent Wong resigned as CEO of the company, and Messrs. John Haugo, Bill Howdon, Dave McCaffrey, Jim Watson and Trent Wong had all resigned as Directors. Mr. Bill Howdon will remain as an advisor to the board. The Company's Board of Directors approved Wild Cat Management, Inc. ("Wild Cat"), through its principal Mr. Dale Ragan, to replace Mr. Wong as CEO. On November 8, 2000, the Board approved Wild Cat to be brought in to assist as an advisor to the Board. Mr. Ragan has been a long time investor of the Company. Effective January 8, 2001, the Board approved the appointment of Mr. Ragan to the Board. On November 2, 2000, William Erhart agreed to serve as corporate counsel to the Company. Effective January 12, 2001, the Board approved the appointment of William A. Erhart to the Board. The Company hired Sue Korsgarden as the Company's Chief Accounting Officer effective March 5, 2001. CHANGE IN INDEPENDENT ACCOUNTANTS See "ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT," below. CHANGE IN CORPORATE COUNSEL On November 2, 2000 Dorsey & Whitney LLP withdrew as the principal legal counsel for the Company. Since November 2, 2000, Erhart and Associates, LLC of Anoka, Minnesota, has served as corporate counsel for the Company. Dorsey & Whitney LLP has agreed to provide legal counsel in limited circumstances. DIVESTITURES See "Divestitures," above. 16 ITEM 7. FINANCIAL STATEMENTS. GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 2000 and 1999 CONTENTS Report of Independent Certified Public Accountants............................18 Consolidated Financial Statements: Consolidated Balance Sheet................................................19 Consolidated Statements of Operations.....................................21 Consolidated Statement of Changes in Stockholders' Equity (Deficit)......22 Consolidated Statements of Cash Flows.....................................23 Notes to Consolidated Financial Statements.................................24-47 17 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders Global MAINTECH Corporation Bloomington, MN We have audited the accompanying consolidated balance sheet of Global MAINTECH Corporation and Subsidiaries as of December 31, 2000 and the related consolidated statements of operations, changes in stockholders' equity (deficit), and cash flows for the years ended December 31, 2000 and 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Global MAINTECH Corporation and Subsidiaries as of December 31, 2000, and the results of their operations and their cash flows for the years ended December 31, 2000 and 1999, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered losses from operations and has a working capital deficiency and an accumulated deficit that 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note 1 to the consolidated financial statements, effective January 1, 1999, the Company changed its method of accounting for depreciation. Feldman Sherb & Co., P.C. Certified Public Accountants May 15, 2001 New York, New York 18 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 2000 ASSETS CURRENT ASSETS: Cash $ 35,752 Accounts receivable, net 447,253 Note receivable 164,000 Inventories 363,868 Prepaid expenses and other 79,234 ------------ Total current assets 1,090,107 ------------ Property and equipment, net 133,589 Leased equipment, net 40,336 Intangibles assets, net 42,142 ------------ Total assets $ 1,306,174 ============
See accompanying notes to consolidated financial statements. 19 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 2000 LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable $ 2,351,158 Current portion of notes payable 3,012 Accrued liabilities, compensation and payroll taxes 1,656,498 Accrued interest and penalties 490,000 Accrued dividends 709,179 Deferred revenue 509,033 Net liabilities of discontinued operation 4,489,000 ------------ Total current liabilities 10,207,880 Notes payable, less current portion 11,499 ------------ Total liabilities 10,219,379 ------------ STOCKHOLDERS' DEFICIT: Voting, convertible preferred stock - Series A, no par value; 887,980 shares authorized; 63,956 shares issued and outstanding; total liquidation preference of outstanding shares-$32,586 30,012 Voting, convertible preferred stock - Series B, no par value; 123,077 shares authorized; 51,023 shares issued and outstanding total liquidation preference of outstanding shares-$1,678,040 1,658,270 Convertible preferred stock - Series C, no par value; 1,675 shares authorized; 0 shares issued and outstanding; total liquidation preference of outstanding shares - $0 -- Convertible preferred stock - Series D, no par value; 2,775 shares authorized; 1,563 shares issued and outstanding total liquidation preference of outstanding shares-$1,563,000 1,080,252 Convertible preferred stock - Series E, no par value; 2,675 shares authorized; 1,740 shares issued and outstanding total liquidation preference of outstanding-$1,740,000 1,352,775 Convertible preferred stock - Series F, no par value; 2,000 shares authorized; 2,000 shares issued and outstanding total liquidation preference of outstanding-$2,000,000 1,373,475 Convertible preferred stock - Series G, no par value; 1,000 shares authorized; 600 shares issued and outstanding total liquidation preference of outstanding shares-$600,000 562,500 Common stock, no par value; 18,500,000 shares authorized; 10,052,155 shares issued and outstanding -- Additional paid-in-capital 40,595,613 Accumulated deficit (55,566,102) ------------ Total stockholders' deficit (8,913,205) ------------ Total liabilities and stockholders' deficit $ 1,306,174 ============
See accompanying notes to consolidated financial statements. 20 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, ----------------------------- 2000 1999 ----------------------------- Net sales: Systems $ 1,658,227 $ 1,174,846 Maintenance, consulting and other 2,574,255 1,528,812 ------------ ------------ Total net sales 4,232,482 2,703,658 ------------ ------------ Cost of sales: Systems 1,569,585 612,971 Maintenance, consulting and other 6,044 1,503,160 ------------ ------------ Total cost of sales 1,575,629 2,116,131 ------------ ------------ Gross profit 2,656,853 587,527 ------------ ------------ Operating expenses: Selling, general and administrative 6,712,777 6,320,710 Research and development -- 2,829,782 Other operating expenses 4,275,462 2,357,821 ------------ ------------ Total operating expenses 10,988,239 11,508,313 ------------ ------------ Loss from operations (8,331,386) (10,920,786) ------------ ------------ Other income (expense): Loss on sales of property and equipment -- (51,000) Interest and penalty expense (1,724,379) (1,330,559) Interest income 11,896 3,851 Other 28,728 (2,017,569) ------------ ------------ Total other income (expense), net (1,683,755) (3,395,277) ------------ ------------ Loss from continuing operations (10,015,141) (14,316,063) Discontinued operations: (Loss) from discontinued operations; net of tax -- (8,456,374) Gain (Loss) on disposal of discontinued operations; net of tax (2,071,054) (16,356,792) ------------ ------------ Loss before cumulative effect of change in accounting principal (12,086,195) (39,129,229) Cumulative effect of change in method of depreciation -- 231,936 ------------ ------------ Net loss (12,086,195) (38,897,293) Accrual of cumulative dividends on preferred stock (449,261) (263,974) Attribution of beneficial conversion feature on preferred stock (4,298,861) (2,442,432) ------------ ------------ Net loss attributable to common stockholders $(16,834,317) $(41,603,699) ============ ============ Basic and diluted loss per common share: Loss from continuing operations $ (2.01) $ (3.93) Loss from discontinued operations (0.29) (5.83) ------------ ------------ Loss before cumulative effect of change in accounting principle (2.30) (9.76) Cumulative effect of change in accounting principle -- 0.05 ------------ ------------ Net loss $ (2.30) $ (9.71) ============ ============ Shares used in calculations: Basic and diluted 7,138,405 4,261,508 ============ ============
See accompanying notes to consolidated financial statements. 21 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 2000 AND 1999
Preferred Stock A Preferred Stock B Preferred Stock C Shares Amount Shares Amount Shares Amount ------------------------------------------------------------------------------------ Balance at December 31, 1998 129,176 $ 60,584 67,192 $ 2,183,769 -- $ -- Net loss -- -- -- -- -- -- Sales of common stock -- -- -- -- -- -- Sales of series C preferred stock -- -- -- -- 1,600 1,464,712 Sales of series E preferred stock -- -- -- -- -- -- Stock issue costs -- -- -- -- 75 (96,000) Stock, options, and warrants issued for services -- -- -- -- -- -- Warrants issued in connection with debt -- -- -- -- -- -- Issuances of common stock, warrants, and options in connection with acquisitions Lavenir -- -- -- -- -- -- Breece Hill -- -- -- -- -- -- SSI -- -- -- -- -- -- Amortization of beneficial conversion feature on convertible debt -- -- -- -- -- -- Exercise of common stock options and warrants -- -- -- -- -- -- Accrual of dividends on preferred stock -- -- -- -- -- -- Payment of preferred dividends with common stock -- -- -- -- -- -- Conversion of preferred shares (42,280) (19,819) (15,560) (505,700) -- -- Conversion of debt and accrued interest -- -- -- -- -- -- Receipt of payment on notes receivable -- -- -- -- -- -- ------------------------------------------------------------------------------------ Balance at December 31, 1999 86,896 40,765 51,632 1,678,069 1,675 1,368,712 Net loss -- -- -- -- -- -- Sales of preferred stock series D -- -- -- -- -- -- Sales of preferred stock series F Sales of preferred stock series G -- -- -- -- -- -- Stock issue costs -- -- -- -- -- -- Stock and stock options issued for services -- -- -- -- -- -- Issuances of common stock in connection with acquisitions of Lavenir -- -- -- -- -- -- Exercise of common stock options -- -- -- -- -- -- Accrual of dividends on preferred stock -- -- -- -- -- -- Issuance of common stock in connection with preferred stock penalties and other penalties -- -- -- -- -- -- Conversion of preferred series C to series D -- -- -- -- (1,675) (1,368,712) Conversion of notes payable -- -- -- -- -- -- Receipt of payment on notes receivable and reclass -- -- -- -- -- -- Conversion of preferred shares to common shares (22,940) (10,753) (609) (19,799) ------------------------------------------------------------------------------------ 63,956 $ 30,012 51,023 $ 1,658,270 -- $ -- ====================================================================================
[WIDE TABLE CONTINUED FROM ABOVE]
Preferred Stock D Preferred Stock E Preferred Stock F Shares Amount Shares Amount Shares Amount ------------------------------------------------------------------------------------ Balance at December 31, 1998 -- $ -- -- $ -- -- $ -- Net loss -- -- -- -- -- -- Sales of common stock -- -- -- -- -- -- Sales of series C preferred stock -- -- -- -- -- -- Sales of series E preferred stock -- -- 2,650 2,389,630 -- -- Stock issue costs -- -- 25 (292,025) -- -- Stock, options, and warrants issued for services -- -- -- -- -- -- Warrants issued in connection with debt -- -- -- -- -- -- Issuances of common stock, warrants, and options in connection with acquisitions Lavenir -- -- -- -- -- -- Breece Hill -- -- -- -- -- -- SSI -- -- -- -- -- -- Amortization of beneficial conversion feature on convertible debt -- -- -- -- -- -- Exercise of common stock options and warrants -- -- -- -- -- -- Accrual of dividends on preferred stock -- -- -- -- -- -- Payment of preferred dividends with common stock -- -- -- -- -- -- Conversion of preferred shares -- -- -- -- -- -- Conversion of debt and accrued interest -- -- -- -- -- -- Receipt of payment on notes receivable -- -- -- -- -- -- ------------------------------------------------------------------------------------ Balance at December 31, 1999 -- -- 2,675 2,097,605 -- -- Net loss -- -- -- -- -- -- Sales of preferred stock series D 700 310,000 -- -- -- -- Sales of preferred stock series F 2,000 1,612,500 Sales of preferred stock series G -- -- -- -- -- -- Stock issue costs 50 (91,250) -- -- -- (239,025) Stock and stock options issued for services -- -- -- -- -- -- Issuances of common stock in connection with acquisitions of Lavenir -- -- -- -- -- -- Exercise of common stock options -- -- -- -- -- -- Accrual of dividends on preferred stock -- -- -- -- -- -- Issuance of common stock in connection with preferred stock penalties and other penalties -- -- -- -- -- -- Conversion of preferred series C to series D 1,675 1,368,712 -- -- -- -- Conversion of notes payable 300 300,000 -- -- -- -- Receipt of payment on notes receivable and reclass -- -- -- -- -- -- Conversion of preferred shares to common shares (1,162) (807,210) (973) (744,830) -- -- ------------------------------------------------------------------------------------ 1,563 $ 1,080,252 1,702 $ 1,352,775 2,000 $ 1,373,475 ====================================================================================
[WIDE TABLE CONTINUED FROM ABOVE]
Additional Notes Preferred Stock G Common Stock Paid-in Receivable Shares Amount Shares Amount Capital Officer ----------------------------------------------------------------------------------- Balance at December 31, 1998 -- $ -- 3,681,879 $ -- $ 7,362,796 $ (294,500) Net loss -- -- -- -- -- -- Sales of common stock -- -- 534,578 -- 2,713,399 -- Sales of series C preferred stock -- -- -- -- 135,288 -- Sales of series E preferred stock -- -- -- -- 260,370 -- Stock issue costs -- -- -- -- (235,439) -- Stock, options, and warrants issued for services -- -- 648,000 -- 2,994,785 -- Warrants issued in connection with debt -- -- -- -- 1,196,970 -- Issuances of common stock, warrants, and options in connection with acquisitions Lavenir -- -- 266,000 -- 4,900,000 -- Breece Hill -- -- 45,000 -- 11,960,782 -- SSI -- -- -- -- 2,381,080 -- Amortization of beneficial conversion feature on convertible debt -- -- -- -- 460,624 -- Exercise of common stock options and warrants -- -- 73,575 -- 158,740 -- Accrual of dividends on preferred stock -- -- -- -- -- -- Payment of preferred dividends with common stock -- -- 6,149 -- 35,104 -- Conversion of preferred shares -- -- 96,880 -- 525,519 -- Conversion of debt and accrued interest -- -- 52,038 -- 267,546 -- Receipt of payment on notes receivable -- -- -- -- -- 59,000 ----------------------------------------------------------------------------------- Balance at December 31, 1999 -- -- 5,404,099 -- 35,117,564 (235,500) Net loss -- -- -- -- -- -- Sales of preferred stock series D -- -- 21,000 -- 558,000 -- Sales of preferred stock series F -- -- -- -- 387,500 -- Sales of preferred stock series G 600 562,500 -- -- 37,500 -- Stock issue costs -- -- -- -- (85,203) -- Stock and stock options issued for services -- -- 109,177 -- 533,177 -- Issuances of common stock in connection with acquisitions of Lavenir -- -- 504,085 -- 787,500 -- Exercise of common stock options -- -- 232,164 -- 558,496 -- Accrual of dividends on preferred stock -- -- -- -- -- -- Issuance of common stock in connection with preferred stock penalties and other penalties -- -- 209,468 -- 1,172,487 -- Conversion of preferred series C to series D -- -- -- -- -- -- Conversion of notes payable -- -- 9,000 -- 72,000 -- Receipt of payment on notes receivable and reclass -- -- -- -- (126,000) 235,500 Conversion of preferred shares to common shares -- -- 3,563,162 -- 1,582,592 -- ----------------------------------------------------------------------------------- 600 $ 562,500 10,052,155 $ -- $ 40,595,613 $ -- ===================================================================================
[WIDE TABLE CONTINUED FROM ABOVE]
Accumulated Deficit Total ---------------------------- Balance at December 31, 1998 $ (3,869,379) $ 5,443,270 Net loss (38,897,293) (38,897,293) Sales of common stock -- 2,713,399 Sales of series C preferred stock -- 1,600,000 Sales of series E preferred stock -- 2,650,000 Stock issue costs -- (623,464) Stock, options, and warrants issued for services -- 2,994,785 Warrants issued in connection with debt -- 1,196,970 Issuances of common stock, warrants, and options in connection with acquisitions Lavenir -- 4,900,000 Breece Hill -- 11,960,782 SSI -- 2,381,080 Amortization of beneficial conversion feature on convertible debt -- 460,624 Exercise of common stock options and warrants -- 158,740 Accrual of dividends on preferred stock (263,974) (263,974) Payment of preferred dividends with common stock -- 35,104 Conversion of preferred shares -- -- Conversion of debt and accrued interest -- 267,546 Receipt of payment on notes receivable -- 59,000 ---------------------------- Balance at December 31, 1999 (43,030,646) (2,963,431) Net loss (12,086,195) (12,086,195) Sales of preferred stock series D -- 868,000 Sales of preferred stock series F -- 2,000,000 Sales of preferred stock series G -- 600,000 Stock issue costs -- (415,478) Stock and stock options issued for services -- 533,177 Issuances of common stock in connection with acquisitions of Lavenir -- 787,500 Exercise of common stock options -- 558,496 Accrual of dividends on preferred stock (449,261) (449,261) Issuance of common stock in connection with preferred stock penalties and other penalties -- 1,172,487 Conversion of preferred series C to series D -- -- Conversion of notes payable -- 372,000 Receipt of payment on notes receivable and reclass -- 109,500 Conversion of preferred shares to common shares -- -- ---------------------------- $(55,566,102) $ (8,913,205) ============================
See accompanying notes to consolidated financial statements. 22 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------------ 2000 1999 ------------------------------ Cash flows from operating activities: Loss from continuing operations $(10,015,141) $(14,316,063) Adjustments to reconcile net loss from continuing operations to net cash used in operating activities: Stock, options, and warrants issued for services and payment of interest 2,333,164 3,000,959 Depreciation and amortization 349,101 2,843,931 Amortization of purchased technologies and other intangibles 1,028,759 -- Loss on disposal of property and equipment 139,080 51,000 Allowance for doubtful accounts -- (71,000) Loss from asset write-offs 3,756,084 2,357,822 Changes in operating assets and liabilities: Accounts receivable 248,721 266,306 Inventories 958,467 (460,917) Prepaid expenses and other 204,699 (56,373) Accounts payable 698,043 879,994 Accrued liabilities, compensation and payroll taxes 919,500 940,469 Accrued interest and penalties (312,801) 804,320 Deferred revenue (49,215) 461,415 ------------ ------------ Cash used in continuing operating activities 258,461 (3,298,137) ------------ ------------ Loss from discontinued operations (2,071,054) (24,813,166) Adjustments to reconcile loss from discontinued operations to net cash provided by (used in) discontinued activities: Net (decrease) increase in net liabilities of discontinued operations (3,437,450) 25,818,534 ------------ ------------ Cash used in discontinued operating activities (5,508,504) 1,005,368 ------------ ------------ Cash used in operating activities (5,250,043) (2,292,769) ------------ ------------ Cash flows from investing activities: Sale of investment in sales-type leases -- 22,410 Purchase of property and equipment (28,315) (443,145) Reduction in leased equipment -- (82,803) Investment in other intangibles (44,639) (19,623) Purchase of companies, net of cash acquired -- (315,000) Increase in note receivable (214,000) -- Payments received on notes receivable 50,000 -- ------------ ------------ Cash used by investing activities (236,954) (838,161) ------------ ------------ Cash flows from financing activities: Disbursements for deferred debt costs (415,478) (139,411) Proceeds from note receivable 109,500 59,000 Proceeds from issuance of common stock 558,496 2,636,700 Net proceeds from issuance of preferred stock 3,300,000 3,861,975 Payments of long-term debt (153,899) (1,827,270) ------------ ------------ Cash provided by financing activities 3,398,619 4,590,994 ------------ ------------ Net increase (decrease) in cash (2,088,378) 1,460,064 Cash and cash equivalents at beginning of period 2,124,130 664,066 ------------ ------------ Cash and cash equivalents at end of period $ 35,752 $ 2,124,130 ============ ============ Supplemental disclosure of cash flow information: Cash paid for: Interest $ -- $ 476,500 ============ ============ Income taxes $ -- $ 3,500 ============ ============
23 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of business The Company, through its subsidiaries, Global MAINTECH, Inc. ("GMI") and Lavenir Technology, Inc. ("Lavenir"), supplies world class systems and services to data centers; manufactures and sells event notification software and provides professional services to help customers implement enterprise management solutions; and manufactures and sells printed circuit board design software and plotters. As further discussed in Note 3, the Company's Breece Hill Technologies, Inc. ("BHT") subsidiary, which was acquired in April 1999 and formerly represented the Company's tape library storage products segment, is presented as a discontinued operation as of December 31, 1999. Additionally, during the year ended December 31, 2000, the Company entered into rescission and settlement agreements and accordingly discontinued operations of certain subsidiaries as outlined in Note 3. Principles of consolidation The consolidated financial statements include the accounts of Global MAINTECH Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Recent Pronouncements The FASB recently issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement No. 133". The Statement defers for one year the effective date of FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". The rule now will apply to all fiscal quarters of all fiscal years beginning after June 15, 2000. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 - "Accounting for Derivative Instruments and Hedging Activities" which is effective for fiscal quarters beginning after June 15, 1999. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. This statement amends SFAS No. 52 - "Foreign Currency Translation", and supersedes SFAS No. 80 - "Accounting for Future Contracts", No. 105 - "Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit Risk", No. 107 - "Disclosure about Fair Value of Financial Instruments". The Company adopted SFAS No. 133 in fiscal 2000. The adoption of SFAS No. 133 did not have a significant impact on the Company. 24 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Recent Pronouncements (Continued) In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, ("SAB 101""). SAB 101 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the fee is fixed and determinable, and (4) collectibility is reasonably assured. The SEC delayed the required implementation date of SAB 101 by issuing Staff Accounting Bulletins No. 101A, "Amendment: Revenue Recognition in Financial Statements" and 101B, "Second Amendment: Revenue Recognition in Financial Statements" in March and June 2000, respectively. The adoption of SAB 101 was not material to the earnings and financial position of the Company. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25". With the exception of certain provisions that required earlier application, this interpretation is effective for all applicable transactions beginning July 1, 2000. The adoption of this interpretation did not have a material impact on the Company's consolidated financial statements. Cash and cash equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories Inventories are stated on a first in, first out (FIFO) basis at the lower of cost or market. Property and equipment and change in depreciation method Property and equipment is recorded at cost and is comprised primarily of computer and office equipment. Effective January 1, 1999, the Company adopted the straight-line method of depreciation. Previously the Company used the double declining balance method. The Company changed its method based on an evaluation by management which indicated that the property and equipment does not depreciate on an accelerated basis during its early years, is not subject to significant additional maintenance in the later years of the assigned useful life and that the new method results in a better matching of revenues and expenses. The effect of the change in depreciation method in 1999 was applied retroactively to property and equipment acquisitions of prior years. The cumulative effect of the change with respect to the retroactive application of the straight-line method was $231,936 (or $0.0544 per diluted common share) and is included in the Company's 1999 net loss. 25 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property and equipment and change in depreciation method (Continued) Pro forma amounts assuming the new depreciation method had been applied retroactively (rather than cumulatively in 1999) are as follows: Year Ended December 31, 1999 ----------------- Loss from continuing operations $ (18,362,710) Net loss $ (38,979,851) Basic and diluted loss per common share: Loss from continuing operations $ (4.944) Net loss $ (9.782) Depreciation is provided based upon useful lives of the respective assets, which generally have lives of three years. Maintenance and repairs are charged to expense as incurred. Revenue recognition Revenue from product sales is recognized upon the later of shipment or final acceptance. Deferred revenue is recorded when the Company receives customer payments before shipment and/or acceptance or before maintenance and/or service revenues are earned. Under Statement of Position ("SOP") No. 97-2, "Software Revenue Recognition" (as amended by SOP 98-4 and 98-9), the Company recognizes revenue from software sales when the software has been delivered (delivery is deemed to have occurred upon the later of shipment or final acceptance), if a signed contract exists, the fee is fixed and determinable, collection of resulting receivables is probable, and product returns are reasonably estimable. Maintenance and support fees related to software sales including product upgrade rights (when and if available) committed as part of new product licenses and maintenance resulting from renewed maintenance contracts are deferred and recognized ratably over the contract period. Professional service revenue is recognized when services are performed. Revenues related to multiple element arrangements are allocated to each element of the arrangement based on the fair values of such elements. The determination of fair value is based on vendor specific objective evidence. If such evidence of fair value for each element (or the aggregate of the undelivered elements as allowed by SOP 98-9) does not exist, all revenue from the arrangement is deferred until such time that, for applicable elements of the arrangement, evidence of fair value does exist or until such elements are delivered. 26 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue recognition (Continued) The Company recognizes revenue from leasing activities in accordance with SFAS No. 13, Accounting for Leases. Accordingly, leases that transfer substantially all the benefits and risks of ownership are accounted for as sales-type leases. All other leases are accounted for as operating leases. Under the sales-type method, profit is recognized at lease inception by recording revenue and cost. Revenue consists of the present value of the future minimum lease payments discounted at the rate implicit in the lease. Cost consists of the equipment's book value. The present value of the estimated value of the equipment at lease termination (the residual value), which is generally not material, and the present value of the future minimum lease payments are recorded as assets. In each period, interest income is recognized as a percentage return on asset carrying values. The Company is the lessor of equipment under operating leases expiring in various years. The cost of equipment subject to such leases is recorded as leased equipment and is depreciated on a straight-line basis over the estimated service life of the equipment. Operating lease revenue is recognized as earned over the term of the underlying lease. Capitalized software development costs Under the criteria set forth in SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," capitalization of software development costs begins upon the establishment of technological feasibility of the software. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product revenues, estimated economic life, and changes in software and hardware technology. Capitalized software development costs are amortized utilizing the straight-line method over the estimated economic life of the software not to exceed three years. The Company regularly reviews the carrying value of software development assets and a loss is recognized when the unamortized costs are deemed unrecoverable based on the estimated cash flows to be generated from the applicable software. Purchased technology and other intangibles The Company has recorded the excess of purchase price over net tangible assets as purchased technology and customer lists based on the fair value of these intangibles at the date of purchase. These assets were amortized over their estimated economic lives of three to five years using the straight-line method. Recorded amounts for purchased technology are regularly reviewed and recoverability assessed. The review considers factors such as whether the amortization of these capitalized amounts can be recovered through forecasted undiscounted cash flows. During the year ended December 31, 2000, the Company determined that its purchased technologies were impaired and recorded a charge to operations amounting to $3,659,851. Additionally, the Company discontinued operations of substantially all of its subsidiaries and accordingly, wrote off all remaining purchased technology to discontinued operations. 27 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Purchased technology and other intangibles (Continued) Patents are stated at cost and are amortized over three years or over the useful life using the straight-line method. Recorded amounts for patents are regularly reviewed and recoverability assessed. The review considers factors such as whether the amortization of these capitalized amounts can be recovered through forecasted undiscounted cash flows. Research and development Research and development costs are expensed as incurred. Stock based compensation The Company has adopted the disclosure requirements under SFAS No. 123, "Accounting for Stock-Based Compensation." As permitted under SFAS No. 123, the Company applies Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans. Reverse stock split On September 2, 1999, the Company effected a reverse stock split of one share of the Company's Common Stock for each five shares of such Common Stock and effected a reverse stock split of one share of the Company's Series B Convertible Preferred Stock for each five shares of such Series B Stock. As a result of these stock splits, certain conversion prices in regards to preferred stock were also adjusted. The effect of these stock splits and related conversion price changes on share and per share amounts has been retroactively reflected in the accompanying consolidated financial statements and notes thereto. Loss per common share Basic loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. The net loss attributable to common stockholders is determined by increasing net loss by the accrual of dividends on preferred stock for the respective period and by the value of any embedded beneficial conversion feature present in issuances of preferred stock attributable to the respective period. Diluted loss per common share is computed by dividing the net loss attributable to common stockholders by the sum of the weighted average number of common shares outstanding plus shares derived from other potentially dilutive securities. For the Company, potentially dilutive securities include (a) "in-the-money" stock options and warrants, 28 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Loss per common share (Continued) (b) the amount of weighted average common shares which would be added by the conversion of outstanding convertible preferred stock and convertible debt, (c) the number of weighted average common shares which would be added upon the satisfaction of certain conditions with respect to arrangements involving contingently issuable shares, and (d) the number of weighted average common shares that may be issued subject to contractual arrangements entered into by the Company that may be settled in common stock or in cash at the election of either the Company or the holder. During 2000 and 1999, potentially dilutive shares were excluded from the diluted loss per common share computation as their effect was antidilutive. Income taxes Deferred taxes are provided on an asset and liability method for temporary differences and operating loss and tax credit carryforwards. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Fair value of financial instruments All financial instruments are carried at amounts that approximate estimated fair values. Reclassifications Certain amounts previously reported in 1999 have been reclassified to conform to the 2000 presentation. Use of estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management of the Company to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. 29 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 2 - BASIS OF PRESENTATION The accompanying consolidated financial statements are prepared assuming the Company will continue as a going concern. During the year ended December 31, 2000 and 1999, the Company incurred a net loss from operations of $12,086,196 and $38,897,293, respectively. At December 31, 2000, the Company had a working capital deficit of $9,117,774 and a stockholders' deficit of $8,913,206. In addition, during 1999 and 2000, the Company disposed of substantially all of its subsidiaries, for which the Company recorded an estimated loss on disposal of $16,356,792 in 1999 and a gain on disposal of $1,915,949 in 2000 with a loss from discontinued operations of $0 and $8,456,374 during 2000 and 1999, respectively. In 2000, the Company has negotiated and resolved approximately $5,900,000 of current liabilities included in the Company's December 31, 1999 consolidated financial statements by issuance of equity securities for certain acquisition earn out obligations and the rescission of certain acquisition agreements (See Note 3). The completion of the disposal of BHT and other subsidiaries and resolution of earn out liabilities aided in reducing the Company's working capital deficit. In January and February 2000, the Company issued Series D and F Convertible Preferred Stock with combined gross proceeds of $2,700,000 (see Note 8). Furthermore, during the last fiscal quarter of 2000 the Company appointed a new Chief Executive Officer and other executive management who took action to reduce future operating expenses in an effort to improve operating margins in 2001. In the first fiscal quarter of 2001 the Company implemented additional budgetary controls and established performance criteria to monitor expenses and improve financial performance. In addition, the Company is negotiating with vendors to settle overdue payables. These actions are significant and their impact on future results is uncertain as of the date of the consolidated financial statements. In addition, the ability of the Company to attract additional capital if events do not occur as expected by the Company is uncertain. While the Company believes in the viability of its strategy to improve operating margins and believes in its financial plan to improve the Company's working capital position, there can be no assurances to that effect. NOTE 3 - DISCONTINUED OPERATIONS Breece Hill Technologies, Inc. On December 27, 1999, the Company approved a formal plan with regards to the disposal of its Breece Hill Technologies, Inc. subsidiary, which was acquired on April 14, 1999 and which formerly represented the Company's tape storage products business segment. Accordingly, the estimated loss from the disposal of this segment and the financial position, results of operations and cash flows of BHT have been separately presented as discontinued operations, and eliminated from the continuing operations amounts in the accompanying consolidated financial statements and notes thereto. Acquisition of BHT during 1999: The Company acquired all of the issued and outstanding common stock and Series A Convertible Preferred Stock of BHT (the "Outstanding Shares") in connection with a merger with BHT which was effective in April 1999. Under the terms of the merger, in exchange for the cancellation of their Outstanding Shares, holders of such shares received rights to proportionate interests in the merger consideration, which consisted of warrants to purchase a total of 900,000 shares of the 30 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3 - DISCONTINUED OPERATIONS (CONTINUED) Breece Hill Technologies, Inc. (Continued) Company's common stock at $7.50 per share and the right to receive an earnout payment based in part on BHT's sales over the twelve months following the acquisition. In addition, in conjunction with the acquisition of BHT, the Company issued options to purchase 300,000 of the Company's common stock at $17.73 per share to employees of BHT in exchange for options such employees had to purchase shares of BHT and warrants to purchase 290,488 shares of the Company's common stock at $20.63 per share to certain creditors of BHT in exchange for warrants such creditors had to purchase shares of BHT. This merger was recorded using the purchase method of accounting. In 1999, the Company issued 45,000 shares of its common stock and issued warrants to purchase 100,000 shares and 30,000 shares of the Company's common stock at $9.00 per and $10.00 per share, respectively, in return for services provided with respect to the BHT acquisition. In addition, the Company incurred $291,175 in other legal, accounting, and other costs associated with the acquisition. Based upon the findings of an independent valuation firm, the total valuation in excess of the book value acquired with respect to BHT was $18,663,448 and was comprised of the fair value of the warrants, options, and common stock issued in connection with the merger, as described above, of $11,960,782; liabilities assumed in excess of the book value of assets received in the amount of $6,411,491; and $291,175 in various legal, accounting and other costs associated with the acquisition. The fair value of options and warrants issued in connection with the merger was determined by use of a Black-Scholes valuation model, considering the following assumptions: expected dividend yield 0%, risk- free interest rate of 5.5%, volatility of 112%, and expected option and warrant lives of four to five years. After the Company's allocation of amounts to the fair value of asset and liabilities received, $18,063,194 was assigned to intangible assets as a result of the merger with BHT. In 1999, in connection with the BHT merger, the BHT subsidiary issued 400,000 shares of Series B Preferred Stock to Hambrecht & Quist Guaranty Fund LLP (H&QGF) in exchange for a reduction of $1,000,000 of debt secured by certain assets of BHT. The Company recorded the BHT preferred stock issued as a BHT minority interest. Discontinued operations treatment of BHT: As a result of the Company approving a formal plan with regards to the disposal of BHT on December 27, 1999, the Company reported BHT's financial position, results of operations and estimated loss on disposal as discontinued operations in 2000 and 1999. The BHT business segment consisted of net liabilities of $5,300,000 as of December 31, 1999. This balance included assets comprised of cash, accounts receivable, inventory, property and equipment, intangible assets and other assets amounting to $13,362,061 after deducting an allowance for the write-off of certain intangible assets. These assets were offset by liabilities totaling $18,662,061 which included estimated operating losses to the disposal date and accrual of the earnout consideration totaling $6,800,000, debt and other liabilities. 31 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3 - DISCONTINUED OPERATIONS (CONTINUED) Breece Hill Technologies, Inc. (Continued) Loss from operations of BHT from the period of acquisition by the Company (April 1999) through the discontinued operations measurement date (December 27, 1999) of $4,409,727 reflects net sales of $24,953,139. The estimated loss on disposal of BHT of $16,356,792 assumed the write-off of intangible assets of $9,556,792 and estimated operating losses from the measurement date to the anticipated disposal date of $6,800,000. The estimated operating losses included an estimated charge related to the immediate write-off of any intangible asset resulting from the payment in 2000 of contingent consideration that would be required under the original acquisition agreement. During the year ended December 31, 2000, the Company recorded a gain from discontinued operations related to this subsidiary amounting to approximately $1,000,000. On December 22, 2000, the Company signed a foreclosure agreement with Hambrecht & Quist Guaranty Finance, LLC. In summary, the Company transferred all of the assets of BHT to the H&QGF in satisfaction of Breece's obligation to H&QGF in the amount of approximately $5,900,000. As of Deecember 31, 2000, the Company has liabilities related to this discontinued operation of $4,200,000. Sale of Assets Acquired from Asset Sentinel, Inc Effective March 31, 2000 the Company amended the Asset Purchase Agreement dated as of October 1, 1998 by and among the Company, GMI, and Asset Sentinel, Inc. ("ASI"), in which the assets of ASI were purchased by GMI. Pursuant to the amendment, the assets were returned to ASI. ASI also received a release from GMI and the Company for all claims arising out of the association of ASI with GMI and the Company. In exchange for the foregoing, ASI released all claims it might have against the Company and GMI relating to the parties' activities before March 31, 2000 and assumed various obligations and contracts related to the assets transferred. Loss from operations of ASI from the period of January 1, 2000 through the discontinued operations measurement date (March 31, 2000) of $90,438 reflects no net sales. The gain on disposal of ASI was $69,497. Asset Sale to MT Acquiring Corp The Company, GMI, and Magnum Technologies, Inc., a wholly owned subsidiary of GMI ("Magnum"), sold all of the business and properties used by GMI in connection with its business conducted under the Magnum name pursuant to an Agreement of Purchase and Sale of Assets made as of January 26, 2000 by and among MT Acquiring Corp., Tim Hadden, Greg Crow, GMI, Magnum and the Company. In the sale, MT Acquiring Corp. received properties and three software products used to provide network monitoring and analysis services: CAP-TREND, Coordinator and Advantage. MT Acquiring Corp. and it principals, Tim Hadden and Greg Crow, also received a release from GMI, Magnum and the Company for all claims arising out of the association of MT Acquiring Corp.'s principals with GMI, Magnum and the Company. In exchange for the foregoing, MT Acquiring Corp. and its principals released all claims against the Company, GMI and Magnum relating to the parties' activities before January 26, 2000, assumed various obligations and contracts related to the business, and delivered a subordinated promissory note payable to the Company in the amount of $214,000. The note bears interest at six percent annually and provides for four semi-annual payments of principal and interest from the date of the note until its maturity date of December 30, 2001. As of December 31, 2000, the note receivable balance amounted to $164,000. 32 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3 - DISCONTINUED OPERATIONS (CONTINUED) Settlement Agreement with IGI The Company has signed a letter of intent and has negotiated the transfer of certain assets and the termination of various software licenses under a proposed settlement agreement between the Company and IGI. The Company acquired the assets and licenses under a February 27, 1998 License and Asset Purchase Agreement with IGI. The assets to be transferred would include those used by GMI in designing, assembling and marketing computer-aided design and manufacturing software systems that operate on a variety of mid-range and personal computer platforms. The terminated licenses would include an exclusive software license of software products used in the business and a non-exclusive license of software used in both the Company's business and IGI's business. The transfer and termination would be made in exchange for IGI's assumption of specific contracts and liabilities related to the assets and for mutual release of all claims arising from the License and Asset Purchase Agreement, including IGI's release of payment obligations of the Company. As of December 31, 2000, the Company had discontinued all operations of IGI. Rescission and Settlement Agreement related to Enterprise Solutions, Inc. On November 1, 1998, the Company, through its SSI subsidiary, purchased certain assets and rights and assumed various liabilities from Enterprise Solutions, Inc. ("ESI"). The net assets and rights acquired related primarily to items used in manufacturing and selling event notification software and in providing services with respect to the implementation of enterprise management solutions. Total consideration under the terms of the ESI asset purchase agreement (the "ESI Agreement") includes: (a) $200,000 at the close of the transaction, (b) options to purchase 80,000 shares of the Company's common stock at $6.25 per share, (c) additional options to purchase up to 260,000 shares at $6.25 per share based upon the earnings associated with the operations related to the ESI assets acquired (the "SSI Operations") for a period of 18 months following the closing of the acquisition. The options described above would be exercisable for a term of 5 years from the ESI asset acquisition date. In addition, under the ESI Agreement, in the event ESI does not meet certain earnout calculations reaching a minimum of $5,000,000, the Company, at its option, would either pay ESI the difference in cash or common stock of the Company or return the purchased assets and assumed liabilities, as of the date the earnout calculation is made, to ESI. In 1998, based upon the terms described above, the Company recorded SSI Operations acquisition cost equal to $724,000, which was comprised of the $200,000 initial amount plus the fair value of the 80,000 non-contingent options to purchase common stock of the Company of $524,000. The fair value of these option shares was calculated using the Black-Scholes option pricing methodology based upon the following assumptions: volatility of 112%, dividend rate of 0%, risk free interest rate of 4.5 % and a five-year option life. The fair value of the identifiable assets of the SSI Operations acquired totaled $326,969 and consisted of cash of $57,796, accounts receivable of $474,784, property and equipment of $116,324 and current liabilities of $321,935. The Company recorded an intangible asset consisting of purchased technology and customer lists of $397,031 with a useful life of five years as a result of the SSI Operations acquisition. 33 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3 - DISCONTINUED OPERATIONS (CONTINUED) Rescission and Settlement Agreement related to Enterprise Solutions, Inc. (Continued) During 1999, the Company pledged the assets of the SSI Operations to secure borrowings of the Company. In addition, based upon the operating results of the SSI Operations, the Company assessed that the criteria surrounding the contingent options to purchase 260,000 shares and the minimum $5,000,000 earnout would be met. Furthermore, the Company began renegotiating the final earnout amount that would be required in excess of the $5,000,000 minimum amount. During 1999, the Company issued additional options to purchase 240,000 shares of the Company's common stock at an exercise price of $6.25 per share to ESI as an initial partial settlement. The Company recorded an accrued liability related to the $5,000,000 minimum earnout and recorded additional paid-in capital of $2,381,080 related to the fair value of the 500,000 option shares determined by use of a Black-Scholes valuation model, considering the following assumptions: expected dividend yield 0%, risk-free interest rate of 5.5% to 5.6%, volatility of 112%, and expected option and warrant lives of four to five years. These items, correspondingly resulted in a 1999 increase in gross purchased technology with respect to the SSI Operations of $7,381,840. On December 20, 2000, the Company signed a Rescission and Settlement Agreement (the "Agreement") with Enterprise Solutions, Inc. (ESI). Subject to certain terms and conditions and in settlement of all disputes and claims that any of the parties may have with or against each other, the Company transferred back all transferred assets and all other assets that were part of the business. These assets included certain trademarks, fixed assets, and others. In exchange for the return of these assets, all shareholder options held by ESI shareholders were cancelled. Additionally, ESI assumed all liabilities amounting to approximately $590,000 related to such transferred assets. As security for ESI's obligation to indemnify the Company with respect to the liabilities assumed by ESI, ESI granted the Company a security interest in XO Technologies, Inc. common shares. Net losses of ESI amounting to approximately $3,655,211 from the period of from January 1, 2000 through the discontinued operations measurement date (December 20, 2000) have been included in discontinued operations. Additionally, the Company recorded a net gain from discontinued operations on the ESI rescission and settlement agreement of $2,851,587 which consists of the write-off of intangible assets of $4,897,607, a loss from the transfer of account receivables to ESI of $689,645, a write off of other assets of $351,219, a gain for the assumption of liabilities by ESI of $8,890,059. Additionally, the Company accrued a liability of $100,000 related to this rescission agreement. Singlepoint Limited On May 27, 1999, the Company, through Singlepoint Systems, Inc, (SSI), acquired all of the outstanding stock of Singlepoint Limited ("SSI Ltd"), a distributor of SSI products and services. In return for the SSI Ltd shares, the Company paid $80,000. In addition, under the terms of the related acquisition agreement, the Company is required to pay an earnout payment based upon net income of SSI Ltd for a period subsequent to the acquisition date through April 30, 2000. Through December 31, 1999, no additional earnout amounts have been required with respect to SSI Ltd. The Company recorded the acquisition of SSI Ltd using the purchase method of accounting. The net liabilities in excess of identifiable assets of SSI Ltd as of the acquisition date totaled $115,437. Based upon the $80,000 of consideration paid, the Company recorded an increase in other intangible assets of $195,437 in 1999 as a result of the SSI Ltd acquisition. 34 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3 - DISCONTINUED OPERATIONS (CONTINUED) Singlepoint Limited (Continued) On August 10, 2000, the Company entered into a cancellation agreement with SSI Ltd. The purpose of this agreement was to cancel the original Share Purchase agreement, whereby SSI will cancel the purchase of shares from SSI Ltd. Net losses from discontinued operations related to SSI Ltd. amounted to $68,844. NOTE 4 - INVENTORIES At December 31, 2000, inventories consist of the following: Raw materials $ 238,908 Completed systems and finished goods 124,960 ------------- Total $ 363,868 ============= NOTE 5 - CAPITAL ASSETS At December 31, 2000, the Company's capital assets are comprised of the following: Property and equipment Computers and office equipment $ 1,491,914 Accumulated depreciation (1,358,325) ------------- Property and equipment, net $ 133,589 ============= Leased equipment Leased equipment 177,667 Accumulated depreciation (137,331) ------------- Leased equipment, net $ 40,336 ============= Intangible assets Patents $ 171,648 Accumulated amortization (129,506) ------------- Other assets, net $ 42,142 ============= 35 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 6 - ACQUISITIONS Lavenir assets and liabilities On September 29, 1999, the Company, through its GMI subsidiary, purchased substantially all the assets and rights to certain hardware and software products, trademarks and copyrights of Lavenir Technology, Inc., a California corporation ("Lavenir"), pursuant to an Agreement and Plan of Reorganization (the "Lavenir Agreement") by and among the Company, GMI and Lavenir. Subject to the Lavenir Agreement, the Company also assumed certain liabilities of Lavenir, including Lavenir's outstanding debt, ongoing leases, and contract obligations. The assets and rights acquired relate primarily to a suite of CAD/CAM software and certain hardware products sold for use in the printed circuit board industry. Under the terms of the Lavenir Agreement, the total purchase price of $5,300,000 is comprised of the following: (a) 266,000 shares of the Company's common stock initially paid to Lavenir on the closing date, (b) $400,000 originally in the form of a note payable due on January 31, 2000, and (c) additional shares of the Company's common stock issuable as of March 31, 2000 sufficient to cause the aggregate value of the shares previously issued and the original $400,000 liability to total $5,300,000 as of March 31, 2000. Accordingly, during 2000, the Company issued 404,085 shares of common stock in connection with this acquisition. In November 1999 the Company renegotiated the $400,000 liability due on January 31, 2000 to a $100,000 amount due on January 31, 2000 in return for 100,000 shares of the Company's common stock to be issued in January 2000. In connection with issuance of the 100,000 shares of common stock in 2000, the Company recorded interest expense amounting to $387,500. The Company received net assets with a fair value of approximately $315,000 as a result of the Lavenir asset acquisition and allocated the remaining purchase price of $4,985,000 to purchased technology with useful lives of three to five years. Acquisition of Global Watch Product: On November 20, 2000, the Company purchased the right to its "Global Watch" product. Under the terms of the Global Watch Agreement, the total purchase price of $1,350,000 is comprised of the following: (a) $1,350,000 cash which shall be paid by the Company at a rate of five percent of gross monies collected on purchase orders on every Global Watch product sold by the Company, and (b) 350,000 shares of the Company's common stock issuable as of November 20, 2000. As of December 31, 2000, the Company has issued any common shares related to this acquisition. Accordingly, the Company has included in accrued expense the fair market value of common shares issuable under this agreement of $33,250. As of December 31, 2000, the Company has reflected accrued consideration due under this agreement of $983,250, which has been included in accrued liabilities. Additionally, in connection with this agreement, the Company shall pay a minimum licensing fee of $125,000 per year. 36 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 7 - NOTES PAYABLE At December 31, 2000, notes payable are comprised of the following: Equipment loans; due through 2003, bearing interest at 9% to 21% $ 14,511 ---------- 14,511 Less current portion (3,012) ---------- $ 11,499 ========== In May 1999, the Company entered into a loan and security agreement and has since executed certain amendments (collectively, the "1999 Debt Agreement") that provided for (a) a senior revolving loan maturing in May 2000, (b) a convertible term loan, and (c) a term loan. Various amendments were made to the 1999 Debt Agreement throughout 2000. The Company utilized $1,900,000 of proceeds under this agreement to pay its then outstanding subordinated notes payable. Borrowings under the 1999 Debt Agreement were secured by all of the assets of the Company, exclusive of those of its BHT subsidiary. Borrowings with respect to the senior revolving loan were subject to a limit of the lesser of (a) $3,300,000 less 10% of equity (as defined in the 1999 Debt Agreement) and less any unpaid balance of the convertible term loan, (b) 80% of eligible receivables, or (c) 20% of net worth (as defined in the 1999 Debt Agreement). As of December 31, 1999, notes payable related to these loans amounted to $4,989,872. As of December 31, 1999, the Company was not in compliance with the 1999 Debt Agreement and had entered into certain forbearance agreements with the lender. These agreements established a forbearance period through March 31, 2000 during which, among other things, collection of accounts receivable was made through a bank lockbox and these proceeds were immediately applied to outstanding borrowings, interest rates on borrowings subject to the 1999 Debt Agreement were increased 3% per annum, certain modifications to the borrowing base formula were in effect, and 50% of proceeds from equity issuances and 75% of proceeds from other debt issuances were to be paid to the lender. The Company was unable to comply with all of the terms of the forbearance agreements. In 1999, in connection with the 1999 Debt Agreement and related forbearance agreements, the Company issued warrants to the lender to purchase 46,462 shares of the Company's common stock at $7.15 per share. These warrants had a fair value of $364,767 as determined by use of a Black-Scholes valuation model. In addition, the conversion price of the convertible term loan under the 1999 Debt Agreement was less than the market value of the Company's common stock on the date the convertible term loan was issued, resulting in the existence of a beneficial conversion feature with a value of $248,000. Based upon the default status of the underlying borrowings, in 1999, the Company recorded a charge of $612,767 with respect to the value of this beneficial conversion feature and fair value of warrants related to the 1999 Debt Agreement. 37 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 7 - NOTES PAYABLE (CONTINUED) On December 22, 2000, the Company signed as foreclosure agreement with Hambrecht & Quist Guaranty Finance, LLC. In summary, the Company transferred all of assets of BHT to the H&QGF in satisfaction of Breece's obligation to H&QGF under the loan agreement and other loan documents as discussed above in the amount of approximately $5,890,000. In December 1999, the Company issued $300,000 in short-term promissory notes. As discussed in Note 8, these promissory notes were converted to shares of Series D Convertible Preferred stock of the Company in January 2000. As a result of the 1999 transaction with Lavenir (see Note 6), the Company assumed certain equipment loans and notes payable. The general terms and outstanding balances related to these debt obligations are summarized in the table above. In February 1999, the Company issued a $500,000 short-term note payable, which was paid by the Company in November 1999. In connection with this note, the Company issued the lender warrants to purchase 110,000 shares of the Company's common stock at $5.40 per share. The $810,703 fair value of these warrants was amortized into expense over the period the notes were outstanding. In March and May 1999, the Company issued convertible notes payable aggregating $261,372. The notes issued in March 1999 were convertible to the Company's common stock at $4.00 per share while the notes issued in May 1999 were convertible at $6.25 per share. These conversion prices were less than the per share market value of the Company's common stock on the date the notes were issued resulting in the existence of beneficial conversion features with a an aggregate value of $212,624. In connection with these convertible notes payable, the Company issued warrants to purchase 2,000 shares of the Company's common stock at $7.50 per share. These warrants had a fair value of $15,000 as determined by use of a Black-Scholes valuation model. The value of these warrants and the beneficial conversion feature associated with these convertible notes payable was amortized into expense over the period the notes were outstanding. These notes and a portion of related accrued interest were converted to common stock in September and December 1999. The valuation of warrants issued in conjunction with debt as described above was determined by use of a Black-Scholes valuation model, considering the following assumptions: expected dividend yield 0%, risk-free interest rate of 5.5%, volatility of 112%, and expected warrant lives of 4.5 to five years. 38 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) Common Stock Issued During 1999, the Company sold 534,578 shares of its common stock for gross proceeds of $2,713,399 pursuant to a series of private placements of securities. The Company paid capital raising costs of approximately $235,000 and issued warrants to purchase 40,313 shares of the Company's common stock to various placement agents at $4.00 to $6.25 per share in conjunction with these private placements. The Company also issued 648,000 shares of common stock in return for investor relations services, 311,000 shares with respect to acquisitions, 52,038 shares in connection with the conversion of certain notes payable (see Note 7), and 176,604 shares with respect to the conversion of preferred stock, payment of dividends and exercises of stock options and warrants during 1999. The value of shares issued in exchange for investor relation services was charged to administrative expense. During the year ended December 31, 2000, the Company issued 232,164 shares of common stock as a result of exercises of stock options. The Company received $558,496 in proceeds for these exercises. During the year ended December 31, 2000, the Company issued 404,085 shares of common stock to LTI in settlement of a previously negotiated acquisition liability. Additionally, the Company issued 100,000 shares of common stock in connection with the reduction of a note payable in the amount of $300,000. In connection with the issuance of these shares, the Company recorded an interest charge of $387,500, which represents the difference between the reduction of the note payable and the fair market values of common shares issued. On January 20, 2000, the Company issued 150,000 shares of common stock in connection with the issuance of Series D Convertible Preferred Stock, the reduction of penalties associated with the Series C Preferred Stock, and the reduction of a note payable amounting to $300,000. These shares were valued at a fair market value of $1,200,000 or $8.00 per share and charged to operations. During the year ended December 31, 2000, the Company issued 109,177 shares of common stock for services rendered. These shares were valued at a fair market value at the date of issuance of $533,177 and charged to operations. During the year ended December 31, 2000, the Company issued 3,563,162 shares of common stock for the conversion of Series A, B, D and E Convertible Preferred Stock. On June 29, 2000 the Company issued 89,468 shares of common stock to LTI in order to compensate LTI for the late registration of the 770,085 shares of the Company's Common Stock. LTI agreed to accept the 89,468 shares of the Company's common stock in place of an interest penalty for the period from April 15, 2000 to July 20, 2000. These shares were valued at a fair market value of $212,487 and charged to operations. Authorized Shares of Common Stock On April 5, 2000, the shareholders of the Company approved an increase in the number of authorized shares of common stock to 18,500,000. 39 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) Preferred Stock Series B Convertible Preferred Stock issuance: From late August 1998 until December 31, 1998, the Company sold 67,192 units in a private placement of securities. Each unit consisted of one share of Series B Preferred Stock (the "Series B Stock") and one warrant to purchase shares of common stock. The purchase price per unit was $32.50. Each share of Series B Stock entitles the holder thereof to receive an annual dividend equal to 8% of the per share purchase price. Beginning in February 1999, each share of Series B Stock is convertible into that number of shares of common stock equal to the per unit purchase price divided by 80% of the average closing bid price of the common stock for the 20 consecutive trading days prior to the conversion date, subject to certain adjustments; provided, however, that such average price may not be greater than $12.50 nor less than $3.75. The beneficial conversion feature present in the issuance of the Series B Stock as determined on the date of issuance of the Series B Stock totaled $562,392 and was treated as a reduction in earnings available (increase in loss attributable) to common stockholders over the period from the date of issuance of the Series B Stock to the earliest date such shares may be converted. All outstanding shares of Series B Preferred Stock will be automatically converted into common stock on September 23, 2001. During the year ended December 31, 1999, certain Series B stockholders converted 15,560 Series B shares into shares of common stock. Each warrant issued in connection with the Series B Stock is a five-year callable warrant to purchase common stock at $16.25 per share. The number of shares of common stock for which the warrant in each unit will be exercisable is equal to the number of shares of common stock into which the associated share of Series B Preferred Stock contained in the unit will have been converted. In connection with the offering of the Series B Stock, the Company agreed to use its best efforts to register the shares of common stock underlying the Series B Stock and associated warrants and to pay a penalty if such registration was not effective by February 28, 1999. As a result, the Company incurred a penalty owed to the investors in the offering who have not formally waived this penalty equal to 1% of the purchase price of the units for each of the first two 30-day periods following February 28, 1999 and 3% for every 30-day period thereafter until the registration statement had been declared effective. During 2000 and 1999, the Company has accrued approximately $490,000 in such penalties. During the year ended December 31, 2000, certain Series B stockholders converted 609 Series B shares into 4,327 shares of common stock. Series C Convertible Preferred Stock issuance: On March 25, 1999, the Company issued 1,600 shares of its Series C Convertible Preferred Stock (the "Series C Stock") to certain accredited investors in a private offering. Sixty days after the issuance of the Series C Stock, each share of Series C Stock is convertible into that number of shares of common stock equal to the stated value of each such share ($1,000) divided by the lesser of $12.50 or 80% of the average of the three lowest closing bid prices of the Common Stock during the 15 trading days immediately preceding the conversion date. The beneficial conversion feature present in the issuance of the Series C Stock as determined on the date of issuance of the Series C Stock totaled $522,972 and was treated as a reduction in earnings available (increase in loss attributable) to common stockholders over the period from the date of issuance of the Series C Stock to the earliest date such shares may be converted. Holders of Series C Stock were entitled to receive dividends at an annual rate of 8% of the per share purchase price payable in either cash or shares of common stock, at the option of the Company. The number of shares of common stock issuable as a dividend payment will equal the total dividend payment then due divided by the conversion price calculated as of the date that the dividend payment is due. 40 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) In addition, in connection with the Series C Stock offering, the Company also issued warrants to the investors to purchase 20,000 shares of common stock at $8.28 per share. A portion of the aggregate proceeds from the Series C Stock offering equal to the $135,288 fair value of these warrants was allocated to additional paid in capital. This fair value was determined by use of a Black- Scholes valuation model, considering the following assumptions: expected dividend yield 0%, risk-free interest rate of 5.5%, volatility of 112%, and expected warrant lives of five years. Additionally, in 1999, the Company issued 75 shares of Series C Stock to the placement agent in return for capital raising services and incurred $96,000 in other capital raising cost with respect to this private offering. In connection with the offering of the Series C Stock, the Company agreed to use its best efforts to register the shares of common stock underlying the Series C Stock and associated warrants and to pay a penalty if such registration was not effective 30 days after their issuance. As a result, the Company incurring a penalty owed to the investors equal to 1% of the purchase price of the shares for the first 30-day periods following April 25, 1999 and 3% for every 30-day period thereafter until the registration statement was declared effective. During 1999, the Company incurred approximately $400,000 in such penalties. In January 2000, the Company exchanged all outstanding Series C Convertible Preferred Stock by issuing Series D Convertible Preferred Stock. In connection with this transfer, all warrants associated with Series C Convertible Preferred Stock were cancelled. In connection with the transfer of Series C Stock to Series D Stock, the Company issued 120,000 shares of common stock and Series C investors waived all claims they may have against the Company for failure to register the Series C stock. Issuance of Series D Convertible Preferred Stock: On January 19, 2000, the Company issued 2,725 shares of Series D Convertible Preferred Stock ("Series D Stock") in a private placement. The shares were issued as follows: (1) 700 shares to new investors for $700,000 in the aggregate; (2) 300 shares to certain investors upon conversion of $300,000 of promissory notes issued by the Company; (3) 1,600 shares to the holders of the Company's then outstanding Series C Convertible Preferred Stock in exchange for all of their Series C shares; and (4) 125 shares to the placement agent, of which 75 shares were issued in exchange for all of the Company's Series C Stock held by the placement agent and of which 50 shares were compensation for placement agent services. At any time after the issuance of the Series D Stock, each share of Series D Stock is convertible into the number of shares of common stock calculated by dividing the per share purchase price of $1,000 by the conversion price. The conversion price equals the lesser of 75% of the average of the three lowest closing bid prices of the common stock during the 15 trading days immediately before the conversion date or $5.4375. The beneficial conversion feature present in the issuance of the Series D Stock as determined on the date of issuance of the Series D Stock totaled $2,386,830 of which $1,863,858 was treated as a reduction in earnings available (increase in loss attributable) to common stockholders upon the date of issuance of the Series D Stock since such shares may be converted at any time following issuance. The other $522,972 was attributed to Series C Stock and was treated as a reduction in earnings available to common stockholders in the year ended December 31, 1999. Holders of Series D Stock are entitled to receive dividends at an annual rate of 8% of the per share purchase price. The dividends are payable, upon conversion of the Series D Stock, in either cash or shares of common stock, at the option of the Company. The number of shares of common stock issuable as a dividend payment will equal the total dividend payment then due divided by the conversion price calculated as of the date that the dividend payment is due. 41 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) In addition, in connection with the Series D Stock offering the holders of warrants issued in the Series C offering were issued warrants to purchase 20,000 shares of the Company's common stock in exchange for the warrants issued to them in the Series C offering. Each new warrant issued entitles its holder to purchase the Company's Common Stock at $8.30 per share at any time before the fifth anniversary of the date of issuance of the warrant. In conjunction with the Series D Stock offering, the Company also issued 30,000 shares of common stock to the Placement Agent and new Series D holders and 120,000 shares of Common Stock to the holders of the Series C Stock. The Company agreed to use its best efforts to file a registration statement with regard to sales of the shares of common stock underlying the Series D Stock and the warrants and to pay a penalty if such registration statement is not effective by the 120th day after issuance of the Series D Stock. This penalty is equal to 2% of the purchase price of the Series D Stock for the first 30-day period following such 120-day period and 3% of such purchase price for every 30-day period thereafter until the registration statement has been declared effective. The registration statement was declared effective July 24, 2000. During the year ended December 31, 2000, certain Series D shareholders converted 1,162 shares of Series D Stock into 1,850,371 shares of common stock. Series E Convertible Preferred Stock issuance: On December 30, 1999, the Company issued 2,650 shares of its Series E Convertible Preferred Stock (the "Series E Stock") to certain accredited investors in a private offering. At any time after the issuance of the Series E Stock, each share of Series E Stock is convertible into that number of shares of common stock equal to the stated value of each such share ($1,000) divided by the lesser of $5.125 or 75% of the average of the three lowest closing bid prices of the Common Stock during the 15 trading days immediately preceding the conversion date. The beneficial conversion feature present in the issuance of the Series E Stock as determined on the date of issuance of the Series E Stock totaled $1,683,453 and is treated as a reduction in earnings available (increase in loss attributable) to common stockholders upon the date of issuance of the Series E Stock since such shares may be converted at any time following issuance. In February 2000, as a result of the Series F Convertible Preferred offering (see below), the 75% conversion factor included in the formula described above was changed to 70%. Holders of Series E Stock are entitled to receive dividends at an annual rate of 8% of the per share purchase price. The dividends are payable in either cash or shares of common stock, at the option of the Company. The number of shares of common stock issuable as a dividend payment will equal the total dividend payment then due divided by the conversion price calculated as of the date that the dividend payment is due. During the year ended December 31, 2000, certain Series E shareholders converted 973 shares of Series E Stock into 1,703,876 shares of common stock. In addition, in connection with the Series E Stock offering, the Company also issued warrants to the investors to purchase 50,000 shares of common stock at $6.375 per share. A portion of the aggregate proceeds from the Series E Stock offering equal to the $260,370 fair value of these warrants was allocated to additional paid in capital. This fair value was determined by use of a Black- Scholes valuation model, considering the following assumptions: expected dividend yield 0%, risk-free interest rate of 5.5%, volatility of 112%, and expected warrant lives of five years. The Company issued 25 shares of Series E Stock to the placement agent in return for capital raising services and incurred approximately $292,000 in other capital raising cost with respect to this private offering. 42 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) Issuance of Series F Convertible Preferred Stock: On February 23, 2000, the Company issued 2,000 shares of its Series F Convertible Preferred Stock (the "Series F Stock") to certain accredited investors in a private offering. At any time after the issuance of the Series F Stock, each share of Series F Stock is convertible into that number of shares of common stock equal to the stated value of each such share ($1,000) divided by the lesser of $6.75 or 75% of the average of the three lowest closing bid prices of the Common Stock during the 15 trading days immediately preceding the conversion date. The beneficial conversion feature present in the issuance of the Series F Stock as determined on the date of issuance of the Series F Stock totaled $1,291,429 and is treated as a reduction in earnings available (increase in loss attributable) to common stockholders upon the date of issuance of the Series F Stock since such shares may be converted at any time following issuance. All outstanding shares of Series F Stock will be automatically converted into Common stock on February 23, 2002. The holders of Series F Stock are entitled to receive dividends at an annual rate of 8% of the stated value ($1,000) of the Series F Stock, subject to the prior declaration or payment of any dividend to which the holders of the Company's Series A Stock, Series B Stock, Series D Stock or Series E Stock are entitled. Dividends on shares of the Series F Stock are cumulative, payable in either cash or shares of common stock, at the option of the Company, and are payable only upon conversion of the Series F Stock. In connection with such offering, the Company also issued warrants to the investors to purchase 50,000 shares of common stock. Each warrant is a five-year callable warrant to purchase common stock at $11.00 per share. Due to certain provisions in effect with respect to the Series E Stock offering, as a result of the Series F Stock offering, the conversion formula with respect to the Series E Stock was modified. Based upon this modification, an additional beneficial conversion feature was created with respect to the Series E Stock. The value of this additional conversion benefit of $311,510 was treated as a reduction in earnings available (increase in loss attributable) to common stockholders in the first quarter of 2000. The Company agreed to use its best efforts to file a registration statement with regard to sales of the shares of common stock underlying the Series F Stock and the warrants and to pay a penalty if such registration statement is not effective by the 120th day after issuance of the Series F Stock. This penalty is equal to 2% of the purchase price of the Series F Stock for the first 30-day period following such 120-day period and 3% of such purchase price for every 30-day period thereafter until the registration statement has been declared effective. As of the date of this report, the Company had not registered these shares. As of December 31, 2000, the Series F stockholders have waived all penalties related to the non-registration of these shares. Issuance of Series G Convertible Preferred Stock: On August 31, 2000, the Company issued 600 shares of its Series G Convertible Preferred Stock (the "Series G Stock") to certain accredited investors in a private offering for proceeds of $600,000. At any time after the issuance of the Series G Stock, each share of Series G Stock is convertible into that number of shares of common stock equal to the stated value of each such share ($1,000) divided by the lesser of $1.62 or 75% of the average of the three lowest closing bid prices of the Common Stock during the 15 trading days immediately preceding the conversion date. The beneficial conversion feature present in the issuance of the Series G Stock as determined on the date of issuance of the Series G Stock totaled $309,092 and is treated as a reduction in earnings available (increase in loss attributable) to common stockholders upon the date of issuance of the Series G Stock since such shares may be converted at any time following issuance. All outstanding shares of Series G Stock will be automatically converted into Common stock on August 1, 2002. 43 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) The holders of Series G stock are entitled to receive dividends at an annual rate of 8% of the stated value ($1,000) of the Series G stock, subject to the prior declaration or payment of any dividend to which the holders of the Company's Series A Stock, Series B Stock, Series D Stock, Series E Stock, and Series F stock are entitled. Dividends on shares of the Series G Stock are cumulative, payable in either cash or shares of common stock, at the option of the Company, and are payable only upon conversion of the Series G Stock. In connection with such offering, the Company also issued warrants to the investors to purchase 62,000 shares of common stock at $1.62 per share and expires on August 31, 2005. A portion of the aggregate proceeds from the Series G Stock offering equal to the $37,500 fair value of these warrants was allocated to additional paid in capital. This fair value was determined by use of a Black- Scholes valuation model, considering the following assumptions: expected dividend yield 0%, risk-free interest rate of 5.5%, volatility of 48%, and expected warrant lives of five years. The Company agreed to use its best efforts to file a registration statement with regard to sales of the shares of common stock underlying the Series G Stock and the warrants and to pay a penalty if such registration statement is not effective by the 120th day after issuance of the Series G Stock. This penalty is equal to 2% of the purchase price of the Series F Stock for the first 30-day period following such 120-day period and 3% of such purchase price for every 30-day period thereafter until the registration statement has been declared effective. As of the date of this report, the Company had not registered these shares. As of December 31, 2000, the Series G stockholders have waived all penalties related to the non-registration of these shares. Common stock warrants: During 1999, the Company issued warrants to purchase 22,000 shares of its common stock for $2.19 to $7.50 per share in return for various services received. In addition, the Company issued warrants to purchase its common stock in connection with various acquisitions, borrowings and issuance of notes payable (see Note 7), and issuance of common and preferred stock (as described above). During 2000, the Company issued warrants to purchase 162,000 shares of its common stock for $1.62-$11.00 per share in connection with the issuance of preferred series D, F and G. The following table summarizes the Company's warrants outstanding at December 31, 2000. Range of Weighted average exercise price Number exercise price --------------- ---------- -------------- $ 1.80-4.00 68,818 $ 2.09 5.40-8.30 1,249,696 7.24 9.00-13.00 256,336 10.44 16.25-20.63 595,268 18.38 ---------- --------------- 2,170,118 $ 10.51 ========== =============== Common stock options: The Company's stock option plan, provides for granting to the Company's employees, directors and consultants, qualified incentive and nonqualified options to purchase common shares of stock. Qualified incentive options must be granted with exercise prices equal to the fair market value of the common stock on the date of grant. Nonqualified options must be granted with exercise prices equal to at least 85% percent of the fair market value of the common stock on the date of grant. At December 31, 2000, the Company has 3,500,000 shares of its common stock reserved for issuance upon the exercise of options granted under the Company's stock option plan. 44 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) Stock option activity for the years ended December 31, 2000 and 1999 is summarized as follows: Number of Weighted average shares exercise price --------- ---------------- Outstanding at December 31, 1998 1,335,800 5.68 Granted 782,700 11.31 Exercised (36,600) 4.27 Canceled (380,400) 7.30 --------- ---------------- Outstanding at December 31, 1999 1,701,500 6.42 Granted 2,481,000 0.48 Exercised (232,164) 2.41 Canceled (1,484,186) 7.30 ---------- ---------------- Outstanding at December 31, 2000 2,466,150 $ .82 ========= ================ The following table summarizes the Company's stock options outstanding at December 31, 2000: Options outstanding Options exercisable --------------------------------- ---------------------- Weighted Weighted Weighted average average average Range of remaining exercise exercise exercise price Number life price Number price - --------------- --------- --------- -------- ----------- -------- $ 0.16-0.50 2,351,000 4.95 $ 0.16 610,000 $ 0.16 2.50 16,000 0.60 2.50 16,000 2.50 6.25-7.50 64,378 3.25 7.45 62,939 6.56 7.65-10.00 35,000 2.50 9.69 35,000 9.23 --------- --------- 2,466,150 723,939 ========= ========= The Company applies APB No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock options. As a result no compensation expense has been recognized for employee and director stock options. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net loss would have been reported as follows: Years Ended December 31, 2000 1999 ---------------- ----------------- Net loss: As reported $ (12,086,196) $ (38,897,293) Pro forma (12,615,636) (39,620,293) Diluted loss per common share: As reported $ () $ (9.763) Pro forma () (9.932) 45 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) The per share weighted average fair value of stock options granted during 2000 and 1999 was $.25 and $8.70, respectively, on the date of grant using the Black-Scholes pricing model and the following assumptions: Years Ended December 31, 2000 1999 ------ ------ Expected dividend yield 0% 0% Risk-free interest rate 5.5% 5.5% Annualized volatility 158% 112% Expected life, in years 5 5 NOTE 9 - INCOME TAXES At December 31, 2000, the Company had a net operating loss carryforward of approximately $50 million. The net operating loss carryforward may be subject to an annual limitation as defined by Section 382 of the Internal Revenue Code. Current and future equity transactions could further limit the net operating losses available in any one year. The tax effects of temporary differences from continuing operations that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2000 are shown as follows: Deferred tax assets: Write-downs of intangible assets $ 1,900,000 Allowance for doubtful accounts 40,000 Net operating loss carryforward 8,970,000 -------------- 10,910,000 Less valuation allowance (10,910,000) -------------- $ -- ============== The total deferred tax assets indicated above do not include approximately a $5 million deferred tax asset attributable to discontinued operations. Additionally, the valuation allowance indicated above does not include a valuation allowance of $5 million attributable to discontinued operations used to completely offset the deferred tax asset attributable to discontinued operations. A valuation allowance is required to reduce a potential deferred tax asset when it is likely that all or some portion of the potential deferred tax asset will not be realized due to the lack of sufficient taxable income. The Company has reviewed its taxable earnings history and projected future taxable income. Based on this assessment, the Company has provided a valuation allowance for the portion of the deferred tax assets that will likely not be realized due to lack of sufficient taxable income in the future. 46 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 9 - INCOME TAXES (CONTINUED) For the years ended December 31, 2000 and 1999, there was no income tax provision. The income tax expense (benefit) from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 34% as a result of the following: Years Ended December 31, 2000 1999 -------------- -------------- Expense (benefit) at statutory rate $ (3,405,148) $ (4,867,461) State income tax expense (benefit), net of federal (400,606) (572,643) Change in valuation allowance 3,004,542 5,431,691 Other -- 8,413 ------------- ------------- Actual tax expense (benefit) $ -- $ -- ============= ============= NOTE 10 - OPERATING LEASES The Company has two operating leases for office space. The rental payments under these leases are charged to expense as incurred. These leases provide that the Company pay taxes, maintenance, insurance, and other operating expenses applicable to the lease. Lease expense in 2000 and 1999 was approximately $264,200 and $264,200, respectively. Future minimum lease payments under these noncancellable operating lease are approximately $390,280, $31,740, $31,740, and $10,580 for the years 2001, 2002, 2003, and 2004, respectively. NOTE 11 - LITIGATION Patent infringement claim and settlement: The Company was named as a defendant in a patent infringement claim filed in February 2000. The claim alleged, among other things, that the Company's VCC product, when monitoring a mainframe computer, infringed on a patent held by the plaintiffs. The Company believed that the plaintiffs' claims were without merit, but in order to avoid protracted and potentially costly litigation, the Company settled the claim on March 16, 2000. The Company was named as a defendant is various lawsuits due to non-payment of vendor invoices. The Company is currently trying to negotiate settlements with these vendors. 47 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS. KPMG LLP was previously the principal accountants for the Company. On November 2, 2000, that firm resigned as principal accountants. The Company's Board of Directors approved the decision to change accountants. In connection with the audits of the two fiscal years ended December 31, 1998 and 1999, and the subsequent interim period through November 2, 2000, there were no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement, except as follows: Certain matters involving internal control and its operation that KPMG LLP considered to be reportable conditions under standards established by the American Institute of Certified Public Accountants were communicated by KPMG LLP to the Audit Committee of the Company's Board of Directors on June 14, 1999, December 9, 1999 and August 3, 2000. These matters on internal control included (1) controls over revenue recognition related to client acceptance provisions, (2) controls over capitalization of software development costs and (3) the volume of audit adjustments. Management has authorized KPMG LLP to respond fully to inquiries of the successor accountant concerning these matters. The audit reports of KPMG LLP on the consolidated financial statements of the Company and subsidiaries as of and for the years ended December 31, 1998 and 1999 did not contain any adverse opinion or disclaimer of opinion nor were they qualified or modified as to uncertainty, audit scope or accounting principles except as follows: KPMG LLP's auditors' report on the consolidated financial statements of the Company and subsidiaries as of and for the years ended December 31, 1998 and 1999 contained a separate paragraph stating that "the Company has losses from operations and has a working capital deficiency that raise substantial doubt about the Company's ability to continue as a going concern." Management's plans in regard to these matters were also described in Note 2 to these consolidated financial statements. The financial statements did not include any adjustments that might result from the outcome of this uncertainty. In connection with its reorganization, the Company on March 10, 2001 engaged Feldman, Sherb & Company, P.C. as its independent accountants. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. The directors, executive officers and significant employees of the Company are as follows: Name Age Position - ---- --- -------- Dale Ragan 56 Chief Executive Officer, Chairman of the Board, and Director William A. Erhart 49 Director Sue Korsgarden 40 Chief Accounting Officer DALE RAGAN. Mr. Ragan has served as the Company's Chief Executive Officer and a director since January 12, 2001, pursuant to an agreement between the Company and Wild Cat Management, Inc., of which Mr. Ragan is President. Mr. Ragan has been a long time investor in the Company and brings with him over 25 years of management experience in the private sector, as well as his experience as a venture capitalist specializing in small cap public companies. One of the companies he co-founded was listed in Inc. Magazine in 1988 as twenty- 48 fifth out of the top 100 fastest growing privately owned companies in the United States. His company had grown over 6000% in five years. WILLIAM A. ERHART. Mr. Erhart has served as a director of the Company since January 12, 2001. He attended the University of Minnesota and received a BS degree with distinction in 1973, then attended the William Mitchell College of Law and received his Juris Doctor Degree. He was admitted to the Minnesota Bar in 1978 and to the U.S. District Court of Minnesota in 1980. Mr. Erhart has litigated cases both within and outside of Minnesota. Mr. Erhart serves as general outside counsel for Alpine Industries, Inc., a Tennessee corporation, that is involved in a significant amount of litigation, government compliance, and corporate matters throughout the United States and internationally. Mr. Erhart was recently appointed general counsel for the Company. He has represented a variety of clients from individuals and small businesses, to corporations with the largest having annual sales in excess of $200,000,000. Mr. Erhart has litigated with the Federal Trade Commission and attorney general offices. He has also had substantial experience prosecuting and defending false advertising and defamation cases brought under the Lanham Act and under individual state laws. Mr. Erhart also has a broad experience in general business litigation, personal injury, products liability, medical malpractice, real estate, probate, corporate, and general practice. He has taught classes at Anoka Ramsey Community College as well as being a speaker at the Minnesota Trial Lawyers Association. Most recently, Governor Ventura appointed Mr. Erhart for a four-year term to the Metropolitan Airports Commission. SUE KORSGARDEN. Ms. Korsgarden has served as the Company's Chief Accounting Officer since March 5, 2001. She has a background in Business Management, Accounting and Credit Management and previously worked for a roofing distributor, A.H. Bennett Company, for ten years in Management. Prior to February 19, 1999, the Board did not have any standing audit, compensation, stock option or nominating committees. On February 19, 1999, the Board established an Audit Committee and a Compensation Committee. The Company has since ceased using its Audit and Compensation Committees. The Company at present does not pay any director's fees. The Company may reimburse its outside directors for expenses actually incurred in attending meetings of the Board. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors, certain officers, and persons who own more than 10% of a registered class of the Company's equity securities to file reports of ownership on Form 3 and changes in ownership on Forms 4 or 5 with the Securities and Exchange Commission (the "SEC"). Such officers, directors and 10% shareholders are also required by the SEC's rules to furnish the Company with copies of all Section 16(a) reports filed by them. Specific due dates for such reports have been established by the SEC and the Company is required to disclose in this Proxy Statement any failure to file such reports. Based solely on its review of the copies of such reports received by it or by written representations from certain reporting persons, the Company believes that no Section 16(a) filing requirements applicable to its officers, directors and 10% shareholders were complied with during the year ended December 31, 2000. ITEM 10. EXECUTIVE COMPENSATION. SUMMARY COMPENSATION TABLE The following table provides the cash compensation awarded to or earned by the chief executive officer and any executive officer who earned in excess of $100,000 during the year ended December 31, 2000. No other executive officer of the Company earned salary and bonus in excess of $100,000 during the year ended December 31, 2000. 49 SUMMARY COMPENSATION TABLE Annual Compensation ------------------- Name and Principal Position Year Salary Bonus - --------------------------- ---- ------ ----- Trent Wong, Chief Executive 2000 $167,809 -- Officer (1) 1999 121,000 -- David H. McCaffrey (2) 2000 41,000 -- 1999 103,500 -- 1998 90,000 -- - ----------------------- (1) Mr. Wong served as Chief Executive Officer from November 8, 1999 until January 12, 2001. (2) Mr. McCaffrey served as Chief Executive Officer from January 4, 1995 to November 8, 1999. EMPLOYMENT AGREEMENTS. On November 8, 2000, the Company's Board of Directors approved Wild Cat Management, Inc. to be brought in to assist as an advisor to the Board, and in the following January the Board approved Wild Cat, through its president Mr. Dale Ragan, as CEO of the Company. On December 20, 2000, the Company entered into a Stock Option Agreement with Wild Cat wherein Wild Cat agrees to provide services to fulfill the functions of CEO and/or Chairman of the Board until the earlier of two years or a change in control of the Company (as defined in the Stock Option Agreement). Wild Cat accepted terms of this agreement subject to the following, current board would resign along with the CEO, also subject to an agreement being reached with the series E, F & G preferred that included restructuring their original agreement that would be satisfactory to Wild Cat Management. Wild Cat will receive $1 salary over the term of the agreement. Additionally, as compensation for services rendered since approximately November 1, 2000 and continuing into the future, Wild Cat will accept stock options to purchase common stock at $0.16 per share, in the amount of 500,000 options upon signing, 750,000 on June 20, 2001, and 750,000 options on December 20, 2001. All options are five-year options. The agreement does not confer upon Wild Cat any right with respect to continued employment, nor does it interfere in any way with the right of the Company to terminate such employment at any time. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth information regarding the beneficial ownership of the Company's capital stock, as of December 31, 2000, by (1) each person known to the Company to be the beneficial owner of 5% or more of any class of the Company's voting securities, (2) each of the Company's directors, (3) each of the Company's named executive officers and (4) the directors and executive officers of the Company as a group. Beneficial ownership is determined in accordance with the rules of the SEC, and includes generally the voting and investment power of the securities. Shares of common stock or preferred stock issuable upon exercise or conversion of options, warrants, or other securities currently exercisable or exercisable within 60 days of the date of determination are deemed outstanding for purposes of computing the percentage of shares beneficially owned by the person holding those options, warrants, or other securities, but are not deemed to be outstanding for purposes of computing the percentage for any other person. Each person identified below has sole voting and investment power of all shares of common stock and preferred stock shown as beneficially owned by that person.
Common Stock Beneficially Preferred Stock Beneficially Owned Owned ---------------------------------- ----- Number of Percentage of Number of Percentage of Number of Percentage of Shares of Shares of Series A Shares of Series Shares of Series Name and Address (1) Shares Shares Series A Stock Stock B Stock B Stock - -------------------- ------ ------ -------------- ----- ------- ------- Trent Wong(2) -- -- -- -- -- -- David H. McCaffrey(2) 290,000 2.9 -- -- -- -- John Haugo(2) -- -- -- -- -- -- James Geiser(2) -- -- -- -- -- -- James G. Watson(2) -- -- -- -- -- -- William Howdon(2) -- -- -- -- -- --
50 Liviakis Financial Communications, 628,000 6.2 -- -- -- -- Inc.(3) Assanzon Development Corp.(4) 947,909 9.4 -- -- -- -- Cede & Co. H The Depository 4,517,434 44.9 -- -- -- -- Trust Company(5) Donald Fraser (6) (6) 26,670 41.7 -- -- James Lehr (6) (6) 10,670 16.7 -- -- Donald Hagen (6) (6) 5,335 8.3 -- -- Henry Mlekoday (6) (6) 6,670 10.4 -- -- Douglas Swanson (6) (6) 6,670 10.4 -- -- Aaron Boxer Rev Trust u/a dtd 8/1/89 (6) (6) -- -- 3,446 6.8 Industricorp & Co. FBO 1561000091 (6) (6) -- -- 5,000 9.8 John O. Hanson (6) (6) -- -- 6,150 12.1 Crow 1999 CRUT (6) (6) -- -- 3,385 6.6 Amro International S. A. Ultra Finance(7) 555,197(6) 5.5(6) -- -- -- -- Esquire Trade & Finance Inc. (6) (6) -- -- -- -- Austinvest Anstalt Balzers (6) (6) -- -- Garros Ltd. (6) (6) -- -- Intercoastal Financial Corp. (6) (6) -- -- -- -- Greenfield Capital Partners (6) (6) -- -- -- -- Nash, LLC (6) (6) -- -- -- -- RBB Bank Aktiengeselischaft (6) (6) -- -- -- -- All officers and directors as a group 290,000 2.9 -- -- -- -- (6 persons)
Preferred Stock Beneficially Owned ---------------------------------- Number of Shares of Percentage Number of Percentage of Number of Percentage of Series D of Shares of Shares of Shares of Shares of Shares of Name and Address (1) Stock Series D Series E Stock Series E Stock Series F Stock Series F Stock - -------------------- ----- -------- -------------- -------------- -------------- -------------- Trent Wong (2) -- -- -- -- -- -- David H. McCaffrey (2) -- -- -- -- -- -- John Haugo (2) -- -- -- -- -- -- James Geiser (2) -- -- -- -- -- -- James G. Watson (2) -- -- -- -- -- -- Wiliam Howdon (2) -- -- -- -- -- -- Donald Fraser -- -- -- -- -- -- James Lehr -- -- -- -- -- -- Donald Hagen -- -- -- -- -- -- Henry Mlekoday -- -- -- -- -- -- Douglas Swanson -- -- -- -- -- -- Aaron Boxer Rev Trust -- -- -- -- -- -- u/a dtd 8/1/89 Industricorp & Co. FBO -- -- -- -- -- -- 1561000091 John O. Hanson -- -- -- -- -- -- Crow 1999 CRUT -- -- -- -- -- -- Amro International 200 12.8 -- -- -- -- Esquire Trade & Finance Inc. 444 28.4 -- -- -- -- Austinvest Anstalt Balzers 444 28.4 -- -- -- -- Garros Ltd. 350 22.4 -- -- -- -- Intercoastal Financial Corp. 125 8.0 -- -- -- -- Greenfield Capital -- -- Partners -- -- 100 5.9
51 Nash, LLC -- -- 1,557 91.5 -- -- RBB Bank Aktiengeselischaft -- -- -- -- 2,000 100.0 All officers and directors as a group (6 persons) -- -- -- -- -- --
Preferred Stock Beneficially Owned ---------------------------------- Name and Address (1) Number of Shares of Series G Stock Percentage of Shares of Series G Stock - -------------------- ---------------------------------- -------------------------------------- Trent Wong (2) -- -- David H. McCaffrey (2) -- -- John Haugo (2) -- -- James Geiser (2) -- -- James G. Watson (2) -- -- William Howdon (2) -- -- Donald Fraser -- -- James Lehr -- -- Donald Hagen -- -- Henry Mlekoday -- -- Douglas Swanson -- -- Aaron Boxer Rev Trust u/a dtd 8/1/89 -- -- Industricorp & Co. FBO 1561000091 -- -- John O. Hanson -- -- Crow 1999 CRUT -- -- Amro International -- -- Esquire Trade & Finance Inc. -- -- Austinvest Anstalt Balzers -- -- Garros Ltd. -- -- Intercoastal Financial Corp. -- -- Greenfield Capital Partners -- -- Nash, LLC 600 100.00 RBB Bank Aktiengeselischaft -- -- All officers and directors as a group (6 persons) -- --
- ------------------ * Less than 1%. (1) Unless otherwise indicated, the address of each of the above is c/o 7836 Second Avenue South, Suite 1, Bloomington, Minnesota 55420. (2) Denotes directors and executive officers as of December 31, 2000. (3) The address of Liviakis Financial Communications Inc. is 495 Miller Avenue, 3rd Floor, Mill Valley, California 94941. (4) The address of Assanzon Development Corp. is 3501 Bamboo Grove, 76 Kennedy Road, Midlevels, Hong Kong. (5) The address of Cede & Co. H, The Depository Trust Company, is P.O. Box 20, Bowling Green Station, New York, New York 10274-0020. (6) The Company has reached an agreement with all preferred shareholders under which such shareholders agree that their shares of preferred stock are nonconvertible until such time as the Company holds a shareholder meeting to increase the number of the Company's authorized shares. The Company expects this agreement to be finalized within thirty days of the filing of this annual report on Form 10-KSB. (7) The address of Amro International S.A. Ultra Finance is Grossmuenster Platz #6, Zurich CHB022, Switzerland. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. STOCK OPTION AGREEMENT WITH WILD CAT MANAGEMENT, INC. See "Employment Agreements," above. 52 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) Index of Exhibits. Exhibit Number Description of Exhibit - ------ ---------------------- 2 Agreement and Plan of Merger dated March 5, 1999, among the Company, Global MAINTECH, Inc. ("GMI"), BHT Acquisition, Inc., and Breece Hill Technologies, Inc. (incorporated by reference to the Company's Form 10-KSB for the year ended December 31, 1998). 3.1 Bylaws of the Company, as amended (incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-34894)). 3.2 Third Restated Articles of Incorporation of the Company, as amended (filed herewith). 4.1 Form of Certificate of the Company Series A convertible Preferred Stock (incorporated by reference to the Company's Form 10-KSB for the year ended December 31, 1994 (File No. 0-14692)). 4.2 Form of Certificate of the Company's Common Stock following change of corporate name (incorporated by reference to the Company's Form 10-KSB for the year ended December 31, 1995 (File No. 0-14692)). 4.3 Form of Preferred Stock and Warrant Purchase Agreement, including Registration Rights exhibit thereto, relating to sale of Series B Convertible Preferred Stock and Callable Common Stock Warrants during the fourth quarter of 1998 (incorporated by reference to the Company's Registration Statement on Form SB-2 filed with the SEC on February 17, 1999 (File No. 333-72513)). 4.4 Common Stock and Series B Preferred Stock Purchase Agreement dated as of February 3, 2000 by and among the Company, GMI, Tandberg Date ASA, Hambrecht & Quist Guaranty Finance LLC, Greyrock Capital, and Cruttenden Roth (incorporated by reference to the Company's Definitive Proxy Statement on Schedule 14A filed with the SEC on March 15, 2000). 4.5 Form of Certificate of the Company's Series B Convertible Preferred Stock (incorporated by reference to the Company's Registration Statement on Form SB-2 filed with the SEC on February 17, 1999 (File No. 333-72513)). 4.6 Form of Series D Convertible Preferred Stock Purchase Agreement, including Registration Rights Agreement and Common Stock Purchase Warrant attached as exhibits thereto (incorporated by reference to Exhibit 4.10 to the Company's Registration Statement on Form SB-2 filed with the SEC on March 3, 2000 (File No. 333-31736)). 4.7 Form of Certificate of the Company's Series D Convertible Preferred Stock (incorporated by reference to Exhibit 4.11 to the Company's Registration Statement on Form SB-2 filed with the SEC on March 3, 2000 (File No. 333-31736)). 4.8 Form of Securities Purchase Agreement for Series E Convertible Preferred Stock, including Registration Rights Agreement and Common Stock Purchase Warrant attached as exhibits thereto (incorporated by reference to Exhibit 4.12 to the Company's Registration Statement on Form SB-2 filed with the SEC on March 3, 2000 (File No. 333-31736)). 53 4.9 Form of Certificate of the Company's Series E Convertible Preferred Stock (incorporated by reference to Exhibit 4.13 to the Company's Registration Statement on Form SB-2 filed with the SEC on March 3, 2000 (File No. 333-31736)). 4.10 Form of Securities Purchase Agreement for Series F Convertible Preferred Stock, including Registration Rights Agreement and Common Stock Purchase Agreement (incorporated by reference to the Company's Form 10-KSB for the year ended December 31, 1999). 4.11 Form of Certificate of the Company's Series F Convertible Preferred Stock (incorporated by reference to Exhibit 4.16 to the Company's Registration Statement on Form SB-2 filed with the SEC on March 3, 2000 (File No. 333-31736)). 4.12 Form of Securities Purchase Agreement for Series G Convertible Preferred Stock, including Registration Rights Agreement and Common Stock Purchase Agreement (filed herewith). 4.13 Form of Certificate of the Company's Series G convertible Preferred Stock (filed herewith). 10.1 Global MAINTECH Corporation 1989 Stock Option Plan (incorporated by reference to Exhibit 28 to the Company's Registration Statement on Form S-8 (File No. 33-33576)).* 10.2 Amendments No. 1 and 2, dated October 17, 1991 and April 24, 1992, respectively, to the Company's 1989 Stock Option Plan (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended March 31, 1992 (File No. 0-14692)).* 10.3 Amendment No. 3, dated May 15, 1995, to the Company's 1989 Stock Option Plan (incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995 (File No. 0-14692)).* 10.4 License and Asset Purchase Agreement between IGI and the Company dated February 27, 1998 (incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997). 10.5 Asset Purchase Agreement, dated November 1, 1998, by and among GMI, the Company, SinglePoint Systems, Inc. and Enterprise Solutions, Inc. (incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 23, 1998). 10.6 Sublease Agreement, dated April 18, 2001, by and between Global MAINTECH Corporation and Minnesota News Service, Inc. (filed herewith). 10.7 Extension of Lease, dated July 23, 1999, by and between Pleasant Hill Industrial Park Associates and Lavenir Technology, Inc. (filed herewith). 10.8 Separation Agreement and General Release, dated August 4, 2000, by and between the Company and James Geiser (incorporated by reference to the Company's Registration Statement on Form SB-2 filed with the SEC on March 3, 2000 (File No. 333-31736)).* 10.9 Rescission and Settlement Agreement, dated December 20, 2000, by and among Singlepoint Systems Corporation (now Global MAINTECH Corporation), Global MAINTECH, Inc. (formerly a wholly-owned subsidiary of Singlepoint Systems Corporation), Singlepoint Systems, Inc. (a wholly-owned subsidiary of Global MAINTECH, Inc.), Enterprise Solutions Inc., Stewart Trent Wong, and Desi Dos Santos (filed herewith). 10.10 Stock Option Agreement with Wild Cat Management, Inc. (through its President Dale Ragan), dated December 20, 2000 (filed herewith). 54 10.11 Stock Option Agreement with William Erhart dated December 20, 2000 (filed herewith). 16 Consent of KPMG LLP (incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on November 9, 2000). 21 Subsidiaries of the Company (incorporated by reference to the Company's Registration Statement on Form SB-2 filed with the SEC on March 3, 2000 (File No. 333-31736)). 23 Consent of Feldman, Sherb and Company, P.C. (filed herewith). 99 Cautionary Statement (filed herewith). - ----------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-KSB pursuant to Item 13(a) of this Report. (b) Reports on Form 8-K A Current Report on Form 8-K was filed on November 9, 2000, reporting the following items: Item 4. Change in Registrant's Certifying Accountant. The resignation of KPMG LLP as principal accountants for the Company, effective November 2, 2000, was reported. Item 5. Other Events. The resignation of Dorsey & Whitney LLP as the principal legal counsel for the Company, as of November 2, 2000, was reported. The resignation of Charles A. Smart as Chief Financial Officer, Treasurer and Secretary was reported. The delay of both the filing of the Company's Quarterly Report on Form 10-QSB, originally scheduled for November 14, 2000, and its Annual Meeting, originally scheduled for November 27, 2000, was reported. Item 7. Financial Statements. A letter from KPMG LLP to the SEC dated November 9, 2000 announcing its resignation as principal accountants for the Company was provided as an exhibit. 55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Global MAINTECH Corporation Dated: June __, 2001 By ------------------------------------- Dale Ragan Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Chief Executive Officer (PRINCIPAL June _, 2001 - -------------------------- EXECUTIVE OFFICER) Dale Ragan Chief Accounting Officer June _, 2001 - -------------------------- (PRINCIPAL FINANCIAL OFFICER AND Sue Korsgarden PRINCIPAL ACCOUNTING OFFICER) /s/ William A. Erhart Director June 5, 2001 - -------------------------- William A. Erhart 56 INDEX TO EXHIBITS Description of Exhibit Exhibit Number - ---------------------- -------------- Third Restated Articles of Incorporation of the Company, 3.2 as amended. Form of Securities Purchase Agreement for Series G Convertible 4.12 Preferred Stock, including Registration Rights Agreement and Common Stock Purchase Agreement. Form of Certificate of the Company's Series G convertible 4.13 Preferred Stock. Sublease Agreement, dated April 18, 2001, by and between 10.6 Global MAINTECH Corporation and Minnesota News Service, Inc. Extension of Lease, dated July 23, 1999, by and between 10.7 Pleasant Hill Industrial Park Associates and Lavenir Technology, Inc. Rescission and Settlement Agreement, dated December 20, 2000, 10.9 by and among Singlepoint Systems Corporation (now Global MAINTECH Corporation), Global MAINTECH, Inc. (formerly a wholly-owned subsidiary of Singlepoint Systems Corporation), Singlepoint Systems, Inc. (a wholly-owned subsidiary of Global MAINTECH, Inc.), Enterprise Solutions Inc., Stewart Trent Wong, and Desi Dos Santos. Stock Option Agreement with Wild Cat Management, Inc. (through 10.10 its President Dale Ragan), dated December 20, 2000 Stock Option Agreement with William Erhart dated December 10.11 20, 2000 Consent of Feldman, Sherb and Company, P.C. 23 Cautionary Statement 99 57 EX-3 2 global011838_ex3-2.txt EXHIBIT 3.2 RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.2 ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION OF GLOBAL MAINTECH CORPORATION I, the undersigned, James Geiser, Chief Financial Officer and Secretary of Global MAINTECH Corporation, Inc. (the "Corporation") organized under and pursuant to the provisions of Minnesota Statutes, Chapter 302A, hereby certify that the Board of Directors of the Corporation on August 6, 1999 duly approved a reverse split in the capital stock of the Corporation, with such reverse split to be effective upon the filing of these Articles of Amendment, and duly approved the Third Restated Articles of Incorporation of the Corporation as follows: THIRD RESTATED ARTICLES OF INCORPORATION OF GLOBAL MAINTECH CORPORATION Article 1. Name The name of the corporation is Global MAINTECH Corporation. Article 2. Registered Office The address of the registered office of the corporation is 7578 Market Place Drive, Eden Prairie, MN 55344. Article 3. Authorized Shares 3.1 Designation and Number. The aggregate number of authorized shares of the corporation is 10,711,724 shares, no par value, of which 887,980 shares shall be designated Series A Convertible Preferred Stock (the "SERIES A PREFERRED STOCK"), 123,077 shall be designated Series B Convertible Cumulative Preferred Stock (the "SERIES B PREFERRED STOCK"), 1,675 shall be designated as Series C Convertible Preferred Stock (the "SERIES C PREFERRED STOCK"), and 9,698,992 shares shall be divisible into such classes and series, have such designations, voting rights, and other rights and preferences and be subject to such restriction as the Board of Directors of the corporation may from time to time establish, fix and determine consistent with the provisions hereof. Unless otherwise designated in these Third Restated Articles by the Board of Directors, all issued shares shall be deemed "Common Stock" (as defined in Section 3.4(d)) with equal rights and preferences. The rights, preferences, privileges and restrictions granted to and imposed upon the Common Stock, the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock are set forth in this Article 3. 3.2 Dividend Provisions. (a) Dividends shall be payable on the Series A Preferred Stock out of funds legally available for the declaration of dividends only if and when declared by the Board of Directors. No dividend shall be paid or declared, nor shall any distribution be made, on the Common Stock, unless holders of the Series A Preferred Stock shall participate in such dividend on a pro rata basis with the holders of Common Stock, counting shares of Series A Preferred Stock on an as-if-converted basis. (b) Upon issuance, dividends shall accrue on each share of outstanding Series B Preferred Stock at an annual rate equal to $2.60 per share per annum (8% of the Series B Original Issue Price, as defined below). Such dividends shall be cumulative and shall be payable upon any conversion of the Series B Preferred Stock pursuant to Section 3.4 below. Such dividends shall be payable by the corporation, in its sole discretion, either entirely in cash out of legally available funds of the corporation or entirely in shares of unrestricted, freely tradable Common Stock; PROVIDED, HOWEVER, that prior to the payment of any such dividend in shares of Common Stock, the corporation shall deliver to the holders of the Series B Preferred Stock an opinion of counsel stating that all such shares have been validly registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), so as to be freely tradable, and that such shares are duly authorized, validly issued and nonassessable. For the purposes hereof, the number of shares of Common Stock issuable in lieu of any cash dividend payment shall equal the total dividend payment then due divided by the average closing bid price for one share of Common Stock as quoted on the Nasdaq Stock Market (or, if not so quoted on the Nasdaq Stock Market, as quoted in the over-the-counter market) for the ten consecutive trading days prior to the payment of such dividend. Dividends on shares of the Series B Preferred Stock shall accrue beginning on the date of issuance of the shares of Series B Preferred Stock, shall compound on an annual basis and shall be payable upon conversion of the Series B Preferred Stock. All accrued and unpaid dividends on the Series B Preferred Stock must be paid before any dividends may be declared or paid on any other junior series of Preferred or Common Stock issued by the corporation. (c) The holders of shares of Series C Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, subject to the prior declaration or payment of any dividend to which the holders of Series A Preferred Stock and Series B Preferred Stock are entitled, prior to, and in preference to, any declaration or payment of any dividend on the Common Stock, at a per share rate equal to eight percent (8%) per annum of the amount of the stated value of the Series C Preferred Stock (the "SERIES C STATED VALUE"), which Series C Stated Value shall initially be $1,000, and which dividends shall be payable upon conversion (based upon a 365 calendar day year) as set forth below. Dividends shall begin to accrue as of the date on which the Series C Preferred Stock were issued (the "SERIES C ISSUANCE DATE"). Any dividends payable pursuant to the provisions of this paragraph shall, at the corporation's -2- option, be payable in cash or in unrestricted shares of Common Stock within five Business Days (as defined below) of when due. The number of shares of Common Stock issuable per share of Series C Preferred Stock in lieu of any cash dividend payment shall equal the dollar amount of dividends owed per share of Series C Preferred Stock divided by the Series C Conversion Price (as defined below) on the date that the dividends are payable (if such date is not a Trading Day, then the next Trading Day (as defined below) immediately thereafter). Such dividends shall accrue from day to day whether or not earned or declared. Such dividends shall be cumulative so that if such dividends in respect of any previous or current annual dividend period, computed at the annual rate specified above, shall not have been paid or declared and a sum sufficient for the payment thereof set apart for all Series C Preferred Stock at the time outstanding, the deficiency shall first be fully paid before any dividend or other distribution shall be paid on or declared or set apart for the Series C Preferred Stock, Common Stock or other security of the corporation subordinate in liquidation to the Series C Preferred Stock. Holders of the Series C Preferred Stock shall not be entitled to participate in any other dividends beyond the cumulative dividends specified herein. 3.3 Liquidation Preference. In the event of any liquidation, dissolution or winding up of the corporation, either voluntary or involuntary: (a) the holders of Series A Preferred Stock then outstanding shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the corporation to the holders of the Common Stock by reasons of their ownership thereof, an amount equal to $.375 per share, subject to adjustment in the event of any stock dividend, split, distribution or combination with respect to the Series A Preferred Stock. If upon the occurrence of such event, the assets and funds of the corporation available for distribution to its stockholders shall be insufficient to pay the holders of the Series A Preferred Stock the full amounts to which they shall be entitled, the holders of the Series A Preferred Stock shall share ratably in any distribution of assets and funds of the corporation legally available for distribution to such holders in proportion to the amounts to which they would otherwise be entitled. (b) subject to the prior liquidation preference of the holders of the Series A Preferred Stock, the Series B 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 sum of (i) $32.50, as adjusted pursuant to Section 3.5(c) hereof (the "SERIES B ORIGINAL ISSUE PRICE"), and (ii) an amount equal to cumulative unpaid dividends on such shares (such sum referred to as a "LIQUIDATION AMOUNT"). If upon the occurrence of such an event, the assets and funds of the corporation available for distribution to the holders of the Series B Preferred Stock shall be insufficient to pay to such holders the full amounts to which they shall be entitled, the holders of the Series B Preferred Stock shall share ratably in any distribution of assets and funds of the corporation legally available for distribution to such holders in proportion to the amounts to which they would otherwise be entitled. -3- (c) subject to the prior liquidation preference of the holders of Series A Preferred Stock and Series B Preferred Stock and prior and in preference to any distribution of any assets of the corporation to the holders of Common Stock, holders of each share of Series C Preferred Stock shall be entitled to receive out of the assets available for distribution to such holders the Series C Stated Value (as defined below) per share of Series C Preferred Stock held plus eight percent (8%) per annum thereon from the Series C Issuance Date to the Trading Day (as defined below) immediately prior to such liquidation, dissolution or winding up of the corporation (the "LIQUIDATION AMOUNT"). Upon completion of any required distribution to the holders of the Series A Preferred Stock and Series B Preferred Stock, if the assets of the corporation available for distribution to the holders of the Series C Preferred Stock shall be insufficient to pay such holders the full amounts to which they shall be entitled, the holders of the Series C Preferred Stock shall share ratably in any distribution of assets and funds of the corporation legally available for distribution to such holders in proportion to the amounts to which they would otherwise be entitled. After payment of the Liquidation Amount shall have been made in full to the holders of the Series C Preferred Stock or funds necessary for such payment shall have been set aside by the corporation in trust for the account of holders of the Series C Preferred Stock so as to be available for such payments, the holders of the Series C Preferred Stock shall be entitled to no further participation in the distribution of the assets of the corporation. Upon completion of the distribution required by subparagraphs (a), (b) and (c) of this Section 3.3, if assets remain in the corporation, such remaining assets shall be distributed ratably among the holders of the Common Stock, Series A Preferred Stock and the Series B Preferred Stock in proportion to the number of shares of Common Stock held by each (assuming full conversion of all shares of Series A Preferred Stock and Series B Preferred Stock). (d) (1) For purposes of this Section 3.3, a liquidation, dissolution or winding up of the corporation shall be deemed to be occasioned by, or to include, (A) the acquisition of the corporation by another entity by means of any transaction or series of related transactions (including any reorganization, merger or consolidation but excluding any merger effected exclusively for the purpose of changing the domicile of the corporation); or (B) a sale of all or substantially all of the assets of the corporation, unless the corporation's shareholders as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the corporation's acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving or acquiring entity. (2) In any of such events, if the consideration received by the corporation is other than cash, its value will be deemed its fair market value. (3) In the event the requirements of this Section 3.3 are not complied with, the corporation shall forthwith either: (A) cause such closing to be postponed until such time as the requirements of this Section 3.3 have been complied with, or -4- (B) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock (the "PREFERRED STOCK") shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 3.3(d)(4) hereof. (4) The corporation shall give each holder of record of Preferred Stock written notice of such impending transaction not later than 30 days prior to the shareholders' meeting called to approve such transaction, or 30 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; PROVIDED, HOWEVER, that the holder of any shares of then outstanding Preferred Stock shall have the right during such applicable period to convert such shares pursuant to Section 3.3 hereof. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 3.3, and the corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than: (A) 30 days (20 days in the case of the holders of Series B Preferred Stock) after the corporation has given the first notice provided for herein; or (B) ten 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 the Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then-outstanding shares of Preferred Stock, each voting separately as a series. 3.4 Conversion. (a) Conversion of Series A Preferred Stock. Each share of Series A Preferred Stock shall be convertible at the option of the holder thereof at any time into the number of shares of Common Stock of the corporation equal to the number obtained by dividing $.375 by the conversion price computed as hereinafter set forth (the "SERIES A CONVERSION PRICE") in effect for such Series A Preferred Stock at the time of conversion. The Series A Conversion Price shall be $1.875, subject to adjustment from time to time as hereinafter provided. In order to exercise the conversion privilege, a holder of Series A Preferred Stock shall surrender the certificate to the corporation at its principal office, accompanied by written notice to the corporation that the holder elects to convert a specified portion or all of such shares. Series A Preferred Stock shall be deemed to have been converted on the day of surrender of the certificate representing such shares for conversion in accordance with the foregoing provisions, and at such time the rights of such holder of such shares of Series A Preferred Stock, as such holder, shall cease and such holder shall be treated for all purposes as the record holder of the Common Stock issuable upon conversion. As promptly as practicable on or after the conversion date, certificates representing the number of shares of Common Stock issuable upon conversion, rounded to the nearest full share, and a certificate or certificates for the balance of the Series A Preferred Stock surrendered, if any, not so converted into Common Stock. -5- The Series A Conversion Price is subject to adjustment from time to time as follows: (1) Dividends. In case the corporation shall declare a dividend upon its shares of Common Stock payable otherwise than in cash out of earnings or surplus (including a dividend payable in shares of Common Stock), then thereafter each holder of shares of Series A Preferred Stock upon conversion thereof will be entitled to receive the number of shares of Common Stock into which such Series A Preferred Stock shall be converted and, in addition and without payment thereof, the cash, stock or other securities and other property (including Common Stock) which such holder would have received by way of dividends or distributions (otherwise than out of earnings or surplus) if continuously since the record date for any such dividend or distribution such holder (A) had been the record holder of the number of shares of Common Stock into which such shares of Series A Preferred Stock shall be convertible, and (B) had retained all dividends or distributions in stock or securities payable in respect of such Common Stock or in respect of any stock or securities paid as dividends or distributions and originating directly or indirectly from such Common Stock. (2) Subdivisions and Combinations. In case the corporation shall at any time subdivide or split its outstanding shares of Common Stock into a greater number of shares, the Series A Conversion Price in effect immediately prior to such subdivision or split shall be proportionately reduced, and conversely, in the event that the outstanding shares of Common Stock of the corporation shall be combined into a smaller number of shares, the Series A Conversion Price in effect immediately prior to such combination shall be proportionately increased. (3) Reorganizations. In any capital reorganization or reclassification of the capital stock of the corporation, or consolidation or merger of the corporation with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for shares of Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby the holders of the Series A Preferred Stock shall thereafter have the right to receive, upon the basis and upon the terms and conditions specified in such reorganization, reclassification, consolidation, sale or merger in lieu of the shares of Common Stock of the corporation immediately theretofore receivable upon the conversion of the Series A Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to number of shares of Common Stock immediately theretofore receivable upon the conversion of the Series A Preferred Stock had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the holders of the Series A Preferred Stock to the end that the provisions hereof (including without limitation provisions for adjustments of the Series A Conversion Price and of the number of shares receivable upon the conversion of the Series A Preferred Stock) shall -6- thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter receivable upon the conversion of the Series A Preferred Stock. The corporation shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof the surviving corporation (if other than this corporation), the corporation resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument executed and mailed to the registered holders of the Series A Preferred Stock at the last address of such holders appearing on the books of the corporation the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holders may be entitled to receive. (b) Conversion of Series B Preferred Stock. At the option of the holder thereof, each share of Series B Preferred Stock shall be convertible at any time during the period commencing on the day on which the resale of the Common Stock underlying the Series B Preferred Stock (the "SERIES B CONVERSION STOCK") is registered under the Securities Act and expiring on September 23, 2001; PROVIDED, HOWEVER, that if upon such expiration date the Series B Conversion Stock is not subject to an effective Registration Statement under the Securities Act, such expiration date shall be extended until 30 days after the Series B Conversion Stock is subject to an effective registration statement under the Securities Act (the "EXTENSION PERIOD"). Each share of Series B Preferred Stock shall be convertible at the office of the corporation or any transfer agent for such stock into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series B Original Issue Price by the Series B Conversion Price in effect on the date the certificate representing such share is surrendered for conversion (the "SERIES B CONVERSION DATE"). The Series B Conversion Price shall equal the average closing bid price of one share of Common Stock as quoted by the Nasdaq SmallCap Market, the Nasdaq National Market or the principal exchange upon which shares of Common Stock may be listed, or, if the Common Stock shall not then be quoted on the Nasdaq SmallCap Market or the Nasdaq National Market or listed on a national securities exchange, but shall otherwise be traded in the over-the-counter market, on such over-the-counter market, for the 20 consecutive trading days prior to the Series B Conversion Date (the "TRADING PERIOD") multiplied by .8 (the "SERIES B CONVERSION PRICE"); PROVIDED, HOWEVER, that in no event shall the Series B Conversion Price exceed $12.50 per share or be less than $3.75 (the "MAXIMUM PRICE" and "MINIMUM PRICE," respectively) per share; AND PROVIDED, FURTHER, that appropriate adjustments shall be made in determining the average closing bid price if a recapitalization or other event affecting the Common Stock shall occur during the Trading Period. (1) Dividend Payment. Should the corporation, pursuant to Section 3.2 hereof, not elect to pay all outstanding, cumulative, accrued and unpaid dividends on the Series B Preferred Stock in shares of its Common Stock, the corporation shall pay, in immediately available funds, to the holder of any shares of Series B Preferred Stock being converted, all such dividends within five business days of the date that it receives notice of such holder's intent to convert such shares pursuant to subsection 3.4(b)(3) below. Separately, should the corporation elect to pay all outstanding, cumulative, accrued and unpaid dividends on the Series B Preferred Stock in shares of its Common Stock, it shall, within five business days of -7- receiving a notice of intent to convert from a holder of Series B Preferred Stock, deliver certificates representing such shares to such holder. (2) Automatic Conversion. Any shares of Series B Preferred Stock remaining outstanding on the later of September 23, 2001 or the expiration of any Extension Period shall be automatically converted as of such date pursuant to the conversion terms of this Section 3.4(b). In any event, the corporation shall, within five business days after automatic conversion of the Series B Preferred Stock, issue and deliver a certificate or certificates for the number of shares of Common Stock to which each former holder of Series B Preferred Stock is entitled. Notwithstanding the foregoing, no automatic conversion of the Series B Preferred Stock shall occur pursuant to this Section 3.4 unless (A) all shares of Common Stock underlying the Series B Preferred Stock may be sold pursuant to an effective registration statement under the Securities Act, (B) the Common Stock is listed and trading on The Nasdaq Stock Market, and (C) the corporation has reserved and available for issuance a number of shares of Common Stock sufficient to cover conversion of all outstanding shares of Series B Preferred Stock. (3) Mechanics of Conversion. Before any holder of Series B Preferred Stock shall be entitled to convert the same into shares of Common Stock, he, she or it shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for the Series B Preferred Stock, and shall give written notice, via facsimile, to the corporation, at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The corporation shall, immediately thereafter (and in any event no more than five business days thereafter), issue and deliver to such holder of Series B Preferred Stock at the address shown on the corporation's records or at such other address as such holder may designate by written notice to the corporation, 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 pursuant to Section 3.4(b) and a certificate representing any shares of Series B Preferred Stock not so converted. Such conversion shall be deemed to have been made immediately prior to the close of business on the Series B Conversion Date, 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. (4) Mechanics of Automatic Conversion. On the Series B Conversion Date with respect to the automatic conversion pursuant to subsection 3.4(b)(2) above, the certificates representing shares of Series B Preferred Stock shall immediately represent that number of shares of Common Stock into which such shares are convertible. Holders of Series B Preferred Stock shall deliver their certificates, duly endorsed in blank, to the principal office of the corporation, together with a notice setting out the name or names (with addresses) and denominations in which the certificates representing such shares of Common Stock issuable upon conversion are to be issued and including instructions for delivery thereof. The person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock at and on the Series B -8- Conversion Date, and the rights of such person as a holder of shares of Series B Preferred Stock shall cease and terminate at and on the Series B Conversion Date, without regard to any failure by such holder to deliver the certificates or the notice required by this subsection 3.4(b)(4). On the Series B Conversion Date with respect to automatic conversion, the corporation shall pay all outstanding, cumulative, accrued and unpaid dividends, either by the issuance of shares of its Common Stock or in cash, pursuant to the provisions set forth in 3.2(b)(1) above; PROVIDED, HOWEVER, that should the corporation elect to pay such dividends by the issuance of additional shares of its Common Stock, the person entitled to receive such shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such additional shares on the Series B Conversion Date. (c) Conversion of Series C Preferred Stock. Each holder of Series C Preferred Stock shall have the right, at such holder's option, to convert the Series C Preferred Stock into shares of Common Stock, on the following terms and conditions: (1) Subject to the provisions of Section 3.4(c)(11) hereof, at any time or times, upon the earlier to occur of (A) the 61st calendar day after the Series C Issuance Date, or (B) the Effective Date (as defined below), any holder of the Series C Preferred Stock shall be entitled to convert any whole number of such holder's shares of Series C Preferred Stock into that number of fully paid and nonassessable shares of Common Stock equal to the number of shares of Series C Preferred Stock being converted multiplied by $1,000 and divided by the Series C Conversion Price (as defined below). (2) For purposes of this Section 3.4(c), the following terms shall have the following meanings: A "BUSINESS DAY" shall be any day other than a Saturday, Sunday, national holiday or a day on which the New York Stock Exchange is closed. The "CLOSING BID PRICE" shall mean, for any security as of any date, the last closing bid price for such security on the Nasdaq Stock Market as reported by Bloomberg L.P. ("BLOOMBERG"), or, if the Nasdaq Stock Market is not the principal trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price of such security in the over-the-counter market on the NASD OTC Electronic Bulletin Board for such security as reported by Bloomberg, or, the last closing trade price of such security as reported by Bloomberg, or, if no last closing bid or trade price is reported for such security by Bloomberg, the closing bid price shall be determined by reference to the closing bid price as reported on the Principal Market. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually agreed by the corporation and the holders of two thirds of the outstanding shares of Series C Preferred Stock. -9- The "SERIES C CONVERSION PRICE" shall mean, as of any Conversion Date (as defined below) the lesser of (A) $2.50 or (B) 80% of the average of the three Trading Days, during the hours of 9:30 a.m. and 4:00 p.m. Eastern Time, that have the lowest volume weighted average prices of the Common Stock during the 15 Trading Days (the "LOOKBACK PERIOD") immediately preceding the Conversion Date (hereinafter referred to as the "CURRENT PRICE") as reported by Bloomberg using the "AQR" function. On the last Trading Day of each month, starting on the first day of the fourth calendar month immediately following the Series C Issuance Date, the Lookback Period will be increased by two Trading Days until the Lookback Period equals a maximum of 30 Trading Days. "EFFECTIVE DATE" shall mean the date on which the Securities and Exchange Commission (the "SEC") first declares effective a Registration Statement registering the resale of 200% of the number of shares of Common Stock issuable upon conversion of all of the Series C Preferred Stock outstanding on the Trading Day immediately preceding the day such Registration Statement is filed. A "TRADING DAY" shall mean a day on which the Principal Market is open. The "PRINCIPAL MARKET" shall mean the Nasdaq National Market, the Nasdaq Small Cap Stock Market, the American Stock Exchange, the NASD OTC Electronic Bulletin Board operated by the National Association of Securities Dealers, Inc., or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock. (3) Holders of Series C Preferred Stock may exercise their right to convert the Series C Preferred Stock by telecopying an executed and completed notice of conversion in the agreed upon form (the "NOTICE OF CONVERSION") to the corporation and delivering to corporation the original Notice of Conversion and the certificate representing the Series C Preferred Stock being converted by reputable overnight courier. Each Business Day (between the hours of 7:00 a.m. and 4:00 p.m. Pacific Time) on which a Notice of Conversion is telecopied to and received by the corporation shall be deemed a "CONVERSION DATE." The corporation shall, at its expense, deliver the certificates representing shares of Common Stock issuable upon conversion of any share of Series C Preferred Stock (together with the certificates representing any shares of Series C Preferred Stock not so converted) to the holder thereof via reputable overnight courier, by electronic transfer or otherwise within three Business Days after the Conversion Date; PROVIDED the corporation has received the original Notice of Conversion and Series C Preferred Stock certificate being so converted on or before the close of business of the third Business Day after the Conversion Date. In addition to any other remedies which may be available to the holders of shares of Series C Preferred Stock, in the event that the corporation fails to deliver such shares of Common Stock within such three Business Day period, the holder will be entitled to revoke the relevant Notice of Conversion by delivering a notice (by similar method) to such effect to the corporation whereupon the corporation and such holder shall each be restored to their respective positions immediately prior to delivery of such Notice of -10- Conversion. The Notice of Conversion and Series C Preferred Stock certificates representing the portion of the Series C Preferred Stock converted shall be delivered as follows: To the corporation: Global MAINTECH Corporation 7578 Market Place Drive Eden Prairie, MN 55344 Attention: CEO Telephone: (612) 944-0400 Facsimile: (612) 944-3311 with a copy to: Ken Cutler Dorsey & Whitney LLP Pillsbury Center South 220 South Sixth Street Minneapolis, Minnesota 55402-1498 Telephone: (612) 343-2194 Facsimile: (612) 340-2868 In the event that shares representing the Common Stock issuable upon conversion of the Series C Preferred Stock (the "SERIES C CONVERSION STOCK") are not delivered by the corporation within three Business Days after the Conversion Date, in addition to all other available remedies which such holder may be entitled, the corporation shall pay to the holders thereof, in immediately available funds, upon demand, as liquidated damages for such failure and not as a penalty, for each $100,000 principal amount of Series C Preferred Stock sought to be converted, $500 for each of the first ten (10) days and $1,000 per day thereafter that the Series C Conversion Shares are not delivered, which liquidated damages shall run from the fourth Business Day after the Conversion Date up until the time that either the Conversion Notice is revoked or the Series C Conversion Shares are delivered, at which time accrual of such liquidated damages shall cease. Any and all payments required pursuant to this paragraph shall be payable only in cash immediately. The payment of these liquidated damages by the corporation shall not relieve the corporation of its obligations under these Third Restated Articles of Incorporation. (4) If the Common Stock issuable upon the conversion of the Series C Preferred Stock shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise, then and in each such event, the holders of Series C Preferred Stock shall have the right thereafter to convert such shares into the kind and amount of shares of stock and other securities and property receivable upon such capital reorganization, reclassification or other change which such holders would have received had their shares of Series C Preferred Stock been converted immediately prior to such capital reorganization, reclassification or other change. (5) If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or -11- exchange of shares provided for elsewhere in this Section) or a merger or consolidation of the corporation with or into another corporation, or the sale of all or substantially all of the corporation's properties and assets to any other person (any of which events is herein referred to as a "REORGANIZATION"), then as a part of such Reorganization, provision shall be made so that the holders of the Series C Preferred Stock shall thereafter be entitled to receive upon conversion of the Series C Preferred Stock the number of shares of stock or other securities or property of the corporation, or of the successor corporation resulting from such Reorganization, to which such holder would have been entitled if such holder had converted its shares of Series C Preferred Stock immediately prior to such Reorganization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section with respect to the rights of the holders of the Series C Preferred Stock after the Reorganization, to the end that the provisions of this Section (including adjustment of the number of shares issuable upon conversion of the Series C Preferred Stock) shall be applicable after that event in as nearly equivalent a manner as may be practicable. (6) Upon the occurrence of each adjustment or readjustment of the Series C Conversion Price as provided herein, 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 C Preferred Stock a certificate executed by the president and chief financial officer (or in the absence of a person designated as the chief financial officer, by the treasurer) setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment are based. The corporation shall, upon written request at any time of any holder of Series C Preferred Stock, furnish or cause to be furnished to such holder a certificate setting forth (A) the Series C Conversion Price at the time in effect, and (B) the number or 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 Series C Preferred Stock. (7) Upon receipt by the corporation of evidence of the loss, theft, destruction or mutilation of any Series C Preferred Stock certificate, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the corporation, and upon cancellation of the Series C Preferred Stock certificate, if mutilated, the corporation shall execute and deliver new certificates for Series C Preferred Stock of like tenure and date. However, the corporation shall not be obligated to reissue such lost or stolen certificates for shares of Series C Preferred Stock if the holder contemporaneously requests the corporation to convert such shares of Series C Preferred Stock into Common Stock. (8) Each share of Series C Preferred Stock outstanding three years from the Series C Issuance Date shall automatically be converted into Common Stock on such date, at the Series C Conversion Price as of such date, and such date shall be deemed the Conversion Date with respect to such shares. (9) The corporation shall pay any and all original issue and/or transfer taxes which may be imposed upon it with respect to the issuance and delivery of Common Stock upon conversion of the Series C Preferred Stock. -12- (10) In the event a holder shall elect to convert any share or shares of Series C Preferred Stock as provided herein, the corporation cannot refuse conversion based on any claim that such holder or anyone associated or affiliated with such holder has been engaged in any violation of law, unless an injunction from a court, restraining and/or enjoining conversion of all or part of said shares of Series C Preferred Stock shall have been issued and the corporation posts a surety bond for the benefit of such holder in the amount of 125% of the Series C Stated Value of the shares and dividends sought to be converted, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such holder in the event it obtains a favorable judgment. (11) For so long as the corporation has not received a Notice of Conversion for such shares, the corporation may, at its option, repurchase, in whole or in part, the Series C Preferred Stock shares at the Redemption Price (as defined below). The Series C Preferred Stock is redeemable as a series, in whole or in part, by the corporation by providing written notice (the "REDEMPTION NOTICE") to the holder of the Series C Preferred Stock via facsimile at his or her address as the same shall appear on the books of the corporation (during any Business Day between the hours of 7:00 a.m. and 4:00 p.m. Pacific Time the Redemption Notice is received by the holders of the Series C Preferred Stock via facsimile is defined to be the "REDEMPTION NOTICE DATE"). Within ten Trading Days after the Redemption Notice Date the corporation shall make payment of the Redemption Price (as defined below) in immediately available funds to the holder for the shares of Series C Preferred Stock which are the subject of the Redemption Notice (such date of payment referred to as the "REDEMPTION DATE"). Partial redemptions shall be in an aggregate principal amount of at least $100,000. If fewer than all of the outstanding shares of Series C Preferred Stock are to be redeemed, the corporation will select those to be redeemed pro-rata amongst the holders of the Series C Preferred Stock based on the number of shares of Series C Preferred Stock then outstanding. The redemption price (the "REDEMPTION PRICE") shall equal the greater of (A) 115% of the Series C Stated Value of the shares which are subject to such Redemption Notice, plus all accrued but unpaid dividends on such shares, or (B) the Economic Benefit (as defined below) of the shares of Series C Preferred Stock which are the subject of such Redemption Notice, subject to proportionate adjustment upon any adjustment of the Series C Conversion Price as provided herein and in the event of any stock dividend, stock split, combination of shares or similar event. "ECONOMIC BENEFIT" shall mean the dollar value derived if the shares of Series C Preferred Stock which were the subject of the Redemption Notice were converted on the Redemption Notice Date and sold on the Redemption Notice Date at the Closing Bid Price of the Common Stock on the Redemption Notice Date. The Notice of Redemption shall set forth (A) the Redemption Date and the place fixed for redemption, (B) the Redemption Price, (C) a statement that dividends on the shares of Series C Preferred Stock to be redeemed will cease to accrue on such Redemption Date, (D) a statement of or reference to the conversion right set forth herein, and (E) confirmation that the corporation has the full Redemption Price reserved as set forth below. If -13- fewer than all the shares of the Series C Preferred Stock owned by such holder are then to be redeemed, the notice shall specify the number of shares thereof that are to be redeemed and, if practicable, the numbers of the certificates representing such shares. Within ten Trading Days of the Notice of Redemption Date, the corporation shall wire transfer the appropriate amount of funds to the holders of the Series C Preferred Stock. If the corporation fails to comply with the redemption provisions set forth herein it shall not be permitted to serve a Redemption Notice for a period of 60 calendar days after the Redemption Notice Date relating to the Redemption Notice with respect to which such failure to comply occurred. For the first five Trading Days after the Notice of Redemption Date the holder of the Series C Preferred Stock will retain his or her right to convert the Series C Preferred Stock. In the event the corporation has not complied with the redemption provisions set forth herein the corporation must comply with the delivery requirements of any then outstanding Conversion Notice as set forth herein. The holders shall send the shares of Series C Preferred Stock being redeemed to the corporation within three Business Days after they have received good funds for the Redemption Price of such shares. Subject to the receipt by the holders of the Series C Preferred Stock being redeemed of the wire transfer of the Redemption Price as described above, each share of Series C Preferred Stock to be redeemed shall be automatically canceled and converted into a right to receive the Redemption Price, and all rights of the Series C Preferred Stock, including the right to conversion shall cease without further action. The corporation shall not be entitled to send any Redemption Notice and begin the redemption procedure hereunder unless it has: (A) the full amount of the Redemption Price in cash, available in a demand or other immediately available account in a bank or similar financial institution, specifically allotted for such redemption; (B) immediately available credit facilities, in the full amount of the Redemption Price with a bank or similar financial institution specifically allotted for such redemption; or (C) a combination of the items set forth in (A) and (B) above, aggregating the full amount of the Redemption Price. (d) General Provisions. (1) Common Stock Defined. As used in this Section 3.4, the term "COMMON STOCK" shall mean and include the corporation's presently authorized common stock and shall also include any capital stock of any class of the corporation hereafter authorized which shall have the right to vote on all matters submitted to the shareholders of the corporation and shall not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution, or winding up of this corporation; PROVIDED that the shares issuable upon -14- conversion of the Preferred Stock shall include shares designated as Common Stock of this corporation as of the date of issuance of such Preferred Stock, or, in case of any reclassification of the outstanding shares thereof, the stock, securities or assets provided for in section 3.4(a)(3) and 3.4(c)(4)above. (2) No Impairment. The corporation will not, by amendment of these Third Restated Articles of Incorporation 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 3.4 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 the Preferred Stock against impairment. (3) No Fractional Shares. No fractional shares shall be issued upon the conversion of any share or shares of the Preferred Stock, and the number of shares of Common Stock to be issued in connection with each conversion shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into shares of Common Stock and the number of shares of such Common Stock issuable upon such aggregate conversion. (4) 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 Preferred Stock, such number of its shares of its Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the 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 the Preferred Stock, in addition to such other remedies as shall be available to the holder of such 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 using its best efforts to obtain the requisite shareholder approval of any necessary amendment to the corporation's articles of incorporation. The corporation shall, so long as any share or shares of the Series C Preferred Stock are outstanding reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series C Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series C Preferred Stock then outstanding; PROVIDED that the number of shares of Common Stock so reserved shall at no time be less than 200% of the number of shares of Common Stock for which the Series C Preferred Stock are at any time convertible and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to maintain such number of shares of Common Stock, the corporation shall take such corporate action as may be necessary to increase its authorized but -15- unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (5) Restrictions and Limitations. Except as expressly provided herein or as required by law, so long as any shares of Series C Preferred Stock remain outstanding, the corporation shall not, without the approval by vote or written consent by the holders of at least two thirds of the then outstanding shares of Series C Preferred Stock, voting as a separate class, take any action that would adversely affect the rights, preferences or privileges of the holders of Series C Preferred Stock. Without limiting the generality of the preceding paragraph, the corporation shall not, so long as any shares of Series C Preferred Stock remain outstanding, amend its Articles of Incorporation without the approval by the holders of all of the then outstanding shares of Series C Preferred Stock if such amendment would: A. create any other class or series of capital stock entitled to seniority as to the payment of dividends in relation to the holders of Series C Preferred Stock; B. reduce the amount payable to the holders of Series C Preferred Stock upon the voluntary or involuntary liquidation, dissolution or winding up of the corporation, or change the relative seniority of the liquidation preferences of the holders of Series C Preferred Stock to the rights upon liquidation of the holders of other capital stock of the corporation, C. cancel or modify the conversion rights of the holders of Series C Preferred Stock provided for in Section 3.4 hereof; or D. cancel or modify the rights of the holders of the Series C Preferred Stock provided for in this Section 3. (6) No Reissuance of Series C Preferred Stock. No share or shares of Series C Preferred Stock acquired by the corporation by reason of purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the corporation shall be authorized to issue. The corporation may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of the Series C Preferred Stock accordingly. (7) 4.99% Limitation. The number of shares of Common Stock which may be acquired by any holder pursuant to the terms herein shall not exceed the number of such shares which, when aggregated with all other shares of Common Stock then owned by such holder, would result in such holder owning more than 4.99% of the then issued and outstanding Common Stock at any one time. The preceding shall not interfere with any holder's right to convert any share or shares of Series C Preferred Stock over time which in the aggregate totals more than 4.99% of the then outstanding shares of Common Stock so long as such holder does -16- not own more than 4.99% of the then outstanding Common Stock at any given time. The foregoing limitation shall not apply to any automatic conversion pursuant to Section 3.4(c)(8). 3.5 Anti-Dilution Provisions. (a) If at any time the corporation shall subdivide its outstanding shares of Common Stock into a greater number of shares, the Series B Original Issue Price, the Maximum Price and the Minimum Price in effect immediately prior to such subdivision shall be proportionately reduced, and the corporation shall subdivide the Series B Preferred Stock in the same proportion. In case at any time the outstanding shares of Common Stock shall be combined into a smaller number of shares, the Series B Original Issue Price, the Maximum Price and the Minimum Price in effect immediately prior to such combination shall be proportionately increased, and the corporation shall combine the Series B Preferred Stock in the same proportion. Any adjustment under this paragraph 3.5(a) shall become effective at the close of business on the date the subdivision or combination shall become effective. 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 Series B Preferred Stock to such number of shares as shall be sufficient for any such purposes, including using its best efforts to obtain the requisite shareholder approval of any necessary amendment to the corporation's articles of incorporation. (b) The corporation shall provide the holders of Series B Preferred Stock with at least ten days prior written notice of any capital reorganization or reclassification of the capital stock of the corporation, or consolidation or merger of the corporation with another corporation, or the sale of all or substantially all of the corporation's assets to another corporation. Further, if any of the foregoing events shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby the holders of Series B Preferred Stock shall thereafter have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the corporation immediately theretofore receivable upon the conversion of shares of Series B Preferred Stock, such stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore receivable upon the conversion of shares of Series B Preferred Stock had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of the holders of Series B Preferred Stock to the end that the provisions hereof (including provisions for adjustments of the Series B Conversion Price and of the number of shares of Common Stock issuable upon the conversion) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the conversion of such Series B Preferred Stock. The corporation shall not effect any such reorganization, reclassification, consolidation, merger or sale unless prior to the consummation thereof the successor corporation (if other than the corporation) resulting from such consolidation or merger, or the corporation purchasing such assets, shall assume by operation of law or written instrument, the obligation to -17- deliver to such holders of Series B Preferred Stock such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holders of Series B Preferred Stock may be entitled to receive. Notice of such assumption shall be promptly mailed to the registered holders of Series B Preferred Stock hereof at the last address of such holder appearing on the books of the corporation. (c) Upon any adjustment of the Series B Original Issue Price, the Maximum Price or the Minimum Price, then, and in each such case, the corporation shall give written notice thereof, by first class mail, postage prepaid, addressed to each registered holder of Series B Preferred Stock at the address of such holder as shown on the books of the corporation, which notice shall state the Series B Original Issue Price, the Maximum Price or the Minimum Price resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (d) If any event occurs as to which in the good faith determination of the Board of Directors of the corporation the other provisions of this Section 3.5 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the holders of Series B Preferred Stock in accordance with the essential intent and principles of such provisions, then the Board of Directors shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid. (e) The corporation shall not, by amendment of its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of these Third Restated Articles of Incorporation, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the holders of the Series C Preferred Stock against dilution or other impairment. Without limiting the generality of the foregoing, the corporation (1) shall not establish a par value of any shares of stock issuable upon conversion of the Series C Preferred Stock above the amount payable therefor on such conversion, (2) shall take all such action as may be necessary or appropriate in order that the corporation may validly and legally issue fully paid and nonassessable shares of stock on the conversion of all Series C Preferred Stock from time to time outstanding, and (3) shall not consolidate with or merge into any other person or entity, or permit any such person or entity to consolidate with or merge into the corporation (if the corporation is not the surviving person), unless such other person or entity shall expressly assume in writing and will be bound by all of the terms of the Series C Preferred Stock set forth herein. 3.6 Voting Rights of Preferred Stock. The holder of each share of Preferred Stock shall have the right to vote on all matters submitted to the corporation's shareholders a number of votes equal to the number of shares of Common Stock into which such holder's shares of Preferred Stock shall then be convertible (assuming a conversion as of the record date set for the -18- vote); PROVIDED, HOWEVER, that holders of Series C Preferred Stock shall have no voting rights except as expressly required by law or as expressly provided herein. 3.7 Special Voting Rights for Series A Preferred Stock. Without the affirmative vote or consent of holders of at least a majority of the Series A Preferred Stock at the time outstanding, voting separately as a class, the corporation shall not: (a) Authorize or issue any (1) additional Series A Preferred Stock or (2) shares of stock having priority over the Series A Preferred Stock or ranking on a parity therewith as to the payment of dividends or as to the payment or distribution of assets upon the liquidation or dissolution, voluntary or involuntary, of the corporation; or (b) Declare or pay any dividend or make any other distribution on any shares of capital stock of the corporation at any time created and issued ranking junior to the Series A Preferred Stock with respect to the right to receive dividends and the right to the distribution of assets upon liquidation, dissolution or winding up of the corporation (the "JUNIOR STOCK"), other than dividends or distributions payable solely in shares of Junior Stock, or purchase, redeem or otherwise acquire for any consideration (other than in exchange for or out of the net cash proceeds of the contemporaneous issue or sale of other shares of Junior Stock) or set aside as a sinking fund for the redemption or repurchase of any shares of Junior Stock; or (c) Amend the articles of incorporation of the corporation so as to adversely affect any of the rights, preferences or privileges of the holders of Series A Preferred Stock. 3.8 Status of Converted Stock. In the event any shares of Preferred Stock shall be converted pursuant to Section 3.4 hereof, the shares of Preferred Stock so converted shall be canceled. 3.9 Notice Provisions. (a) (1) If at any time: (A) the corporation shall pay any dividend payable in stock upon its Common Stock or make any distribution (other than regular cash dividends) to the holders of its Common Stock; (B) the corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (C) there shall be any capital reorganization, reclassification of the capital stock of the corporation, or consolidation or merger of the corporation with, or sale of all or substantially all of its assets to, another corporation; or (D) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the corporation; in any such event, the corporation shall give written notice, by first-class mail, postage prepaid, addressed to the holders of the Series A Preferred Stock at the addresses of such holders as shown on the books of the corporation, on the date on which the books of the corporation shall close or a record shall be take for such dividend, distribution or subscription rights, or such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice shall also specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their shares of -19- Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Such written notice shall be given at least 20 days prior to the action in question and not less than 20 days prior to the record date or the date on which the corporation's transfer books are closed in respect thereto. (2) Upon any adjustment of the Series A Conversion Price the corporation shall give written notice thereof, by first-class mail, postage prepaid, addressed to the registered holders of the Series A Preferred Stock at the addresses of such holders as shown on the books of the corporation, which notice shall state the Series A Conversion Price resulting from such adjustment and the increase or decrease, if any, in the number of shares receivable at such price upon the conversion of the Series A Preferred Stock, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (3) 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 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 Preferred Stock, at least 30 days' (20 days in the case of the holders of Series B Preferred Stock) 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. (b) (1) The corporation shall provide all holders of shares of Series B Preferred Stock five business days' prior written notice of any adjustments in the Series B Original Issue Price, the Maximum Price, the Minimum Price or any other adjustments made pursuant to the provisions hereof. (2) Any notice required by the provisions of this Section 3 to be given to the holders of shares of Series B Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his, her or its address appearing on the books of the corporation (c) In the event of: (1) 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 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, (2) any capital reorganization of the corporation, any reclassification or recapitalization of the capital stock of the corporation, any merger of the corporation, or any -20- transfer of all or substantially all of the assets of the corporation to any other corporation, or any other entity or person, or (3) any voluntary or involuntary dissolution, liquidation or winding up of the corporation, then and in each such event the corporation shall mail or cause to be mailed to each holder of Series C Preferred Stock 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 a description of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up is expected to become effective and (iii) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up. Such notice shall be mailed at least ten Business Days prior to the date specified in such notice on which such action is to be taken. Article 4. No Cumulative Voting There shall be no cumulative voting by the shareholders of the corporation. -21- Article 5. No Preemptive Rights The shareholders of the corporation shall not have any preemptive rights to subscribe for or acquire securities or rights to purchase securities of any class, kind or series of the corporation. Article 6. Written Action by Directors An action required or permitted to be taken at a meeting of the board of directors of the corporation may be taken by a written action signed, or counterparts of a written action signed in the aggregate, by all of the directors unless the action need not be approved by the shareholders of the corporation, in which case the action may be taken by a written action signed, or counterparts of a written action signed in the aggregate, by the number of directors that would be required to take the same action at a meeting of the board of directors of the corporation at which all of the directors were present. Article 7. Director Liability A director of this corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its shareholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Sections 302A.559 or 80A.23 of the Minnesota Statutes; (iv) for any -22- transaction from which the director derived an improper personal benefit; or (v) for any act or omission occurring prior to the date when this Article 7 became effective. If the Minnesota Business Corporation Act is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Minnesota Business Corporation Act, as so amended. Any repeal or modification of the foregoing provisions of this Article 7 by the shareholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. Date: September 1, 1999 /s/ James Geiser ----------------------------------- James Geiser, Secretary -23- CERTIFICATE OF DESIGNATION OF SERIES D CONVERTIBLE PREFERRED STOCK OF GLOBAL MAINTECH CORPORATION (Adopted pursuant to Section 302A of the Minnesota Business Corporation Act) The undersigned hereby certifies that the Board of Directors of GLOBAL MAINTECH CORPORATION, a Minnesota corporation (the "COMPANY"), duly adopted the following resolutions effective as of November 5, 1999: RESOLVED, a series of preferred stock of the Company is created and the relative rights, preferences, and limitations of the shares of such series are as follows: I. Designation and Amount. The shares of such series of Preferred Stock shall be designated as "Series D Convertible Preferred Stock" (the "SERIES D PREFERRED STOCK") and the number of shares constituting the Series D Preferred Stock shall be 2,775. The Series D Preferred Stock shall have a stated value (the "STATED VALUE") of $1,000 per share. II. Dividends. A. The holders of shares of Series D Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, subject to the prior declaration or payment of any dividend to which the holders of Series A Convertible Preferred Stock of the Company (the "SERIES A Stock") and the Series B Convertible Preferred Stock of the Company (the "SERIES B STOCK") are entitled, and prior to, and in preference to, any declaration or payment of any dividend on the Common Stock of this Company, at a per share rate equal to eight percent (8%) per annum of the amount of the Stated Value of the Series D Preferred Stock, which is payable upon conversion (based upon a 365 calendar day year) as set forth below. Dividends shall begin to accrue as of the Issuance Date (as defined below). Any dividends payable pursuant to the provisions of this paragraph shall, at the Company's option, be payable in cash, or unrestricted shares of Common Stock of the Company within five Business Days (as defined below) of when due. The number of shares of Common Stock to be issued by the Company in lieu of a cash payment for dividends due as set forth herein shall be equal to the number of shares of Common Stock resulting from dividing the dollar amount of dividends owed by the Conversion Price (as defined below) on such date as the dividends are payable (if such date is not a Trading Day, then the next Trading Day (as defined below) immediately thereafter). -24- B. Such dividends shall accrue on each share of Series D Preferred Stock from the Issuance Date, and shall accrue from day to day whether or not earned or declared. Such dividends shall be cumulative so that if such dividends in respect of any previous or current annual dividend period, at the annual rate specified above, shall not have been paid or declared and a sum sufficient for the payment thereof set apart, for all Series D Preferred Stock at the time outstanding, the deficiency shall first be fully paid before any dividend or other distribution shall be paid on or declared or set apart for the Series D Preferred Stock, Common Stock or other security of the Company subordinate in liquidation to the Series D Preferred Stock. Dividends on the Series D Preferred Stock shall be non-participating and the holders of the Series D Preferred Stock shall not be entitled to participate in any other dividends beyond the cumulative dividends specified herein. III. Liquidation, Dissolution or Winding Up. A. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, subject to the prior liquidation preference of the holders of Series A Stock and Series B Stock and prior and in preference to any distribution of any assets of the Company to the holders of Common Stock , holders of each share of Series D Preferred Stock shall be entitled to receive out of the assets available for distribution to shareholders the Stated Value per share of Series D Preferred Stock plus eight percent (8%) per annum thereon from the Issuance Date (as defined below) to the Trading Day (as defined below) immediately prior to such liquidation, dissolution or winding up of the Company (the "LIQUIDATION AMOUNT"). B. Upon the completion of any required distribution to the holders of the Series A Stock and Series B Stock, if the assets of the Company available for distribution to shareholders shall be insufficient to pay the holders of shares of Series D Preferred Stock the full Liquidation Amount to which they shall be entitled, then any such distribution of assets of the Company shall be distributed ratably to the holders of shares of Series D Preferred Stock. C. After the payment of the Liquidation Amount shall have been made in full to the holders of the Series D Preferred Stock or funds necessary for such payment shall have been set aside by the Company in trust for the account of holders of the Series D Preferred Stock so as to be available for such payments, the holders of the Series D Preferred Stock shall be entitled to no further participation in the distribution of the assets of the Company, and the remaining assets of the Company legally available for distribution to shareholders shall be distributed among the holders of Common Stock and any other classes or series of Preferred Stock of the Company in accordance with their respective terms. IV. Voting. Holders of Series D Preferred Stock shall have no voting rights except as expressly required by law or as expressly provided herein. V. Conversion of Series D Preferred Stock. The holders of Series D Preferred Stock shall have the right, at such holder's option, to convert the Series D Preferred Stock into shares of Common -25- Stock, on the following terms and conditions: A. Subject to the provisions of Section XI hereof, at any time or times, upon the earlier to occur of (i) the 61st calendar day after the Issuance Date, or (ii) the Effective Date, any holder of the Series D Preferred Stock shall be entitled to convert any whole number of such holder's shares of Series D Preferred Stock into that number of fully paid and nonassessable shares of Common Stock, which is determined (per share of Series D Preferred Stock) by dividing (x) $1,000, by (y) the Conversion Price (as defined below) (the "CONVERSION RATE"). B. For purposes of this Certificate of Designation, the following terms shall have the following meanings: A "BUSINESS DAY" shall be any day other than a Saturday, Sunday, national holiday or a day on which the New York Stock Exchange is closed. The "CLOSING BID PRICE" shall mean, for any security as of any date, the last closing bid price for such security on the Nasdaq Stock Market as reported by Bloomberg L.P. ("BLOOMBERG"), or, if the Nasdaq Stock Market is not the principal trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price of such security in the over-the-counter market on the NASD OTC Electronic Bulletin Board for such security as reported by Bloomberg, or, the last closing trade price of such security as reported by Bloomberg, or, if no last closing bid or trade price is reported for such security by Bloomberg, the closing bid price shall be determined by reference to the closing bid price as reported on the Principal Market. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually agreed by the Company and the holders of two thirds of the outstanding shares of Series D Preferred Stock. The "CONVERSION PRICE" shall mean, as of any Conversion Date (as defined below) the lesser of (i) $5.4375 (the lowest Closing Bid Price of the Common Stock over the ten Trading Days ending on the Trading Day immediately preceding November 10, 1999) or (ii) 75% of the average of the three lowest Closing Bid Prices of the Common Stock during the 15 Trading Days (the "LOOKBACK PERIOD") immediately preceding the Conversion Date (hereinafter referred to as the "CURRENT PRICE"). On the last Trading Day of each month, starting on the first day of the fourth calendar month immediately following the Issuance Date, the Lookback Period will be increased by two Trading Days until the Lookback Period equals a maximum of 30 Trading Days. "EFFECTIVE DATE" shall mean the date on which the Securities and Exchange Commission (the "SEC") first declares effective a Registration Statement registering the resale of 200% of the number of shares of Common Stock issuable upon conversion of all of the Series D Preferred Stock outstanding on the Trading Day immediately preceding the day such Registration Statement is filed. -26- The "ISSUANCE DATE" shall mean, with respect to each share of Series D Preferred Stock, the date of issuance of the applicable share of Series D Preferred Stock. A "TRADING DAY" shall mean a day on which the Principal Market is open. -27- The "PRINCIPAL MARKET" shall mean the Nasdaq National Market, the Nasdaq Small Cap Stock Market, the American Stock Exchange, the NASD OTC Electronic Bulletin Board operated by the National Association of Securities Dealers, Inc., or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock. Holders of Series D Preferred Stock may exercise their right to convert the Series D Preferred Stock by telecopying an executed and completed notice of conversion in the agreed upon form (the "NOTICE OF CONVERSION") to the Company and delivering to Company the original Notice of Conversion and the certificate representing the Series D Preferred Stock being converted by reputable overnight courier. Each Business Day (between the hours of 7:00 a.m. and 4:00 p.m. Pacific Time) on which a Notice of Conversion is telecopied to and received by the Company shall be deemed a "CONVERSION DATE." The Company will deliver the certificates representing shares of Common Stock issuable upon conversion of any share of Series D Preferred Stock (together with the certificates representing the share or shares of Series D Preferred Stock not so converted) to the holder thereof via reputable overnight courier, by electronic transfer or otherwise within three Business Days after the Conversion Date, provided the Company has received the original Notice of Conversion and Series D Preferred Stock certificate being so converted on or before the close of business of the third Business Day after the Conversion Date. In addition to any other remedies which may be available to the holders of shares of Series D Preferred Stock, in the event that the Company fails to deliver such shares of Common Stock within such three Business Day period, the holder will be entitled to revoke the relevant Notice of Conversion by delivering a notice (by similar method) to such effect to the Company whereupon the Company and such holder shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion. The Notice of Conversion and Series D Preferred Stock certificates representing the portion of the Series D Preferred Stock converted shall be delivered as follows: To the Company: Global MAINTECH Corporation 7578 Market Place Drive Eden Prairie, MN 55344 Attention: CEO Telephone: (612) 944-0400 Facsimile: (612) 944-3311 with a copy to: Dorsey & Whitney LLP Pillsbury Center South 220 South Sixth Street Minneapolis, Minnesota 55402-1498 Attention: Ken Cutler Telephone: (612) 340-2740 Facsimile: (612) 340-8378 -28- In the event that shares representing the Common Stock issuable upon conversion of the Series D Preferred Stock (the "CONVERSION SHARES") are not delivered by the Company within three Business Days after the Conversion Date, in addition to all other available remedies which such holder may be entitled, the Company shall pay to the holders thereof, in immediately available funds, upon demand, as liquidated damages for such failure and not as a penalty, for each $100,000 principal amount of Series D Preferred Stock sought to be converted, $500 for each of the first ten (10) days and $1,000 per day thereafter that the Conversion Shares are not delivered, which liquidated damages shall run from the fourth Business Day after the Conversion Date up until the time that either the Conversion Notice is revoked or the Conversion Shares are delivered, at which time such liquidated damages shall cease. Any and all payments required pursuant to this paragraph shall be payable only in cash immediately. The payment of these liquidated damages by the Company shall not relieve the Company of its obligations under this Certificate of Designation. D. If the Common Stock issuable upon the conversion of the Series D Preferred Stock shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise, then and in each such event, the holders of Series D Preferred Stock shall have the right thereafter to convert such shares into the kind and amount of shares of stock and other securities and property receivable upon such capital reorganization, reclassification or other change which such holders would have received had their shares of Series D Preferred Stock been converted immediately prior to such capital reorganization, reclassification or other change. E. If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section) or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (any of which events is herein referred to as a "REORGANIZATION"), then as a part of such Reorganization, provision shall be made so that the holders of the Series D Preferred Stock shall thereafter be entitled to receive upon conversion of the Series D Preferred Stock, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such Reorganization, to which such holder would have been entitled if such holder had converted its shares of Series D Preferred Stock immediately prior to such Reorganization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section with respect to the rights of the holders of the Series D Preferred Stock after the Reorganization, to the end that the provisions of this Section (including adjustment of the number of shares issuable upon conversion of the Series D Preferred Stock) shall be applicable after that event in as nearly equivalent a manner as may be practicable. F. Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series D Preferred Stock as provided herein, the Company, 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 D Preferred Stock a certificate executed by the president and chief -29- financial officer (or in the absence of a person designated as the chief financial officer, by the treasurer) setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment are based. The Company shall, upon written request at any time of any holder of Series D Preferred Stock, furnish or cause to be furnished to such holder a certificate setting forth (A) the Conversion Price at the time in effect, and (B) the number or 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 Series D Preferred Stock. G. Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of any Series D Preferred Stock certificate(s), and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon the cancellation of the Series D Preferred Stock certificate(s), if mutilated, the Company shall execute and deliver new certificates for Series D Preferred Stock of like tenure and date. However, the Company shall not be obligated to reissue such lost or stolen certificates for shares of Series D Preferred Stock if the holder contemporaneously requests the Company to convert such shares of Series D Preferred Stock into Common Stock. H. The Company shall not issue any fraction of a share of Common Stock upon any conversion. The Company shall round such fraction of a share of Common Stock up to the nearest whole share. I. In the event some but not all of the shares of Series D Preferred Stock represented by a certificate or certificates surrendered by a holder are converted, the Company shall execute and deliver to or on the order of the holder, at the expense of the Company, a new certificate representing the number of shares of Series D Preferred Stock which were not converted. J. Each share of Series D Preferred Stock outstanding two years from the Issuance Date shall automatically be converted into Common Stock on such date at the Conversion Price and such date shall be deemed the Conversion Date with respect to such shares. K. The Company shall pay any and all original issue and/or transfer taxes which may be imposed upon it with respect to the issuance and delivery of Common Stock upon conversion of the Series D Preferred Stock. L. Subject to the provisions of this Section, if the Company at any time shall issue any shares of Common Stock prior to the conversion of the entire Stated Value of the Series D Preferred Stock and dividends on such Series D Preferred Stock, otherwise than: (i) pursuant to options, warrants, or other obligations to issue shares outstanding on the date hereof (including issuances pursuant to the Company's proposed transaction with Breece Hill Technologies, Inc. ) as described in writing to the holders prior to the Issuance Date or in SEC filings made by the Company prior to the Issuance Date, or (ii) all shares reserved for issuance pursuant to the Company's existing stock option, incentive, or other similar plan, which plan and which grant is approved by the Board of Directors of the Company ((i) and (ii) collectively referred to as the "EXISTING OBLIGATIONS"), for a consideration less than the fixed Conversion Price set forth in (i) of the definition of Conversion Price in Section V.B. above (as adjusted from the date hereof (the -30- "FIXED CONVERSION PRICE"), then, and thereafter successively upon each such issue, the fixed Conversion Price shall, from such date forward, equal the resulting quotient of the following formula: (y) the number of shares of Common Stock outstanding immediately prior to such issue shall be multiplied by the Fixed Conversion Price in effect at the time of such issue and the product shall be added to the aggregate consideration, if any received by the Company upon such issue of additional shares of Common Stock; and (z) the sum so obtained shall be divided by the number of shares of Common Stock outstanding immediately after such issue. Except for the Existing Obligations and options that may be issued under any employee incentive stock option and/or any qualified stock option plan adopted by the Company, for purposes of this adjustment, the issuance of any security of the Company carrying the right to convert such security into shares of Common Stock or of any warrant, right, or option to purchase Common Stock shall result in an adjustment to the Fixed Conversion Price upon the issuance of shares of Common Stock upon exercise of such conversion or purchase rights. M. In the event a holder shall elect to convert any share or shares of Series D Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such holder or anyone associated or affiliated with such holder has been engaged in any violation of law, unless an injunction from a court, restraining and/or enjoining conversion of all or part of said shares of Series D Preferred Stock shall have been issued and the Company posts a surety bond for the benefit of such holder in the amount of 125% of the Stated Value of the Series D Preferred Stock and dividends sought to be converted, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such holder in the event it obtains a favorable judgment. VI. No Reissuance of Series D Preferred Stock. No share or shares of Series D Preferred Stock acquired by the Company by reason of purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Company shall be authorized to issue. The Company may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of the Series D Preferred Stock accordingly. VII. Reservation of Shares. The Company shall, so long as any share or shares of the Series D Preferred Stock are outstanding reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series D Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series D Preferred Stock then outstanding; provided that the number of shares of Common Stock so reserved shall at no time be less than 200% of the number of shares of Common Stock for which the Series D Preferred Stock are at any time convertible and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to maintain such number of shares of Common Stock, the Company shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. -31- VIII. Restrictions and Limitations. A. Except as expressly provided herein or as required by law, so long as any shares of Series D Preferred Stock remain outstanding, the Company shall not, without the approval by vote or written consent by the holders of at least two thirds of the then outstanding shares of Series D Preferred Stock, voting as a separate class take any action that would adversely affect the rights, preferences or privileges of the holders of Series D Preferred Stock. B. Without limiting the generality of the preceding paragraph, the Company shall not so long as any shares of Series D Preferred Stock remain outstanding amend its Articles of Incorporation without the approval by the holders of all of the then outstanding shares of Series D Preferred Stock if such amendment would: 1. create any other class or series of capital stock entitled to seniority as to the payment of dividends in relation to the holders of Series D Preferred Stock; 2. reduce the amount payable to the holders of Series D Preferred Stock upon the voluntary or involuntary liquidation, dissolution or winding up of the Company, or change the relative seniority of the liquidation preferences of the holders of Series D Preferred Stock to the rights upon liquidation of the holders of other capital stock of the Company, 3. cancel or modify the conversion rights of the holders of Series D Preferred Stock provided for in Section V herein; or 4. cancel or modify the rights of the holders of the Series D Preferred Stock provided for in this Section. IX. No Dilution or Impairment. The Company shall not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Certificate of Designation set forth herein, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the holders of the Series D Preferred Stock against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) shall not establish a par value of any shares of stock receivable on the conversion of the Series D Preferred Stock above the amount payable therefor on such conversion, (b) shall take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the conversion of all Series D Preferred Stock from time to time outstanding, and (c) shall not consolidate with or merge into any other person or entity, or permit any such person or entity to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person or entity shall expressly assume in writing and will be bound by all of the terms of the Series D Preferred Stock set forth herein. -32- X. 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, or B. any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger of the Company, or any transfer of all or substantially all of the assets of the Company to any other corporation, or any other entity or person, or C. any voluntary or involuntary dissolution, liquidation or winding up of the Company, then and in each such event the Company shall mail or cause to be mailed to each holder of Series D Preferred Stock 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 a description of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up is expected to become effective and (iii) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up. Such notice shall be mailed at least ten Business Days prior to the date specified in such notice on which such action is to be taken. XI. Redemption. A. For so long as the Company has not received a Notice of Conversion for such shares, the Company may, at its option, repay, in whole or in part, the Series D Preferred Stock shares at the Redemption Price (as defined below). The Series D Preferred Stock is redeemable as a series, in whole or in part, by the Company by providing written notice (the "REDEMPTION NOTICE") to the holder of the Series D Preferred Stock via facsimile at his or her address as the same shall appear on the books of the Company (the Business Day between the hours of 7:00 a.m. and 4:00 p.m. Pacific Time the Redemption Notice is received by the holders of the Series D Preferred Stock via facsimile is defined to be the "REDEMPTION NOTICE DATE"). Within ten Trading Days after the Redemption Notice Date the Company shall make payment of the Redemption Price (as defined below) in immediately available funds to the holder for the shares of Series D Preferred Stock which are the subject of the Redemption Notice (such date of payment referred to as the "REDEMPTION DATE"). Partial redemptions shall be in an aggregate principal amount of at least $100,000. If fewer than all of the outstanding shares of Series D Preferred Stock are to be redeemed, the Company will select those to be redeemed pro-rata amongst the then holders of the Series D Preferred Stock based on the number of shares of Series D Preferred Stock then outstanding. -33- B. In the event the Company serves a Redemption Notice within four calendar months after the Issuance Date the "Redemption Price" shall be equal to 130% of the Stated Value of the shares of Series D Preferred Stock which are subject to such Redemption Notice, plus all accrued but unpaid dividends on such shares, and in the event the Company serves a Notice of Redemption at any time after the fourth calendar month after the Issuance Date, the Redemption Price shall be equal to the greater of (i) 130% of the Stated Value of the shares of Series D Preferred Stock which are subject to such Redemption Notice, plus all accrued but unpaid dividends on such shares, or (ii) the "Economic Benefit" of the shares of Series D Preferred Stock which are the subject of such Redemption Notice. "ECONOMIC BENEFIT" shall mean the dollar value derived if the shares of Series D Preferred Stock which were the subject of the Redemption Notice were converted on the Redemption Notice Date and sold on the Redemption Notice Date at the Closing Bid Price of the Common Stock on the Redemption Notice Date. C. The Notice of Redemption shall set forth (i) the Redemption Date and the place fixed for redemption, (ii) the Redemption Price, (iii) a statement that dividends on the shares of Series D Preferred Stock to be redeemed will cease to accrue on such Redemption Date, (iv) a statement of or reference to the conversion right set forth herein, and (v) confirmation that the Company has the full Redemption Price reserved as set forth in F. below. If fewer than all the shares of the Series D Preferred Stock owned by such holders are then to be redeemed, the notice shall specify the number of shares thereof that are to be redeemed and, if practicable, the numbers of the certificates representing such shares. Within five Trading Days of the Redemption Notice Date, the Company shall wire transfer the appropriate amount of funds to the holders of the Series D Preferred Stock. If the Company fails to comply with the redemption provisions set forth herein by the sixth Trading Day after the Redemption Notice Date (or in the case of a public offering as contemplated in F below, by the sixth Trading Day after the Redemption Notice Date) relating to the Redemption Notice, the redemption will be declared null and void and the Company shall not be permitted to serve another Redemption Notice. For the first five Trading Days after the Redemption Notice Date, the holders of the Series D Preferred Stock will retain their conversion rights with respect to a maximum of twenty percent (20%) of the number of shares subject to the redemption. If the holders of the Series D Preferred Stock elect to so convert the Series D Preferred Stock after the receipt of the Redemption Notice, the Company must receive notice of such election within twenty-four (24) hours from the time the Redemption Notice was received by the holders of the Series D Preferred Stock. In the event the Company has not complied with the redemption provisions set forth herein the Company must comply with the delivery requirements of any then outstanding Conversion Notice as set forth herein. The holders shall send the shares of Series D Preferred Stock being redeemed or converted to the Company within three (3) Business Days after they have received good funds for the Redemption Price of the redeemed shares. D. Subject to the receipt by the holders of the Series D Preferred Stock being redeemed of the wire transfer of the Redemption Price as described above, each share of Series D Preferred Stock to be redeemed shall be automatically canceled and converted into a right to receive the Redemption Price, and all rights of the Series D Preferred Stock, including the right to conversion shall cease without further action. -34- E. The Redemption Price shall be adjusted proportionally upon any adjustment of the Conversion Price as provided herein and in the event of any stock dividend, stock split, combination of shares or similar event. F. The Company shall not be entitled to send any Redemption Notice and begin the redemption procedure hereunder unless it has: (a) the full amount of the Redemption Price in cash, available in a demand or other immediately available account in a bank or similar financial institution, specifically allotted for such redemption; (b) immediately available credit facilities, in the full amount of the Redemption Price with a bank or similar financial institution specifically allotted for such redemption; or (c) a combination of the items set forth in (i) and (ii) above, aggregating the full amount of the Redemption Price. Notwithstanding the foregoing, in the event the redemption is expected to be made contemporaneously with the closing of a public offering of the Company's securities for an amount in excess of the Redemption Price, the Company shall not be required to have the full amount of the Redemption Price available to it as set forth above. XII. 4.99% Limitation. The number of shares of Common Stock which may be acquired by any holder pursuant to the terms herein shall not exceed the number of such shares which, when aggregated with all other shares of Common Stock then owned by such holder, would result in such holder owning more than 4.99% of the then issued and outstanding Common Stock at any one time. The preceding shall not interfere with any holder's right to convert any share or shares of Series D Preferred Stock over time which in the aggregate totals more than 4.99% of the then outstanding shares of Common Stock so long as such holder does not own more than 4.99% of the then outstanding Common Stock at any given time. The foregoing limitation shall not apply to the automatic conversion upon the Maturity Date as contained herein. -35- IN WITNESS WHEREOF, I have subscribed my name this 10th day of November, 1999. GLOBAL MAINTECH CORPORATION By: /s/ James Geiser ---------------------------------- Name: James Geiser Title: Secretary -36- ARTICLES OF CORRECTION OF GLOBAL MAINTECH CORPORATION In order to correct the Global MAINTECH Corporation Certificate of Designation of Series D Convertible Preferred Stock as filed with the Minnesota Secretary of State on November 10, 1999, in accordance with the provisions set forth in Minnesota Statutes Section 5.16, the undersigned hereby makes the following statements. 1. The name of the person who filed the instrument is James Geiser. 2. The instrument to be corrected is the Global MAINTECH Corporation Certificate of Designation of Series D. Convertible Preferred Stock as filed with the Minnesota Secretary of State on November 10, 1999. 3. The errors to be corrected are in Article V.A and Article XI.B. 4. The attached CORRECTED Global MAINTECH Corporation Certificate of Designation of Series D Convertible Preferred Stock reflects Article V.A corrected as follows: "V. Conversion of Series D Preferred Stock. The holders of Series D Preferred Stock shall have the right, at such holder's option, to convert the Series D Preferred Stock into shares of Common Stock, on the following terms and conditions: A. Subject to the provision of Section XI hereof, at any time or times, after the Issuance Date, any holder . . ." 5. The attached CORRECTED Global MAINTECH Corporation Certificate of Designation of Series D Convertible Preferred Stock reflects Article XI.B corrected as follows: "XI. Redemption . . . B. In the event the Company serves a Redemption Notice, the Redemption Price shall be . . ." -37- IN WITNESS WHEREOF, I have subscribed my name this 3rd day of December, 1999. /s/ James Geiser ---------------------------------- James Geiser, Secretary -38- CORRECTED CERTIFICATE OF DESIGNATION OF SERIES D CONVERTIBLE PREFERRED STOCK OF GLOBAL MAINTECH CORPORATION (Adopted pursuant to Section 302A of the Minnesota Business Corporation Act) The undersigned hereby certifies that the Board of Directors of GLOBAL MAINTECH CORPORATION, a Minnesota corporation (the "COMPANY"), duly adopted the following resolutions effective as of November 5, 1999: RESOLVED, a series of preferred stock of the Company is created and the relative rights, preferences, and limitations of the shares of such series are as follows: I. Designation and Amount. The shares of such series of Preferred Stock shall be designated as "Series D Convertible Preferred Stock" (the "SERIES D PREFERRED STOCK") and the number of shares constituting the Series D Preferred Stock shall be 2,775. The Series D Preferred Stock shall have a stated value (the "STATED VALUE") of $1,000 per share. II. Dividends. A. The holders of shares of Series D Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, subject to the prior declaration or payment of any dividend to which the holders of Series A Convertible Preferred Stock of the Company (the "SERIES A Stock") and the Series B Convertible Preferred Stock of the Company (the "SERIES B STOCK") are entitled, and prior to, and in preference to, any declaration or payment of any dividend on the Common Stock of this Company, at a per share rate equal to eight percent (8%) per annum of the amount of the Stated Value of the Series D Preferred Stock, which is payable upon conversion (based upon a 365 calendar day year) as set forth below. Dividends shall begin to accrue as of the Issuance Date (as defined below). Any dividends payable pursuant to the provisions of this paragraph shall, at the Company's option, be payable in cash, or unrestricted shares of Common Stock of the Company within five Business Days (as defined below) of when due. The number of shares of Common Stock to be issued by the Company in lieu of a cash payment for dividends due as set forth herein shall be equal to the number of shares of Common Stock resulting from dividing the dollar amount of dividends owed by the Conversion Price (as defined below) on such date as the dividends are payable (if such date is -39- not a Trading Day, then the next Trading Day (as defined below) immediately thereafter). B. Such dividends shall accrue on each share of Series D Preferred Stock from the Issuance Date, and shall accrue from day to day whether or not earned or declared. Such dividends shall be cumulative so that if such dividends in respect of any previous or current annual dividend period, at the annual rate specified above, shall not have been paid or declared and a sum sufficient for the payment thereof set apart, for all Series D Preferred Stock at the time outstanding, the deficiency shall first be fully paid before any dividend or other distribution shall be paid on or declared or set apart for the Series D Preferred Stock, Common Stock or other security of the Company subordinate in liquidation to the Series D Preferred Stock. Dividends on the Series D Preferred Stock shall be non-participating and the holders of the Series D Preferred Stock shall not be entitled to participate in any other dividends beyond the cumulative dividends specified herein. III. Liquidation, Dissolution or Winding Up. A. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, subject to the prior liquidation preference of the holders of Series A Stock and Series B Stock and prior and in preference to any distribution of any assets of the Company to the holders of Common Stock , holders of each share of Series D Preferred Stock shall be entitled to receive out of the assets available for distribution to shareholders the Stated Value per share of Series D Preferred Stock plus eight percent (8%) per annum thereon from the Issuance Date (as defined below) to the Trading Day (as defined below) immediately prior to such liquidation, dissolution or winding up of the Company (the "LIQUIDATION AMOUNT"). B. Upon the completion of any required distribution to the holders of the Series A Stock and Series B Stock, if the assets of the Company available for distribution to shareholders shall be insufficient to pay the holders of shares of Series D Preferred Stock the full Liquidation Amount to which they shall be entitled, then any such distribution of assets of the Company shall be distributed ratably to the holders of shares of Series D Preferred Stock. C. After the payment of the Liquidation Amount shall have been made in full to the holders of the Series D Preferred Stock or funds necessary for such payment shall have been set aside by the Company in trust for the account of holders of the Series D Preferred Stock so as to be available for such payments, the holders of the Series D Preferred Stock shall be entitled to no further participation in the distribution of the assets of the Company, and the remaining assets of the Company legally available for distribution to shareholders shall be distributed among the holders of Common Stock and any other classes or series of Preferred Stock of the Company in accordance with their respective terms. IV. Voting. Holders of Series D Preferred Stock shall have no voting rights except as expressly required by law or as expressly provided herein. V. Conversion of Series D Preferred Stock. The holders of Series D Preferred Stock shall have -40- the right, at such holder's option, to convert the Series D Preferred Stock into shares of Common Stock, on the following terms and conditions: A. Subject to the provisions of Section XI hereof, at any time or times after the Issuance Date any holder of the Series D Preferred Stock shall be entitled to convert any whole number of such holder's shares of Series D Preferred Stock into that number of fully paid and nonassessable shares of Common Stock, which is determined (per share of Series D Preferred Stock) by dividing (x) $1,000, by (y) the Conversion Price (as defined below) (the "CONVERSION RATE"). B. For purposes of this Certificate of Designation, the following terms shall have the following meanings: A "BUSINESS DAY" shall be any day other than a Saturday, Sunday, national holiday or a day on which the New York Stock Exchange is closed. The "CLOSING BID PRICE" shall mean, for any security as of any date, the last closing bid price for such security on the Nasdaq Stock Market as reported by Bloomberg L.P. ("BLOOMBERG"), or, if the Nasdaq Stock Market is not the principal trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price of such security in the over-the-counter market on the NASD OTC Electronic Bulletin Board for such security as reported by Bloomberg, or, the last closing trade price of such security as reported by Bloomberg, or, if no last closing bid or trade price is reported for such security by Bloomberg, the closing bid price shall be determined by reference to the closing bid price as reported on the Principal Market. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually agreed by the Company and the holders of two thirds of the outstanding shares of Series D Preferred Stock. The "CONVERSION PRICE" shall mean, as of any Conversion Date (as defined below) the lesser of (i) $5.4375 (the lowest Closing Bid Price of the Common Stock over the ten Trading Days ending on the Trading Day immediately preceding November 10, 1999) or (ii) 75% of the average of the three lowest Closing Bid Prices of the Common Stock during the 15 Trading Days (the "LOOKBACK PERIOD") immediately preceding the Conversion Date (hereinafter referred to as the "CURRENT PRICE"). On the last Trading Day of each month, starting on the first day of the fourth calendar month immediately following the Issuance Date, the Lookback Period will be increased by two Trading Days until the Lookback Period equals a maximum of 30 Trading Days. "EFFECTIVE DATE" shall mean the date on which the Securities and Exchange Commission (the "SEC") first declares effective a Registration Statement registering the resale of 200% of the number of shares of Common Stock issuable upon conversion of all of the Series D Preferred Stock outstanding on the Trading Day immediately preceding the day such Registration Statement is filed. -41- The "ISSUANCE DATE" shall mean, with respect to each share of Series D Preferred Stock, the date of issuance of the applicable share of Series D Preferred Stock. A "TRADING DAY" shall mean a day on which the Principal Market is open. -42- The "PRINCIPAL MARKET" shall mean the Nasdaq National Market, the Nasdaq Small Cap Stock Market, the American Stock Exchange, the NASD OTC Electronic Bulletin Board operated by the National Association of Securities Dealers, Inc., or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock. Holders of Series D Preferred Stock may exercise their right to convert the Series D Preferred Stock by telecopying an executed and completed notice of conversion in the agreed upon form (the "NOTICE OF CONVERSION") to the Company and delivering to Company the original Notice of Conversion and the certificate representing the Series D Preferred Stock being converted by reputable overnight courier. Each Business Day (between the hours of 7:00 a.m. and 4:00 p.m. Pacific Time) on which a Notice of Conversion is telecopied to and received by the Company shall be deemed a "CONVERSION DATE." The Company will deliver the certificates representing shares of Common Stock issuable upon conversion of any share of Series D Preferred Stock (together with the certificates representing the share or shares of Series D Preferred Stock not so converted) to the holder thereof via reputable overnight courier, by electronic transfer or otherwise within three Business Days after the Conversion Date, provided the Company has received the original Notice of Conversion and Series D Preferred Stock certificate being so converted on or before the close of business of the third Business Day after the Conversion Date. In addition to any other remedies which may be available to the holders of shares of Series D Preferred Stock, in the event that the Company fails to deliver such shares of Common Stock within such three Business Day period, the holder will be entitled to revoke the relevant Notice of Conversion by delivering a notice (by similar method) to such effect to the Company whereupon the Company and such holder shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion. The Notice of Conversion and Series D Preferred Stock certificates representing the portion of the Series D Preferred Stock converted shall be delivered as follows: To the Company: Global MAINTECH Corporation 7578 Market Place Drive Eden Prairie, MN 55344 Attention: CEO Telephone: (612) 944-0400 Facsimile: (612) 944-3311 with a copy to: Dorsey & Whitney LLP Pillsbury Center South 220 South Sixth Street Minneapolis, Minnesota 55402-1498 Attention: Ken Cutler Telephone: (612) 340-2740 Facsimile: (612) 340-8378 -43- In the event that shares representing the Common Stock issuable upon conversion of the Series D Preferred Stock (the "CONVERSION SHARES") are not delivered by the Company within three Business Days after the Conversion Date, in addition to all other available remedies which such holder may be entitled, the Company shall pay to the holders thereof, in immediately available funds, upon demand, as liquidated damages for such failure and not as a penalty, for each $100,000 principal amount of Series D Preferred Stock sought to be converted, $500 for each of the first ten (10) days and $1,000 per day thereafter that the Conversion Shares are not delivered, which liquidated damages shall run from the fourth Business Day after the Conversion Date up until the time that either the Conversion Notice is revoked or the Conversion Shares are delivered, at which time such liquidated damages shall cease. Any and all payments required pursuant to this paragraph shall be payable only in cash immediately. The payment of these liquidated damages by the Company shall not relieve the Company of its obligations under this Certificate of Designation. D. If the Common Stock issuable upon the conversion of the Series D Preferred Stock shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise, then and in each such event, the holders of Series D Preferred Stock shall have the right thereafter to convert such shares into the kind and amount of shares of stock and other securities and property receivable upon such capital reorganization, reclassification or other change which such holders would have received had their shares of Series D Preferred Stock been converted immediately prior to such capital reorganization, reclassification or other change. E. If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section) or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (any of which events is herein referred to as a "REORGANIZATION"), then as a part of such Reorganization, provision shall be made so that the holders of the Series D Preferred Stock shall thereafter be entitled to receive upon conversion of the Series D Preferred Stock, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such Reorganization, to which such holder would have been entitled if such holder had converted its shares of Series D Preferred Stock immediately prior to such Reorganization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section with respect to the rights of the holders of the Series D Preferred Stock after the Reorganization, to the end that the provisions of this Section (including adjustment of the number of shares issuable upon conversion of the Series D Preferred Stock) shall be applicable after that event in as nearly equivalent a manner as may be practicable. F. Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series D Preferred Stock as provided herein, the Company, 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 D Preferred Stock a certificate executed by the president and chief -44- financial officer (or in the absence of a person designated as the chief financial officer, by the treasurer) setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment are based. The Company shall, upon written request at any time of any holder of Series D Preferred Stock, furnish or cause to be furnished to such holder a certificate setting forth (A) the Conversion Price at the time in effect, and (B) the number or 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 Series D Preferred Stock. G. Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of any Series D Preferred Stock certificate(s), and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon the cancellation of the Series D Preferred Stock certificate(s), if mutilated, the Company shall execute and deliver new certificates for Series D Preferred Stock of like tenure and date. However, the Company shall not be obligated to reissue such lost or stolen certificates for shares of Series D Preferred Stock if the holder contemporaneously requests the Company to convert such shares of Series D Preferred Stock into Common Stock. H. The Company shall not issue any fraction of a share of Common Stock upon any conversion. The Company shall round such fraction of a share of Common Stock up to the nearest whole share. I. In the event some but not all of the shares of Series D Preferred Stock represented by a certificate or certificates surrendered by a holder are converted, the Company shall execute and deliver to or on the order of the holder, at the expense of the Company, a new certificate representing the number of shares of Series D Preferred Stock which were not converted. J. Each share of Series D Preferred Stock outstanding two years from the Issuance Date shall automatically be converted into Common Stock on such date at the Conversion Price and such date shall be deemed the Conversion Date with respect to such shares. K. The Company shall pay any and all original issue and/or transfer taxes which may be imposed upon it with respect to the issuance and delivery of Common Stock upon conversion of the Series D Preferred Stock. L. Subject to the provisions of this Section, if the Company at any time shall issue any shares of Common Stock prior to the conversion of the entire Stated Value of the Series D Preferred Stock and dividends on such Series D Preferred Stock, otherwise than: (i) pursuant to options, warrants, or other obligations to issue shares outstanding on the date hereof (including issuances pursuant to the Company's proposed transaction with Breece Hill Technologies, Inc. ) as described in writing to the holders prior to the Issuance Date or in SEC filings made by the Company prior to the Issuance Date, or (ii) all shares reserved for issuance pursuant to the Company's existing stock option, incentive, or other similar plan, which plan and which grant is approved by the Board of Directors of the Company ((i) and (ii) collectively referred to as the "EXISTING OBLIGATIONS"), for a consideration less than the fixed Conversion Price set forth in (i) of the definition of Conversion Price in Section V.B. above (as adjusted from the date hereof (the -45- "FIXED CONVERSION PRICE"), then, and thereafter successively upon each such issue, the fixed Conversion Price shall, from such date forward, equal the resulting quotient of the following formula: (y) the number of shares of Common Stock outstanding immediately prior to such issue shall be multiplied by the Fixed Conversion Price in effect at the time of such issue and the product shall be added to the aggregate consideration, if any received by the Company upon such issue of additional shares of Common Stock; and (z) the sum so obtained shall be divided by the number of shares of Common Stock outstanding immediately after such issue. Except for the Existing Obligations and options that may be issued under any employee incentive stock option and/or any qualified stock option plan adopted by the Company, for purposes of this adjustment, the issuance of any security of the Company carrying the right to convert such security into shares of Common Stock or of any warrant, right, or option to purchase Common Stock shall result in an adjustment to the Fixed Conversion Price upon the issuance of shares of Common Stock upon exercise of such conversion or purchase rights. M. In the event a holder shall elect to convert any share or shares of Series D Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such holder or anyone associated or affiliated with such holder has been engaged in any violation of law, unless an injunction from a court, restraining and/or enjoining conversion of all or part of said shares of Series D Preferred Stock shall have been issued and the Company posts a surety bond for the benefit of such holder in the amount of 125% of the Stated Value of the Series D Preferred Stock and dividends sought to be converted, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such holder in the event it obtains a favorable judgment. VI. No Reissuance of Series D Preferred Stock. No share or shares of Series D Preferred Stock acquired by the Company by reason of purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Company shall be authorized to issue. The Company may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of the Series D Preferred Stock accordingly. VII. Reservation of Shares. The Company shall, so long as any share or shares of the Series D Preferred Stock are outstanding reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series D Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series D Preferred Stock then outstanding; provided that the number of shares of Common Stock so reserved shall at no time be less than 200% of the number of shares of Common Stock for which the Series D Preferred Stock are at any time convertible and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to maintain such number of shares of Common Stock, the Company shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. -46- VIII. Restrictions and Limitations. A. Except as expressly provided herein or as required by law, so long as any shares of Series D Preferred Stock remain outstanding, the Company shall not, without the approval by vote or written consent by the holders of at least two thirds of the then outstanding shares of Series D Preferred Stock, voting as a separate class take any action that would adversely affect the rights, preferences or privileges of the holders of Series D Preferred Stock. B. Without limiting the generality of the preceding paragraph, the Company shall not so long as any shares of Series D Preferred Stock remain outstanding amend its Articles of Incorporation without the approval by the holders of all of the then outstanding shares of Series D Preferred Stock if such amendment would: 1. create any other class or series of capital stock entitled to seniority as to the payment of dividends in relation to the holders of Series D Preferred Stock; 2. reduce the amount payable to the holders of Series D Preferred Stock upon the voluntary or involuntary liquidation, dissolution or winding up of the Company, or change the relative seniority of the liquidation preferences of the holders of Series D Preferred Stock to the rights upon liquidation of the holders of other capital stock of the Company, 3. cancel or modify the conversion rights of the holders of Series D Preferred Stock provided for in Section V herein; or 4. cancel or modify the rights of the holders of the Series D Preferred Stock provided for in this Section. IX. No Dilution or Impairment. The Company shall not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Certificate of Designation set forth herein, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the holders of the Series D Preferred Stock against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) shall not establish a par value of any shares of stock receivable on the conversion of the Series D Preferred Stock above the amount payable therefor on such conversion, (b) shall take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the conversion of all Series D Preferred Stock from time to time outstanding, and (c) shall not consolidate with or merge into any other person or entity, or permit any such person or entity to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person or entity shall expressly assume in writing and will be bound by all of the terms of the Series D Preferred Stock set forth herein. -47- X. 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, or B. any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger of the Company, or any transfer of all or substantially all of the assets of the Company to any other corporation, or any other entity or person, or C. any voluntary or involuntary dissolution, liquidation or winding up of the Company, then and in each such event the Company shall mail or cause to be mailed to each holder of Series D Preferred Stock 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 a description of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up is expected to become effective and (iii) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up. Such notice shall be mailed at least ten Business Days prior to the date specified in such notice on which such action is to be taken. XI. Redemption. A. For so long as the Company has not received a Notice of Conversion for such shares, the Company may, at its option, repay, in whole or in part, the Series D Preferred Stock shares at the Redemption Price (as defined below). The Series D Preferred Stock is redeemable as a series, in whole or in part, by the Company by providing written notice (the "REDEMPTION NOTICE") to the holder of the Series D Preferred Stock via facsimile at his or her address as the same shall appear on the books of the Company (the Business Day between the hours of 7:00 a.m. and 4:00 p.m. Pacific Time the Redemption Notice is received by the holders of the Series D Preferred Stock via facsimile is defined to be the "REDEMPTION NOTICE DATE"). Within ten Trading Days after the Redemption Notice Date the Company shall make payment of the Redemption Price (as defined below) in immediately available funds to the holder for the shares of Series D Preferred Stock which are the subject of the Redemption Notice (such date of payment referred to as the "REDEMPTION DATE"). Partial redemptions shall be in an aggregate principal amount of at least $100,000. If fewer than all of the outstanding shares of Series D Preferred Stock are to be redeemed, the Company will select those to be redeemed pro-rata amongst the then holders of the Series D Preferred Stock based on the number of shares of Series D Preferred Stock then outstanding. B. In the event the Company serves a Redemption Notice, the Redemption Price -48- shall be equal to the greater of (i) 130% of the Stated Value of the shares of Series D Preferred Stock which are subject to such Redemption Notice, plus all accrued but unpaid dividends on such shares, or (ii) the "Economic Benefit" of the shares of Series D Preferred Stock which are the subject of such Redemption Notice. "ECONOMIC BENEFIT" shall mean the dollar value derived if the shares of Series D Preferred Stock which were the subject of the Redemption Notice were converted on the Redemption Notice Date and sold on the Redemption Notice Date at the Closing Bid Price of the Common Stock on the Redemption Notice Date. C. The Notice of Redemption shall set forth (i) the Redemption Date and the place fixed for redemption, (ii) the Redemption Price, (iii) a statement that dividends on the shares of Series D Preferred Stock to be redeemed will cease to accrue on such Redemption Date, (iv) a statement of or reference to the conversion right set forth herein, and (v) confirmation that the Company has the full Redemption Price reserved as set forth in F. below. If fewer than all the shares of the Series D Preferred Stock owned by such holders are then to be redeemed, the notice shall specify the number of shares thereof that are to be redeemed and, if practicable, the numbers of the certificates representing such shares. Within five Trading Days of the Redemption Notice Date, the Company shall wire transfer the appropriate amount of funds to the holders of the Series D Preferred Stock. If the Company fails to comply with the redemption provisions set forth herein by the sixth Trading Day after the Redemption Notice Date (or in the case of a public offering as contemplated in F below, by the sixth Trading Day after the Redemption Notice Date) relating to the Redemption Notice, the redemption will be declared null and void and the Company shall not be permitted to serve another Redemption Notice. For the first five Trading Days after the Redemption Notice Date, the holders of the Series D Preferred Stock will retain their conversion rights with respect to a maximum of twenty percent (20%) of the number of shares subject to the redemption. If the holders of the Series D Preferred Stock elect to so convert the Series D Preferred Stock after the receipt of the Redemption Notice, the Company must receive notice of such election within twenty-four (24) hours from the time the Redemption Notice was received by the holders of the Series D Preferred Stock. In the event the Company has not complied with the redemption provisions set forth herein the Company must comply with the delivery requirements of any then outstanding Conversion Notice as set forth herein. The holders shall send the shares of Series D Preferred Stock being redeemed or converted to the Company within three (3) Business Days after they have received good funds for the Redemption Price of the redeemed shares. D. Subject to the receipt by the holders of the Series D Preferred Stock being redeemed of the wire transfer of the Redemption Price as described above, each share of Series D Preferred Stock to be redeemed shall be automatically canceled and converted into a right to receive the Redemption Price, and all rights of the Series D Preferred Stock, including the right to conversion shall cease without further action. E. The Redemption Price shall be adjusted proportionally upon any adjustment of the Conversion Price as provided herein and in the event of any stock dividend, stock split, combination of shares or similar event. -49- F. The Company shall not be entitled to send any Redemption Notice and begin the redemption procedure hereunder unless it has: (a) the full amount of the Redemption Price in cash, available in a demand or other immediately available account in a bank or similar financial institution, specifically allotted for such redemption; (b) immediately available credit facilities, in the full amount of the Redemption Price with a bank or similar financial institution specifically allotted for such redemption; or (c) a combination of the items set forth in (i) and (ii) above, aggregating the full amount of the Redemption Price. Notwithstanding the foregoing, in the event the redemption is expected to be made contemporaneously with the closing of a public offering of the Company's securities for an amount in excess of the Redemption Price, the Company shall not be required to have the full amount of the Redemption Price available to it as set forth above. XII. 4.99% Limitation. The number of shares of Common Stock which may be acquired by any holder pursuant to the terms herein shall not exceed the number of such shares which, when aggregated with all other shares of Common Stock then owned by such holder, would result in such holder owning more than 4.99% of the then issued and outstanding Common Stock at any one time. The preceding shall not interfere with any holder's right to convert any share or shares of Series D Preferred Stock over time which in the aggregate totals more than 4.99% of the then outstanding shares of Common Stock so long as such holder does not own more than 4.99% of the then outstanding Common Stock at any given time. The foregoing limitation shall not apply to the automatic conversion upon the Maturity Date as contained herein. -50- CERTIFICATE OF DESIGNATION OF SERIES E CONVERTIBLE PREFERRED STOCK OF GLOBAL MAINTECH CORPORATION (Adopted pursuant to Section 302A of the Minnesota Business Corporation Act) The undersigned hereby certifies that the Board of Directors of GLOBAL MAINTECH CORPORATION, a Minnesota corporation (the "COMPANY"), duly adopted the following resolutions effective as of December 27, 1999: RESOLVED, a series of preferred stock of the Company is created and the relative rights, preferences, and limitations of the shares of such series are as follows: I. Designation and Amount. The shares of such series of Preferred Stock shall be designated as "Series E Convertible Preferred Stock" (the "SERIES E PREFERRED STOCK") and the number of shares constituting the Series E Preferred Stock shall be 2,650. The Series E Preferred Stock shall have a stated value (the "STATED VALUE") of $1,000 per share. II. Dividends. A. The holders of shares of Series E Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, subject to the prior declaration or payment of any dividend to which the holders of Series A Convertible Preferred Stock of the Company (the "SERIES A Stock") the Series B Convertible Preferred Stock of the Company (the "SERIES B STOCK") and the Series D Convertible Preferred Stock of the Company (the "SERIES D STOCK") are entitled, and prior to, and in preference to, any declaration or payment of any dividend on the Common Stock of this Company, at a per share rate equal to eight percent (8%) per annum of the amount of the Stated Value of the Series E Preferred Stock, which is payable upon conversion (based upon a 365 calendar day year) as set forth below. Dividends shall begin to accrue as of the Issuance Date (as defined below). Any dividends payable pursuant to the provisions of this paragraph shall, at the Company's option, be payable in cash, or unrestricted shares of Common Stock of the Company within five Business Days (as defined below) of when due. The number of shares of Common Stock to be issued by the Company in lieu of a cash payment for dividends due as set forth herein shall be equal to the number of shares of Common Stock resulting from dividing the dollar amount of dividends owed by the Conversion Price (as defined below) on such date as the dividends are payable (if such date is not a Trading Day, then the next Trading Day (as defined below) immediately thereafter). -51- B. Such dividends shall accrue on each share of Series E Preferred Stock from the Issuance Date, and shall accrue from day to day whether or not earned or declared. Such dividends shall be cumulative so that if such dividends in respect of any previous or current annual dividend period, at the annual rate specified above, shall not have been paid or declared and a sum sufficient for the payment thereof set apart, for all Series E Preferred Stock at the time outstanding, the deficiency shall first be fully paid before any dividend or other distribution shall be paid on or declared or set apart for the Series E Preferred Stock, Common Stock or other security of the Company subordinate in liquidation to the Series E Preferred Stock. Dividends on the Series E Preferred Stock shall be non-participating and the holders of the Series E Preferred Stock shall not be entitled to participate in any other dividends beyond the cumulative dividends specified herein. III. Liquidation, Dissolution or Winding Up. A. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, subject to the prior liquidation preference of the holders of Series A Stock and Series B Stock and prior and in preference to any distribution of any assets of the Company to the holders of Common Stock , holders of each share of Series E Preferred Stock shall be entitled to receive out of the assets available for distribution to shareholders the Stated Value per share of Series E Preferred Stock plus eight percent (8%) per annum thereon from the Issuance Date (as defined below) to the Trading Day (as defined below) immediately prior to such liquidation, dissolution or winding up of the Company (the "LIQUIDATION AMOUNT"). B. Upon the completion of any required distribution to the holders of the Series A Stock and Series B Stock, if the assets of the Company available for distribution to shareholders shall be insufficient to pay the holders of shares of Series E Preferred Stock the full Liquidation Amount to which they shall be entitled, then any such distribution of assets of the Company shall be distributed ratably to the holders of shares of Series E Preferred Stock. C. After the payment of the Liquidation Amount shall have been made in full to the holders of the Series E Preferred Stock or funds necessary for such payment shall have been set aside by the Company in trust for the account of holders of the Series E Preferred Stock so as to be available for such payments, the holders of the Series E Preferred Stock shall be entitled to no further participation in the distribution of the assets of the Company, and the remaining assets of the Company legally available for distribution to shareholders shall be distributed among the holders of Common Stock and any other classes or series of Preferred Stock of the Company in accordance with their respective terms. IV. Voting. Holders of Series E Preferred Stock shall have no voting rights except as expressly required by law or as expressly provided herein. V. Conversion of Series E Preferred Stock. The holders of Series E Preferred Stock shall have the right, at such holder's option, to convert the Series E Preferred Stock into shares of Common Stock, on the following terms and conditions: -52- A. Subject to the provisions of Section XI hereof, at any time or times after the Issuance Date any holder of the Series E Preferred Stock shall be entitled to convert any whole number of such holder's shares of Series E Preferred Stock into that number of fully paid and nonassessable shares of Common Stock, which is determined (per share of Series E Preferred Stock) by dividing (x) $1,000, by (y) the Conversion Price (as defined below) (the "CONVERSION RATE"). B. For purposes of this Certificate of Designation, the following terms shall have the following meanings: A "BUSINESS DAY" shall be any day other than a Saturday, Sunday, national holiday or a day on which the New York Stock Exchange is closed. The "CLOSING BID PRICE" shall mean, for any security as of any date, the last closing bid price for such security on the Nasdaq Stock Market as reported by Bloomberg L.P. ("BLOOMBERG"), or, if the Nasdaq Stock Market is not the principal trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price of such security in the over-the-counter market on the NASD OTC Electronic Bulletin Board for such security as reported by Bloomberg, or, the last closing trade price of such security as reported by Bloomberg, or, if no last closing bid or trade price is reported for such security by Bloomberg, the closing bid price shall be determined by reference to the closing bid price as reported on the Principal Market. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually agreed by the Company and the holders of two thirds of the outstanding shares of Series E Preferred Stock. The "CONVERSION PRICE" shall mean, as of any Conversion Date (as defined below) the lesser of (i) $5.125 (the lowest Closing Bid Price of the Common Stock over the ten Trading Days ending on the Trading Day immediately prior to December 30, 1999 (the "Closing Date")) (the "Maximum Conversion Price") or (ii) 75% of the average of the three lowest Closing Bid Prices of the Common Stock during the 15 Trading Days (the "LOOKBACK PERIOD") immediately prior to the Conversion Date. On the last Trading Day of each month, starting on the first day of the fourth calendar month immediately following the Issuance Date, the Lookback Period will be increased by two Trading Days until the Lookback Period equals a maximum of 30 Trading Days. "EFFECTIVE DATE" shall mean the date on which the Securities and Exchange Commission (the "SEC") first declares effective a Registration Statement registering the resale of 200% of the greater of (i) the number of shares of Common Stock issuable upon conversion of all of the Series E Preferred Stock outstanding on the Trading Day immediately preceding the day such Registration Statement is filed (ii) the number of shares of Common Stock issuable upon conversion of all of the Series E Preferred Stock outstanding on the Trading Day immediately preceding the day any amendment to such Registration Statement is filed. -53- The "ISSUANCE DATE" shall mean, with respect to each share of Series E Preferred Stock, the date of issuance of the applicable share of Series E Preferred Stock. A "TRADING DAY" shall mean a day on which the Principal Market is open. The "PRINCIPAL MARKET" shall mean the Nasdaq National Market, the Nasdaq Small Cap Stock Market, the American Stock Exchange, the NASD OTC Electronic Bulletin Board operated by the National Association of Securities Dealers, Inc., or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock. Holders of Series E Preferred Stock may exercise their right to convert the Series E Preferred Stock by telecopying an executed and completed notice of conversion in the agreed upon form (the "NOTICE OF CONVERSION") to the Company and delivering to Company the original Notice of Conversion and the certificate representing the Series E Preferred Stock being converted by reputable overnight courier within three (3) business thereafter. Each Business Day (between the hours of 6:30 a.m. and 4:00 p.m. Pacific Time) on which a Notice of Conversion is telecopied to and received by the Company shall be deemed a "CONVERSION DATE." The Company will deliver the certificates representing shares of Common Stock issuable upon conversion of any share of Series E Preferred Stock (together with the certificates representing the share or shares of Series E Preferred Stock not so converted) to the holder thereof via reputable overnight courier, by electronic transfer or otherwise within three Business Days after the Conversion Date, provided the Company has received the original Notice of Conversion and Series E Preferred Stock certificate being so converted on or before the close of business of the third Business Day after the Conversion Date. In addition to any other remedies which may be available to the holders of shares of Series E Preferred Stock, in the event that the Company fails to deliver such shares of Common Stock within such three Business Day period, the holder will be entitled to revoke the relevant Notice of Conversion by delivering a notice (by similar method) to such effect to the Company whereupon the Company and such holder shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion. The Notice of Conversion and Series E Preferred Stock certificates representing the portion of the Series E Preferred Stock converted shall be delivered as follows: -54- To the Company: Global MAINTECH Corporation 7578 Market Place Drive Eden Prairie, MN 55344 Attention: CEO Telephone: (612) 944-0400 Facsimile: (612) 944-3311 with a copy to: Dorsey & Whitney LLP Pillsbury Center South 220 South Sixth Street Minneapolis, Minnesota 55402-1498 Attention: Ken Cutler Telephone: (612) 340-2740 Facsimile: (612) 340-8378 The Company understands that a delay in the issuance of the shares of Common Stock beyond the Delivery Date could result in economic loss to the holder. As compensation to the holder for such loss, the Company agrees to pay late payments to the holder in the event that Company's failure to issue and deliver the shares on the Delivery Date in accordance with the following schedule (where "No. Business Days Late" is defined as the number of business days beyond three (3) business days after the Delivery Date): Late Payment For Each $10,000 of Preferred Stock Liquidation No. Business Days Late Amount Being Converted ---------------------- ---------------------- 1 $100 2 $200 3 $300 4 $400 5 $500 >5 $500 + $200 for each Business Day Late beyond 5 days from the Delivery Date The Company shall pay any payments incurred under this Section in immediately available funds upon demand. Nothing herein shall limit the holder's right to pursue actual damages or to cause the Company to redeem the Preferred Shares as provided below for the Company's actions or inactions resulting in the transfer agent's failure to issue and deliver the -55- Common Stock to the holder. Furthermore, in addition to any other remedies which may be available to the holder, in the event that the Company fails to deliver such shares of Common Stock within five (5) business days after the Delivery Date, the Holder will be entitled to revoke the relevant Notice of Conversion by delivering a notice to such effect to the Company whereupon the Company and the holder shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion. In the event the Company's actions or inactions result in the transfer agent's failure to issue and deliver the Common Stock to the holder within ten (10) days after the Delivery Date, holder may, at its option, require the Company (without limiting its other remedies hereunder) to immediately redeem all outstanding Preferred Stock in accordance with Section XI hereof. If, by the relevant Delivery Date, the Company fails for any reason to deliver the Shares to be issued upon conversion of the Preferred Stock and after such Delivery Date, the holder of the Preferred Stock being converted (a "Converting Holder") purchases, in an open market transaction or otherwise, shares of Common Stock (the "Covering Shares") in order to make delivery in satisfaction of a sale of Common Stock by the Converting Holder made after a Conversion Date (the "Sold Shares"), which delivery such Converting Holder anticipated to make using the Shares to be issued upon such conversion (a "Buy-In"), the Company shall pay to the Converting Holder, in addition to all other amounts contemplated in other provisions of this Certificate of Designation and other agreements related hereto, and not in lieu thereof, the Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the amount equal to the excess, if any, of (x) the Converting Holder's total purchase price (including brokerage commissions, if any) for the Covering Shares over (y) the net proceeds (after brokerage commissions, if any) received by the Converting Holder from the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Holder in immediately available funds immediately upon demand by the Converting Holder. By way of illustration and not in limitation of the foregoing, if the Converting Holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required to pay to the Converting Holder will be $1,000. The remedies set forth in this Section V.B shall be cumulative. C. If the Common Stock issuable upon the conversion of the Series E Preferred Stock shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise, then and in each such event, the holders of Series E Preferred Stock shall have the right thereafter to convert such shares into the kind and amount of shares of stock and other securities and property receivable upon such capital reorganization, reclassification or other change which such holders would have received had their shares of Series E Preferred Stock been converted immediately prior to such capital reorganization, reclassification or other change. D. If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section) or a merger or consolidation of the Company with or into -56- another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (any of which events is herein referred to as a "REORGANIZATION"), then as a part of such Reorganization, provision shall be made so that the holders of the Series E Preferred Stock shall thereafter be entitled to receive upon conversion of the Series E Preferred Stock, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such Reorganization, to which such holder would have been entitled if such holder had converted its shares of Series E Preferred Stock immediately prior to such Reorganization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section with respect to the rights of the holders of the Series E Preferred Stock after the Reorganization, to the end that the provisions of this Section (including adjustment of the number of shares issuable upon conversion of the Series E Preferred Stock) shall be applicable after that event in as nearly equivalent a manner as may be practicable. E. Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series E Preferred Stock as provided herein, the Company, 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 E Preferred Stock a certificate executed by the president and chief financial officer (or in the absence of a person designated as the chief financial officer, by the treasurer) setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment are based. The Company shall, upon written request at any time of any holder of Series E Preferred Stock, furnish or cause to be furnished to such holder a certificate setting forth (A) the Conversion Price at the time in effect, and (B) the number or 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 Series E Preferred Stock. F. Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of any Series E Preferred Stock certificate(s), and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon the cancellation of the Series E Preferred Stock certificate(s), if mutilated, the Company shall execute and deliver new certificates for Series E Preferred Stock of like tenure and date. However, the Company shall not be obligated to reissue such lost or stolen certificates for shares of Series E Preferred Stock if the holder contemporaneously requests the Company to convert such shares of Series E Preferred Stock into Common Stock. G. The Company shall not issue any fraction of a share of Common Stock upon any conversion. The Company shall round such fraction of a share of Common Stock up to the nearest whole share. H. In the event some but not all of the shares of Series E Preferred Stock represented by a certificate or certificates surrendered by a holder are converted, the Company shall execute and deliver to or on the order of the holder, at the expense of the Company, a new certificate representing the number of shares of Series E Preferred Stock which were not converted. I. Each share of Series E Preferred Stock outstanding two years from the Issuance Date shall automatically be converted into Common Stock on such date at the Conversion Price and such date shall be deemed the Conversion Date with respect to such shares. -57- J. The Company shall pay any and all original issue and/or transfer taxes which may be imposed upon it with respect to the issuance and delivery of Common Stock upon conversion of the Series E Preferred Stock. K. Subject to the provisions of this Section, if the Company at any time shall issue any shares of Common Stock prior to the conversion of the entire Stated Value of the Series E Preferred Stock and dividends on such Series E Preferred Stock, otherwise than: (i) pursuant to options, warrants, or other obligations to issue shares outstanding on the date hereof (including issuances pursuant to the Company's proposed transaction with Breece Hill Technologies, Inc.) as described in writing to the holders prior to the Issuance Date or in SEC filings made by the Company prior to the Issuance Date, or (ii) all shares reserved for issuance pursuant to the Company's existing stock option, incentive, or other similar plan, which plan and which grant is approved by the Board of Directors of the Company ((i) and (ii) collectively referred to as the "EXISTING OBLIGATIONS"), for a consideration less than the fixed Conversion Price set forth in (i) of the definition of Conversion Price in Section V.B. above (as adjusted from the date hereof (the "FIXED CONVERSION PRICE"), then, and thereafter successively upon each such issue, the fixed Conversion Price shall, from such date forward, equal the resulting quotient of the following formula: (y) the number of shares of Common Stock outstanding immediately prior to such issue shall be multiplied by the Fixed Conversion Price in effect at the time of such issue and the product shall be added to the aggregate consideration, if any received by the Company upon such issue of additional shares of Common Stock; and (z) the sum so obtained shall be divided by the number of shares of Common Stock outstanding immediately after such issue. Except for the Existing Obligations and options that may be issued under any employee incentive stock option and/or any qualified stock option plan adopted by the Company, for purposes of this adjustment, the issuance of any security of the Company carrying the right to convert such security into shares of Common Stock or of any warrant, right, or option to purchase Common Stock shall result in an adjustment to the Fixed Conversion Price upon the issuance of shares of Common Stock upon exercise of such conversion or purchase rights. L. In the event a holder shall elect to convert any share or shares of Series E Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such holder or anyone associated or affiliated with such holder has been engaged in any violation of law, unless an injunction from a court, restraining and/or enjoining conversion of all or part of said shares of Series E Preferred Stock shall have been issued and the Company posts a surety bond for the benefit of such holder in the amount of 133% of the Stated Value of the Series E Preferred Stock and dividends sought to be converted, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such holder in the event it obtains a favorable judgment. VI. No Reissuance of Series E Preferred Stock. No share or shares of Series E Preferred Stock acquired by the Company by reason of purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Company shall be -58- authorized to issue. The Company may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of the Series E Preferred Stock accordingly. VII. Reservation of Shares. The Company shall, so long as any share or shares of the Series E Preferred Stock are outstanding reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series E Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series E Preferred Stock then outstanding; provided that the number of shares of Common Stock so reserved shall at no time be less than 200% of the number of shares of Common Stock for which the Series E Preferred Stock are at any time convertible and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to maintain such number of shares of Common Stock, the Company shall immediately take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. VIII. Restrictions and Limitations. A. Except as expressly provided herein or as required by law, so long as any shares of Series E Preferred Stock remain outstanding, the Company shall not, without the approval by vote or written consent by the holders of at least two thirds of the then outstanding shares of Series E Preferred Stock, voting as a separate class take any action that would adversely affect the rights, preferences or privileges of the holders of Series E Preferred Stock. B. Without limiting the generality of the preceding paragraph, the Company shall not so long as any shares of Series E Preferred Stock remain outstanding amend its Articles of Incorporation without the approval by the holders of all of the then outstanding shares of Series E Preferred Stock if such amendment would: 1. create any other class or series of capital stock entitled to seniority as to the payment of dividends in relation to the holders of Series E Preferred Stock; 2. reduce the amount payable to the holders of Series E Preferred Stock upon the voluntary or involuntary liquidation, dissolution or winding up of the Company, or change the relative seniority of the liquidation preferences of the holders of Series E Preferred Stock to the rights upon liquidation of the holders of other capital stock of the Company, 3. cancel or modify the conversion rights of the holders of Series E Preferred Stock provided for in Section V herein; or 4. cancel or modify the rights of the holders of the Series E Preferred Stock provided for in this Section. -59- IX. No Dilution or Impairment. A. The Company shall not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Certificate of Designation set forth herein, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the holders of the Series E Preferred Stock against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) shall not establish a par value of any shares of stock receivable on the conversion of the Series E Preferred Stock above the amount payable therefor on such conversion, (b) shall take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the conversion of all Series E Preferred Stock from time to time outstanding, and (c) shall not consolidate with or merge into any other person or entity, or permit any such person or entity to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person or entity shall expressly assume in writing and will be bound by all of the terms of the Series E Preferred Stock set forth herein. B. If the Company at any time after the Closing Date shall issue any shares of Common Stock prior to the conversion of all shares of the Series E Preferred and the dividends thereon, including without limitation, shares of Common Stock issued (i) pursuant to options (including those options delivered pursuant to any employee, officer or director stock option plan), warrants, or other contractual obligations, (ii) upon any private placement or secondary offering (iii) as a result of a stock dividend or split, then upon each such issuance of Common Stock the Maximum Conversion Price shall be reduced by: (y)(I) the number of shares of Common Stock outstanding immediately prior to such issuance, multiplied by the Maximum Conversion Price in effect at the time of such issuance, plus (II) the aggregate sum, if any, received by the Company in consideration for such issuance; divided by (z) the number of shares of Common Stock outstanding immediately after such issuance. X. 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, or B. any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger of the Company, or any transfer of all or substantially all of the assets of the Company to any other corporation, or any other entity or person, or C. any voluntary or involuntary dissolution, liquidation or winding up of the Company, then and in each such event the Company shall mail or cause to be mailed to each holder of Series E Preferred Stock 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 a description of such dividend, -60- distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up is expected to become effective and (iii) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up. Such notice shall be mailed at least ten Business Days prior to the date specified in such notice on which such action is to be taken. XI. Redemption. A. For so long as the Company has not received a Notice of Conversion for such shares, the Company may, at its option, repay, in whole or in part, the Series E Preferred Stock shares at the Redemption Price (as defined below). The Series E Preferred Stock is redeemable as a series, in whole or in part, by the Company by providing written notice (the "REDEMPTION NOTICE") to the holder of the Series E Preferred Stock via facsimile at his or her address as the same shall appear on the books of the Company (the Business Day between the hours of 6:30 a.m. and 4:00 p.m. Pacific Time the Redemption Notice is received by the holders of the Series E Preferred Stock via facsimile is defined to be the "REDEMPTION NOTICE DATE"). Within ten Trading Days after the Redemption Notice Date the Company shall make payment of the Redemption Price (as defined below) in immediately available funds to the holder for the shares of Series E Preferred Stock which are the subject of the Redemption Notice (such date of payment referred to as the "REDEMPTION DATE"). Partial redemptions shall be in an aggregate principal amount of at least $100,000. If fewer than all of the outstanding shares of Series E Preferred Stock are to be redeemed, the Company will select those to be redeemed pro-rata amongst the then holders of the Series E Preferred Stock based on the number of shares of Series E Preferred Stock then outstanding. B. In the event the Company serves a Redemption Notice, the Redemption Price shall be equal to the greater of (i) 125% of the Stated Value of the shares of Series E Preferred Stock which are subject to such Redemption Notice, plus all accrued but unpaid dividends on such shares, or (ii) the "Economic Benefit" of the shares of Series E Preferred Stock which are the subject of such Redemption Notice. "ECONOMIC BENEFIT" shall mean the dollar value derived if the shares of Series E Preferred Stock which were the subject of the Redemption Notice were converted on the Redemption Notice Date and sold on the Redemption Notice Date at the Closing Bid Price of the Common Stock on the Redemption Notice Date. C. The Notice of Redemption shall set forth (i) the Redemption Date and the place fixed for redemption, (ii) the Redemption Price, (iii) a statement that dividends on the shares of Series E Preferred Stock to be redeemed will cease to accrue on such Redemption Date, (iv) a statement of or reference to the conversion right set forth herein, and (v) confirmation that the Company has the full Redemption Price reserved as set forth in F. below. If fewer than all the shares of the Series E Preferred Stock owned by such holders are then to be redeemed, the notice shall specify the number of shares thereof that are to be redeemed and, if practicable, the -61- numbers of the certificates representing such shares. Within five Trading Days of the Redemption Notice Date, the Company shall wire transfer the appropriate amount of funds to the holders of the Series E Preferred Stock. If the Company fails to comply with the redemption provisions set forth herein by the sixth Trading Day after the Redemption Notice Date (or in the case of a public offering as contemplated in F below, by the sixth Trading Day after the Redemption Notice Date) relating to the Redemption Notice, the redemption will be declared null and void and the Company shall not be permitted to serve another Redemption Notice. For the first five Trading Days after the Redemption Notice Date, the holders of the Series E Preferred Stock will retain their conversion rights with respect to a maximum of twenty percent (20%) of the number of shares subject to the redemption. If the holders of the Series E Preferred Stock elect to so convert the Series E Preferred Stock after the receipt of the Redemption Notice, the Company must receive notice of such election within twenty-four (24) hours from the time the Redemption Notice was received by the holders of the Series E Preferred Stock. In the event the Company has not complied with the redemption provisions set forth herein the Company must comply with the delivery requirements of any then outstanding Conversion Notice as set forth herein. The holders shall send the shares of Series E Preferred Stock being redeemed or converted to the Company within three (3) Business Days after they have received good funds for the Redemption Price of the redeemed shares. D. Subject to the receipt by the holders of the Series E Preferred Stock being redeemed of the wire transfer of the Redemption Price as described above, each share of Series E Preferred Stock to be redeemed shall be automatically canceled and converted into a right to receive the Redemption Price, and all rights of the Series E Preferred Stock, including the right to conversion shall cease without further action. E. The Redemption Price shall be adjusted proportionally upon any adjustment of the Conversion Price as provided herein and in the event of any stock dividend, stock split, combination of shares or similar event. F. The Company shall not be entitled to send any Redemption Notice and begin the redemption procedure hereunder unless it has: (a) the full amount of the Redemption Price in cash, available in a demand or other immediately available account in a bank or similar financial institution, specifically allotted for such redemption; (b) immediately available credit facilities, in the full amount of the Redemption Price with a bank or similar financial institution specifically allotted for such redemption; or (c) a combination of the items set forth in (i) and (ii) above, aggregating the full amount of the Redemption Price. -62- Notwithstanding the foregoing, in the event the redemption is expected to be made contemporaneously with the closing of a public offering of the Company's securities for an amount in excess of the Redemption Price, the Company shall not be required to have the full amount of the Redemption Price available to it as set forth above. XII. 4.99% Limitation. Notwithstanding the provisions hereof, in no event shall each holder be entitled to convert any shares of the Series E Preferred Stock to the extent that, after such conversion, the sum of (1) the number of shares of Common Stock beneficially owned by such holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted shares of the Series E Preferred Stock), and (2) the number of shares of Common Stock issuable upon the conversion of the shares of Series E Preferred Stock with respect to which the determination of this proviso is being made, would result in beneficial ownership by such holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Any issuance by the Company to a holder in excess of the limit contained in this Paragraph shall be null and void, AB INITIO, and upon notice of such invalid issuance, the Company shall correct its books and cause its transfer agent's books to be corrected forthwith to reflect that the holder's ownership of Common Stock is within the limit set forth herein. Holder shall immediately deliver any certificates for invalidly issued Common Stock to the Company's transfer agent. The Company further agrees to (i) immediately reissue certificates for Common Stock to the extent that a portion of the Common Stock represented by said certificates have been validly issued and (ii) immediately reissue all or a portion of those shares which were deemed invalidly issued (at a price set forth in the original conversion notices applicable to such shares) upon notice from the holder that the reissuance of such shares would not cause such holder to have a beneficial ownership interest in excess of 4.99%. The Company hereby indemnifies and holds each holder free and harmless in connection with any and all liabilities, losses, costs and expenses, including, without limitation, attorneys' fees and costs arising from or relating to claims made by any third parties with respect to any and all purported violations by each holder under Sections 13(d) and 16 resulting from a conversion(s) of the Series E Preferred Stock, unless such claim arises from such holder's default of its obligations hereunder, or representations or warranties contained herein. The 4.99% limitation shall not apply to the automatic conversion upon the Maturity Date as contained herein. XIII "Cap Regulations". The Company shall take all steps reasonably necessary to be in a position to issue shares of Common Stock on conversion of the Series E Preferred Stock without violating the "Cap Regulations". If despite taking such steps, the Company is limited in the number of shares of Common Stock it may issue by the "Cap Regulations," to the extent that the Company cannot issue such shares of Common Stock, due upon a Notice of Conversion, without violating the Cap Regulations, the Company shall immediately notify Buyer the number of shares of the Series E Preferred Stock which are not convertible as a result of said Cap Regulations (the "Unconverted Preferred Stock") and within five (5) business days of the applicable Notice of Conversion redeem the Unconverted Preferred Stock for an amount in cash (the "Redemption Amount") equal to the "Economic Benefit" of -63- such Unconverted Preferred Stock. "ECONOMIC BENEFIT" for purposes of this Article XIII shall mean the dollar value derived if such Unconverted Preferred Stock were converted into Common Stock as set forth in the Notice of Conversion and the Common Stock was sold on the date of the Notice of Conversion at the Closing Bid Price of the Common Stock on the date of the Notice of Conversion. IN WITNESS WHEREOF, I have subscribed my name this 29th day of December, 1999. GLOBAL MAINTECH CORPORATION By: /s/ James Geiser -------------------------------- Name: James Geiser Title: Secretary -64- CERTIFICATE OF DESIGNATION OF SERIES F CONVERTIBLE PREFERRED STOCK OF GLOBAL MAINTECH CORPORATION (Adopted pursuant to Section 302A of the Minnesota Business Corporation Act) The undersigned hereby certifies that the Board of Directors of GLOBAL MAINTECH CORPORATION, a Minnesota corporation (the "COMPANY"), duly adopted the following resolutions effective as of February 17, 2000: RESOLVED, a series of preferred stock of the Company is created and the relative rights, preferences, and limitations of the shares of such series are as follows: I. Designation and Amount. The shares of such series of Preferred Stock shall be designated as "Series F Convertible Preferred Stock" (the "SERIES F PREFERRED STOCK") and the number of shares constituting the Series F Preferred Stock shall be 2,000. The Series F Preferred Stock shall have a stated value (the "STATED VALUE") of $1,000 per share. II. Dividends. A. The holders of shares of Series F Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, subject to the prior declaration or payment of any dividend to which the holders of Series A Convertible Preferred Stock of the Company (the "SERIES A Stock") the Series B Convertible Cumulative Preferred Stock of the Company (the "SERIES B STOCK") the Series D Convertible Preferred Stock of the Company (the "SERIES D STOCK") and the Series E Convertible Preferred Stock of the Company (the "SERIES E STOCK") are entitled, and prior to, and in preference to, any declaration or payment of any dividend on the Common Stock of this Company, at a per share rate equal to eight percent (8%) per annum of the amount of the Stated Value of the Series F Preferred Stock, which is payable upon conversion (based upon a 365 calendar day year) as set forth below. Dividends shall begin to accrue as of the Issuance Date (as defined below). Any dividends payable pursuant to the provisions of this paragraph shall, at the Company's option, be payable in cash, or unrestricted shares of Common Stock of the Company within five Business Days (as defined below) of when due. The number of shares of Common Stock to be issued by the Company in lieu of a cash payment for dividends due as set forth herein shall be equal to the number of shares of Common Stock resulting from dividing the dollar amount of dividends owed by the Conversion Price (as defined below) on -65- such date as the dividends are payable (if such date is not a Trading Day, then the next Trading Day (as defined below) immediately thereafter). B. Such dividends shall accrue on each share of Series F Preferred Stock from the Issuance Date, and shall accrue from day to day whether or not earned or declared. Such dividends shall be cumulative so that if such dividends in respect of any previous or current annual dividend period, at the annual rate specified above, shall not have been paid or declared and a sum sufficient for the payment thereof set apart, for all Series F Preferred Stock at the time outstanding, the deficiency shall first be fully paid before any dividend or other distribution shall be paid on or declared or set apart for the Series F Preferred Stock, Common Stock or other security of the Company subordinate in liquidation to the Series F Preferred Stock. Dividends on the Series F Preferred Stock shall be non-participating and the holders of the Series F Preferred Stock shall not be entitled to participate in any other dividends beyond the cumulative dividends specified herein. III. Liquidation, Dissolution or Winding Up. A. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, subject to the prior liquidation preference of the holders of Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E Stock, and prior and in preference to any distribution of any assets of the Company to the holders of Common Stock, holders of each share of Series F Preferred Stock shall be entitled to receive out of the assets available for distribution to shareholders the Stated Value per share of Series F Preferred Stock plus eight percent (8%) per annum thereon from the Issuance Date (as defined below) to the Trading Day (as defined below) immediately prior to such liquidation, dissolution or winding up of the Company (the "LIQUIDATION AMOUNT"). B. Upon the completion of any required distribution to the holders of the Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E Stock, if the assets of the Company available for distribution to shareholders shall be insufficient to pay the holders of shares of Series F Preferred Stock the full Liquidation Amount to which they shall be entitled, then any such distribution of assets of the Company shall be distributed ratably to the holders of shares of Series F Preferred Stock. C. After the payment of the Liquidation Amount shall have been made in full to the holders of the Series F Preferred Stock or funds necessary for such payment shall have been set aside by the Company in trust for the account of holders of the Series F Preferred Stock so as to be available for such payments, the holders of the Series F Preferred Stock shall be entitled to no further participation in the distribution of the assets of the Company, and the remaining assets of the Company legally available for distribution to shareholders shall be distributed among the holders of Common Stock and any other classes or series of Preferred Stock of the Company in accordance with their respective terms. IV. Voting. Holders of Series F Preferred Stock shall have no voting rights except as expressly required by law or as expressly provided herein. -66- V. Conversion of Series F Preferred Stock. The holders of Series F Preferred Stock shall have the right, at such holder's option, to convert the Series F Preferred Stock into shares of Common Stock, on the following terms and conditions: A. Subject to the provisions of Section XI hereof, at any time or times after the earlier of (i) 61 days following the Effective Date, or (ii) 61 days following the Issuance Date, any holder of the Series F Preferred Stock shall be entitled to convert any whole number of such holder's shares of Series F Preferred Stock into that number of fully paid and nonassessable shares of Common Stock, which is determined (per share of Series F Preferred Stock) by dividing (x) $1,000, by (y) the Conversion Price (as defined below) (the "CONVERSION RATE"). B. For purposes of this Certificate of Designation, the following terms shall have the following meanings: A "BUSINESS DAY" shall be any day other than a Saturday, Sunday, national holiday or a day on which the New York Stock Exchange is closed. The "CLOSING BID PRICE" shall mean, for any security as of any date, the last closing bid price for such security on the Nasdaq Stock Market as reported by Bloomberg L.P. ("BLOOMBERG"), or, if the Nasdaq Stock Market is not the principal trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price of such security in the over-the-counter market on the NASD OTC Electronic Bulletin Board for such security as reported by Bloomberg, or, the last closing trade price of such security as reported by Bloomberg, or, if no last closing bid or trade price is reported for such security by Bloomberg, the closing bid price shall be determined by reference to the closing bid price as reported on the Principal Market. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually agreed by the Company and the holders of two thirds of the outstanding shares of Series F Preferred Stock. The "CONVERSION PRICE" shall mean, as of any Conversion Date (as defined below) the lesser of (i) $6.75 (the lowest Closing Bid Price of the Common Stock over the ten Trading Days ending on the Trading Day immediately prior to February 17, 2000) (the "Closing Date")) (the "Maximum Conversion Price") or (ii) 75% of the average of the three lowest Closing Bid Prices of the Common Stock during the 15 Trading Days (the "LOOKBACK PERIOD") immediately prior to the Conversion Date. On the last Trading Day of each month, starting on the first day of the fourth calendar month immediately following the Issuance Date, the Lookback Period will be increased by two Trading Days until the Lookback Period equals a maximum of 30 Trading Days. "EFFECTIVE DATE" shall mean the date on which the Securities and Exchange Commission (the "SEC") first declares effective a Registration Statement registering the resale -67- of up to 200% of the greater of (i) the number of shares of Common Stock issuable upon conversion of all of the Series F Preferred Stock outstanding on the Trading Day immediately preceding the day such Registration Statement is filed (ii) the number of shares of Common Stock issuable upon conversion of all of the Series F Preferred Stock outstanding on the Trading Day immediately preceding the day any amendment to such Registration Statement is filed. The "ISSUANCE DATE" shall mean, with respect to each share of Series F Preferred Stock, the date of issuance of the applicable share of Series F Preferred Stock. A "TRADING DAY" shall mean a day on which the Principal Market is open. The "PRINCIPAL MARKET" shall mean the Nasdaq National Market, the Nasdaq Small Cap Stock Market, the American Stock Exchange, the NASD OTC Electronic Bulletin Board operated by the National Association of Securities Dealers, Inc., or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock. Holders of Series F Preferred Stock may exercise their right to convert the Series F Preferred Stock by telecopying an executed and completed notice of conversion in the agreed upon form (the "NOTICE OF CONVERSION") to the Company and delivering to Company the original Notice of Conversion and the certificate representing the Series F Preferred Stock being converted by reputable overnight courier within three (3) Business Days thereafter. Each Business Day (between the hours of 6:30 a.m. and 4:00 p.m. Pacific Time) on which a Notice of Conversion is telecopied to and received by the Company shall be deemed a "CONVERSION DATE." The Company will deliver the certificates representing shares of Common Stock issuable upon conversion of any share of Series F Preferred Stock (together with the certificates representing the share or shares of Series F Preferred Stock not so converted) to the holder thereof via reputable overnight courier, by electronic transfer or otherwise within three Business Days after the Conversion Date, provided the Company has received the original Notice of Conversion and Series F Preferred Stock certificate being so converted on or before the close of business of the third Business Day after the Conversion Date. In addition to any other remedies which may be available to the holders of shares of Series F Preferred Stock, in the event that the Company fails to deliver such shares of Common Stock within such three Business Day period, the holder will be entitled to revoke the relevant Notice of Conversion by delivering a notice (by similar method) to such effect to the Company whereupon the Company and such holder shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion. The Notice of Conversion and Series F Preferred Stock certificates representing the portion of the Series F Preferred Stock converted shall be delivered as follows: -68- To the Company: Global MAINTECH Corporation 7578 Market Place Drive Eden Prairie, MN 55344 Attention: CEO Telephone: (612) 944-0400 Facsimile: (612) 944-3311 with a copy to: Dorsey & Whitney LLP Pillsbury Center South 220 South Sixth Street Minneapolis, Minnesota 55402-1498 Attention: Ken Cutler Telephone: (612) 340-2740 Facsimile: (612) 340-8378 The Company understands that a delay in the issuance of the shares of Common Stock beyond the Delivery Date could result in economic loss to the holder. As compensation to the holder for such loss, the Company agrees to pay late payments to the holder in the event that Company's failure to issue and deliver the shares on the Delivery Date in accordance with the following schedule (where "No. Business Days Late" is defined as the number of Business Days beyond three (3) Business Days after the Delivery Date): Late Payment For Each $10,000 of Preferred Stock Liquidation No. Business Days Late Amount Being Converted ---------------------- ---------------------- 1 $100 2 $200 3 $300 4 $400 5 $500 >5 $500 + $200 for each Business Day Late beyond 5 days from The Delivery Date The Company shall pay any payments incurred under this Section in immediately available funds upon demand. Nothing herein shall limit the holder's right to pursue actual damages or to cause the Company to redeem the Preferred Shares as provided below for the Company's actions or inactions resulting in the transfer agent's failure to issue and deliver the -69- Common Stock to the holder. Furthermore, in addition to any other remedies which may be available to the holder, in the event that the Company fails to deliver such shares of Common Stock within five (5) Business Days after the Delivery Date, the Holder will be entitled to revoke the relevant Notice of Conversion by delivering a notice to such effect to the Company whereupon the Company and the holder shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion. In the event the Company's actions or inactions result in the transfer agent's failure to issue and deliver the Common Stock to the holder within ten (10) days after the Delivery Date, holder may, at its option, require the Company (without limiting its other remedies hereunder) to immediately redeem all outstanding Preferred Stock in accordance with Section XI hereof. If, by the relevant Delivery Date, the Company fails for any reason to deliver the Shares to be issued upon conversion of the Preferred Stock and after such Delivery Date, the holder of the Preferred Stock being converted (a "Converting Holder") purchases, in an open market transaction or otherwise, shares of Common Stock (the "Covering Shares") in order to make delivery in satisfaction of a sale of Common Stock by the Converting Holder made after a Conversion Date (the "Sold Shares"), which delivery such Converting Holder anticipated to make using the Shares to be issued upon such conversion (a "Buy-In"), the Company shall pay to the Converting Holder, in addition to all other amounts contemplated in other provisions of this Certificate of Designation and other agreements related hereto, and not in lieu thereof, the Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the amount equal to the excess, if any, of (x) the Converting Holder's total purchase price (including brokerage commissions, if any) for the Covering Shares over (y) the net proceeds (after brokerage commissions, if any) received by the Converting Holder from the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Converting Holder in immediately available funds immediately upon demand by the Converting Holder. By way of illustration and not in limitation of the foregoing, if the Converting Holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required to pay to the Converting Holder will be $1,000. The remedies set forth in this Section V.B shall be cumulative. C. If the Common Stock issuable upon the conversion of the Series F Preferred Stock shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise, then and in each such event, the holders of Series F Preferred Stock shall have the right thereafter to convert such shares into the kind and amount of shares of stock and other securities and property receivable upon such capital reorganization, reclassification or other change which such holders would have received had their shares of Series F Preferred Stock been converted immediately prior to such capital reorganization, reclassification or other change. D. If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section) or a merger or consolidation of the Company with or into -70- another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (any of which events is herein referred to as a "REORGANIZATION"), then as a part of such Reorganization, provision shall be made so that the holders of the Series F Preferred Stock shall thereafter be entitled to receive upon conversion of the Series F Preferred Stock, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such Reorganization, to which such holder would have been entitled if such holder had converted its shares of Series F Preferred Stock immediately prior to such Reorganization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section with respect to the rights of the holders of the Series F Preferred Stock after the Reorganization, to the end that the provisions of this Section (including adjustment of the number of shares issuable upon conversion of the Series F Preferred Stock) shall be applicable after that event in as nearly equivalent a manner as may be practicable. E. Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series F Preferred Stock as provided herein, the Company, 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 F Preferred Stock a certificate executed by the president and chief financial officer (or in the absence of a person designated as the chief financial officer, by the treasurer) setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment are based. The Company shall, upon written request at any time of any holder of Series F Preferred Stock, furnish or cause to be furnished to such holder a certificate setting forth (A) the Conversion Price at the time in effect, and (B) the number or 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 Series F Preferred Stock. F. Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of any Series F Preferred Stock certificate(s), and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon the cancellation of the Series F Preferred Stock certificate(s), if mutilated, the Company shall execute and deliver new certificates for Series F Preferred Stock of like tenure and date. However, the Company shall not be obligated to reissue such lost or stolen certificates for shares of Series F Preferred Stock if the holder contemporaneously requests the Company to convert such shares of Series F Preferred Stock into Common Stock. G. The Company shall not issue any fraction of a share of Common Stock upon any conversion. The Company shall round such fraction of a share of Common Stock up to the nearest whole share. H. In the event some but not all of the shares of Series F Preferred Stock represented by a certificate or certificates surrendered by a holder are converted, the Company shall execute and deliver to or on the order of the holder, at the expense of the Company, a new certificate representing the number of shares of Series F Preferred Stock which were not converted. I. Each share of Series F Preferred Stock outstanding two years from the Issuance Date shall automatically be converted into Common Stock on such date at the Conversion Price and such date shall be deemed the Conversion Date with respect to such shares. -71- J. The Company shall pay any and all original issue and/or transfer taxes which may be imposed upon it with respect to the issuance and delivery of Common Stock upon conversion of the Series F Preferred Stock. K. Subject to the provisions of this Section, if the Company at any time shall issue any shares of Common Stock prior to the conversion of the entire Stated Value of the Series F Preferred Stock and dividends on such Series F Preferred Stock, otherwise than: (i) pursuant to options, warrants, or other obligations to issue shares outstanding on the date hereof (including issuances pursuant to the Company's proposed transaction with Breece Hill Technologies, Inc.) as described in writing to the holders prior to the Issuance Date or in SEC filings made by the Company prior to the Issuance Date, or (ii) all shares reserved for issuance pursuant to the Company's existing stock option, incentive, or other similar plan, which plan and which grant is approved by the Board of Directors of the Company ((i) and (ii) collectively referred to as the "EXISTING OBLIGATIONS"), for a consideration less than the fixed Conversion Price set forth in (i) of the definition of Conversion Price in Section V.B. above (as adjusted from the date hereof (the "FIXED CONVERSION PRICE"), then, and thereafter successively upon each such issue, the fixed Conversion Price shall, from such date forward, equal the resulting quotient of the following formula: (y) the number of shares of Common Stock outstanding immediately prior to such issue shall be multiplied by the Fixed Conversion Price in effect at the time of such issue and the product shall be added to the aggregate consideration, if any received by the Company upon such issue of additional shares of Common Stock; and (z) the sum so obtained shall be divided by the number of shares of Common Stock outstanding immediately after such issue. Except for the Existing Obligations and options that may be issued under any employee incentive stock option and/or any qualified stock option plan adopted by the Company, for purposes of this adjustment, the issuance of any security of the Company carrying the right to convert such security into shares of Common Stock or of any warrant, right, or option to purchase Common Stock shall result in an adjustment to the Fixed Conversion Price upon the issuance of shares of Common Stock upon exercise of such conversion or purchase rights. L. In the event a holder shall elect to convert any share or shares of Series F Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such holder or anyone associated or affiliated with such holder has been engaged in any violation of law, unless an injunction from a court, restraining and/or enjoining conversion of all or part of said shares of Series F Preferred Stock shall have been issued and the Company posts a surety bond for the benefit of such holder in the amount of 133% of the Stated Value of the Series F Preferred Stock and dividends sought to be converted, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such holder in the event it obtains a favorable judgment. VI. No Reissuance of Series F Preferred Stock. No share or shares of Series F Preferred Stock acquired by the Company by reason of purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Company shall be -72- authorized to issue. The Company may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of the Series F Preferred Stock accordingly. VII. Reservation of Shares. The Company shall, so long as any share or shares of the Series F Preferred Stock are outstanding reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series F Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series F Preferred Stock then outstanding; provided that the number of shares of Common Stock so reserved shall be up to 200% of the number of shares of Common Stock for which the Series F Preferred Stock are at any time convertible and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to maintain such number of shares of Common Stock, the Company shall immediately take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. VIII. Restrictions and Limitations. A. Except as expressly provided herein or as required by law, so long as any shares of Series F Preferred Stock remain outstanding, the Company shall not, without the approval by vote or written consent by the holders of at least two thirds of the then outstanding shares of Series F Preferred Stock, voting as a separate class take any action that would adversely affect the rights, preferences or privileges of the holders of Series F Preferred Stock. B. Without limiting the generality of the preceding paragraph, the Company shall not so long as any shares of Series F Preferred Stock remain outstanding amend its Articles of Incorporation without the approval by the holders of all of the then outstanding shares of Series F Preferred Stock if such amendment would: 1. create any other class or series of capital stock entitled to seniority as to the payment of dividends in relation to the holders of Series F Preferred Stock; 2. reduce the amount payable to the holders of Series F Preferred Stock upon the voluntary or involuntary liquidation, dissolution or winding up of the Company, or change the relative seniority of the liquidation preferences of the holders of Series F Preferred Stock to the rights upon liquidation of the holders of other capital stock of the Company, 3. cancel or modify the conversion rights of the holders of Series F Preferred Stock provided for in Section V herein; or 4. cancel or modify the rights of the holders of the Series F Preferred Stock provided for in this Section. -73- IX. No Dilution or Impairment. A. The Company shall not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Certificate of Designation set forth herein, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the holders of the Series F Preferred Stock against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) shall not establish a par value of any shares of stock receivable on the conversion of the Series F Preferred Stock above the amount payable therefor on such conversion, (b) shall take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the conversion of all Series F Preferred Stock from time to time outstanding, and (c) shall not consolidate with or merge into any other person or entity, or permit any such person or entity to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person or entity shall expressly assume in writing and will be bound by all of the terms of the Series F Preferred Stock set forth herein. B. If the Company at any time after the Closing Date shall issue any shares of Common Stock prior to the conversion of all shares of the Series F Preferred and the dividends thereon, including without limitation, shares of Common Stock issued (i) pursuant to options (including those options delivered pursuant to any employee, officer or director stock option plan), warrants, or other contractual obligations, (ii) upon any private placement or secondary offering (iii) as a result of a stock dividend or split, then upon each such issuance of Common Stock the Maximum Conversion Price shall be reduced by: (y)(I) the number of shares of Common Stock outstanding immediately prior to such issuance, multiplied by the Maximum Conversion Price in effect at the time of such issuance, plus (II) the aggregate sum, if any, received by the Company in consideration for such issuance; divided by (z) the number of shares of Common Stock outstanding immediately after such issuance. X. 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, or B. any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger of the Company, or any transfer of all or substantially all of the assets of the Company to any other corporation, or any other entity or person, or C. any voluntary or involuntary dissolution, liquidation or winding up of the Company, then and in each such event the Company shall mail or cause to be mailed to each holder of Series F Preferred Stock 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 a description of such dividend, -74- distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up is expected to become effective and (iii) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up. Such notice shall be mailed at least ten Business Days prior to the date specified in such notice on which such action is to be taken. XI. Redemption. A. For so long as the Company has not received a Notice of Conversion for such shares, the Company may, at its option, repay, in whole or in part, the Series F Preferred Stock shares at the Redemption Price (as defined below). The Series F Preferred Stock is redeemable as a series, in whole or in part, by the Company by providing written notice (the "REDEMPTION NOTICE") to the holder of the Series F Preferred Stock via facsimile at his or her address as the same shall appear on the books of the Company (the Business Day between the hours of 6:30 a.m. and 4:00 p.m. Pacific Time the Redemption Notice is received by the holders of the Series F Preferred Stock via facsimile is defined to be the "REDEMPTION NOTICE DATE"). Within ten Trading Days after the Redemption Notice Date the Company shall make payment of the Redemption Price (as defined below) in immediately available funds to the holder for the shares of Series F Preferred Stock which are the subject of the Redemption Notice (such date of payment referred to as the "REDEMPTION DATE"). Partial redemptions shall be in an aggregate principal amount of at least $100,000. If fewer than all of the outstanding shares of Series F Preferred Stock are to be redeemed, the Company will select those to be redeemed pro-rata amongst the then holders of the Series F Preferred Stock based on the number of shares of Series F Preferred Stock then outstanding. B. In the event the Company serves a Redemption Notice, the Redemption Price shall be equal to the greater of (i) 125% of the Stated Value of the shares of Series F Preferred Stock which are subject to such Redemption Notice, plus all accrued but unpaid dividends on such shares, or (ii) the "Economic Benefit" of the shares of Series F Preferred Stock which are the subject of such Redemption Notice. "ECONOMIC BENEFIT" shall mean the dollar value derived if the shares of Series F Preferred Stock which were the subject of the Redemption Notice were converted on the Redemption Notice Date and sold on the Redemption Notice Date at the Closing Bid Price of the Common Stock on the Redemption Notice Date. C. The Notice of Redemption shall set forth (i) the Redemption Date and the place fixed for redemption, (ii) the Redemption Price, (iii) a statement that dividends on the shares of Series F Preferred Stock to be redeemed will cease to accrue on such Redemption Date, (iv) a statement of or reference to the conversion right set forth herein, and (v) confirmation that the Company has the full Redemption Price reserved as set forth in F. below. If fewer than all the shares of the Series F Preferred Stock owned by such holders are then to be redeemed, the notice shall specify the number of shares thereof that are to be redeemed and, if practicable, the -75- numbers of the certificates representing such shares. Within five Trading Days of the Redemption Notice Date, the Company shall wire transfer the appropriate amount of funds to the holders of the Series F Preferred Stock. If the Company fails to comply with the redemption provisions set forth herein by the sixth Trading Day after the Redemption Notice Date (or in the case of a public offering as contemplated in F below, by the sixth Trading Day after the Redemption Notice Date) relating to the Redemption Notice, the redemption will be declared null and void and the Company shall not be permitted to serve another Redemption Notice. For the first five Trading Days after the Redemption Notice Date, the holders of the Series F Preferred Stock will retain their conversion rights with respect to a maximum of twenty percent (20%) of the number of shares subject to the redemption. If the holders of the Series F Preferred Stock elect to so convert the Series F Preferred Stock after the receipt of the Redemption Notice, the Company must receive notice of such election within twenty-four (24) hours from the time the Redemption Notice was received by the holders of the Series F Preferred Stock. In the event the Company has not complied with the redemption provisions set forth herein the Company must comply with the delivery requirements of any then outstanding Conversion Notice as set forth herein. The holders shall send the shares of Series F Preferred Stock being redeemed or converted to the Company within three (3) Business Days after they have received good funds for the Redemption Price of the redeemed shares. D. Subject to the receipt by the holders of the Series F Preferred Stock being redeemed of the wire transfer of the Redemption Price as described above, each share of Series F Preferred Stock to be redeemed shall be automatically canceled and converted into a right to receive the Redemption Price, and all rights of the Series F Preferred Stock, including the right to conversion shall cease without further action. E. The Redemption Price shall be adjusted proportionally upon any adjustment of the Conversion Price as provided herein and in the event of any stock dividend, stock split, combination of shares or similar event. F. The Company shall not be entitled to send any Redemption Notice and begin the redemption procedure hereunder unless it has: (a) the full amount of the Redemption Price in cash, available in a demand or other immediately available account in a bank or similar financial institution, specifically allotted for such redemption; (b) immediately available credit facilities, in the full amount of the Redemption Price with a bank or similar financial institution specifically allotted for such redemption; or (c) a combination of the items set forth in (i) and (ii) above, aggregating the full amount of the Redemption Price. -76- Notwithstanding the foregoing, in the event the redemption is expected to be made contemporaneously with the closing of a public offering of the Company's securities for an amount in excess of the Redemption Price, the Company shall not be required to have the full amount of the Redemption Price available to it as set forth above. XII. 4.99% Limitation. Notwithstanding the provisions hereof, in no event shall each holder be entitled to convert any shares of the Series F Preferred Stock to the extent that, after such conversion, the sum of (1) the number of shares of Common Stock beneficially owned by such holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted shares of the Series F Preferred Stock), and (2) the number of shares of Common Stock issuable upon the conversion of the shares of Series F Preferred Stock with respect to which the determination of this proviso is being made, would result in beneficial ownership by such holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Any issuance by the Company to a holder in excess of the limit contained in this Paragraph shall be null and void, AB INITIO, and upon notice of such invalid issuance, the Company shall correct its books and cause its transfer agent's books to be corrected forthwith to reflect that the holder's ownership of Common Stock is within the limit set forth herein. Holder shall immediately deliver any certificates for invalidly issued Common Stock to the Company's transfer agent. The Company further agrees to (i) immediately reissue certificates for Common Stock to the extent that a portion of the Common Stock represented by said certificates have been validly issued and (ii) immediately reissue all or a portion of those shares which were deemed invalidly issued (at a price set forth in the original conversion notices applicable to such shares) upon notice from the holder that the reissuance of such shares would not cause such holder to have a beneficial ownership interest in excess of 4.99%. The Company hereby indemnifies and holds each holder free and harmless in connection with any and all liabilities, losses, costs and expenses, including, without limitation, attorneys' fees and costs arising from or relating to claims made by any third parties with respect to any and all purported violations by each holder under Sections 13(d) and 16 resulting from a conversion(s) of the Series F Preferred Stock, unless such claim arises from such holder's default of its obligations hereunder, or representations or warranties contained herein. The 4.99% limitation shall not apply to the automatic conversion upon the Maturity Date as contained herein. XIII "Cap Regulations". The Company shall take all steps reasonably necessary to be in a position to issue shares of Common Stock on conversion of the Series F Preferred Stock without violating the "Cap Regulations". If despite taking such steps, the Company is limited in the number of shares of Common Stock it may issue by the "Cap Regulations," to the extent that the Company cannot issue such shares of Common Stock, due upon a Notice of Conversion, without violating the Cap Regulations, the Company shall immediately notify Buyer the number of shares of the Series F Preferred Stock which are not convertible as a result of said Cap Regulations (the "Unconverted Preferred Stock") and within five (5) Business Days of the applicable Notice of Conversion redeem the Unconverted Preferred Stock for an amount in cash (the "Redemption Amount") equal to the "Economic Benefit" of -77- such Unconverted Preferred Stock. "ECONOMIC BENEFIT" for purposes of this Article XIII shall mean the dollar value derived if such Unconverted Preferred Stock were converted into Common Stock as set forth in the Notice of Conversion and the Common Stock was sold on the date of the Notice of Conversion at the Closing Bid Price of the Common Stock on the date of the Notice of Conversion. IN WITNESS WHEREOF, I have subscribed my name this 17th day of February, 2000. GLOBAL MAINTECH CORPORATION By: /s/ James Geiser -------------------------------- Name: James Geiser Title: Secretary -78- ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION OF GLOBAL MAINTECH CORPORATION 6. The name of the corporation is Global MAINTECH Corporation, a Minnesota corporation. 7. The amendment adopted is: "Paragraph 3.1 of Article 3 of the Company's Third Amended and Restated Articles of Incorporation is hereby amended as follows: 3.1 Designation and Number. The aggregate number of authorized shares of the corporation is 18,500,000 shares, no par value, of which 887.980 shares shall be designated Series A Convertible Preferred Stock (the "Series A Preferred Stock") be designated Series A Convertible Preferred Stock (the "Series A Preferred Stock"), 123,077 shall be designated Series B Convertible Cumulative Preferred Stock (the "Series B Preferred Stock"), 1,675 shall be designated as Series C Convertible Preferred Stock (the "Series C Preferred Stock"), and 9,698,992 shares shall be divisible into such classes and series, have such designations, voting rights, and other rights and preferences and be subject to such restriction as the Board of Directors of the corporation may from time to time establish, fix and determine consistent with the provisions hereof. Unless otherwise designated in these Third Restated Articles by the Board of Directors, all issued shares shall be deemed "Common Stock" (as defined in Section 3.4(d)) with equal rights and preferences. The rights, preferences, privileges and restrictions granted to and imposed upon the Common Stock, the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock are set forth in this Article 3." 8. The amendment has been adopted pursuant to Section 139 of the Minnesota Business Corporation Act. IN WITNESS WHEREOF, the undersigned, James Geiser, Secretary of Global MAINTECH Corporation, being duly authorized on behalf of Global MAINTECH Corporation, has executed this document this 7th day of April, 2000. /s/ James Geiser -------------------------------------- James Geiser, Secretary -79- ARTICLES OF CORRECTION OF GLOBAL MAINTECH CORPORATION In order to correct the Global MAINTECH Corporation Certificate of Designation of Series D Convertible Preferred Stock as filed with the Minnesota Secretary of State on March 3, 2000, in accordance with the provisions set forth in Minnesota Statutes Section 5.16, the undersigned hereby makes the following statements: 9. The name of the person who filed the instrument is James Geiser. 10. The instrument to be corrected is the Global MAINTECH Corporation Certificate of Designation of Series F Convertible Preferred Stock a filed with the Minnesota Secretary of State on March 3, 2000. 11. The errors to be corrected are in the heading, in the first paragraph, in Article II, in Article V and in Article IX. 12. The attached Corrected Global MAINTECH Corporation Certificate of Designation of Series F Convertible Preferred Stock reflects the corrections (the attached is marked to show the corrections). IN WITNESS WHEREOF, I have subscribed my name this 21st day of April, 2000. /s/ James Geiser -------------------------------------- James Geiser, Secretary -80- CORRECTED CERTIFICATE OF DESIGNATION OF SERIES F CONVERTIBLE PREFERRED STOCK OF GLOBAL MAINTECH CORPORATION (Adopted pursuant to the Minnesota Business Corporation Act) The undersigned hereby certifies that the Board of Directors of GLOBAL MAINTECH CORPORATION, a Minnesota corporation (the "COMPANY"), duly adopted the following resolutions effective as of February 16, 2000: RESOLVED, a series of preferred stock of the Company is created and the relative rights, preferences, and limitations of the shares of such series are as follows: I. Designation and Amount. The shares of such series of Preferred Stock shall be designated as "Series F Convertible Preferred Stock" (the "SERIES F PREFERRED STOCK") and the number of shares constituting the Series F Preferred Stock shall be 2,000. The Series F Preferred Stock shall have a stated value (the "STATED VALUE") of $1,000 per share. II. Dividends. A. The holders of shares of Series F Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, subject to the prior declaration or payment of any dividend to which the holders of Series A Convertible Preferred Stock of the Company (the "SERIES A Stock") the Series B Convertible Cumulative Preferred Stock of the Company (the "SERIES B STOCK") the Series D Convertible Preferred Stock of the Company (the "SERIES D STOCK") and the Series E Convertible Preferred Stock of the Company (the "SERIES E STOCK") are entitled, and prior to, and in preference to, any declaration or payment of any dividend on the Common Stock of this Company, at a per share rate equal to eight percent (8%) per annum of the amount of the Stated Value of the Series F Preferred Stock, which is payable upon conversion (based upon a 365 calendar day year) as set forth below. Dividends shall begin to accrue as of the Issuance Date (as defined below). Any dividends payable pursuant to the provisions of this paragraph shall, at the Company's option, be payable in cash, or unrestricted shares of Common Stock of the Company within five Business Days (as defined below) of when due. The number of shares of Common Stock to be issued by the Company in lieu of a cash payment for dividends due as set forth herein shall be equal to the number of shares of Common Stock resulting from -81- dividing the dollar amount of dividends owed by the Conversion Price (as defined below) on such date as the dividends are payable (if such date is not a Trading Day, then the next Trading Day (as defined below) immediately thereafter). B. Such dividends shall accrue on each share of Series F Preferred Stock from the Issuance Date, and shall accrue from day to day whether or not earned or declared. Such dividends shall be cumulative so that if such dividends in respect of any previous or current annual dividend period, at the annual rate specified above, shall not have been paid or declared and a sum sufficient for the payment thereof set apart, for all Series F Preferred Stock at the time outstanding, the deficiency shall first be fully paid before any dividend or other distribution shall be paid on or declared or set apart for the Series F Preferred Stock, Common Stock or other security of the Company subordinate in liquidation to the Series F Preferred Stock. Dividends on the Series F Preferred Stock shall be non-participating and the holders of the Series F Preferred Stock shall not be entitled to participate in any other dividends beyond the cumulative dividends specified herein. III. Liquidation, Dissolution or Winding Up. A. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, subject to the prior liquidation preference of the holders of Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E Stock, and prior and in preference to any distribution of any assets of the Company to the holders of Common Stock, holders of each share of Series F Preferred Stock shall be entitled to receive out of the assets available for distribution to shareholders the Stated Value per share of Series F Preferred Stock plus eight percent (8%) per annum thereon from the Issuance Date (as defined below) to the Trading Day (as defined below) immediately prior to such liquidation, dissolution or winding up of the Company (the "LIQUIDATION AMOUNT"). B. Upon the completion of any required distribution to the holders of the Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E Stock, if the assets of the Company available for distribution to shareholders shall be insufficient to pay the holders of shares of Series F Preferred Stock the full Liquidation Amount to which they shall be entitled, then any such distribution of assets of the Company shall be distributed ratably to the holders of shares of Series F Preferred Stock. C. After the payment of the Liquidation Amount shall have been made in full to the holders of the Series F Preferred Stock or funds necessary for such payment shall have been set aside by the Company in trust for the account of holders of the Series F Preferred Stock so as to be available for such payments, the holders of the Series F Preferred Stock shall be entitled to no further participation in the distribution of the assets of the Company, and the remaining assets of the Company legally available for distribution to shareholders shall be distributed among the holders of Common Stock and any other classes or series of Preferred Stock of the Company in accordance with their respective terms. -82- IV. Voting. Holders of Series F Preferred Stock shall have no voting rights except as expressly required by law or as expressly provided herein. V. Conversion of Series F Preferred Stock. The holders of Series F Preferred Stock shall have the right, at such holder's option, to convert the Series F Preferred Stock into shares of Common Stock, on the following terms and conditions: A. Subject to the provisions of Section XI hereof, at any time or times after the earlier of (i) 61 days following the Effective Date, or (ii) 61 days following the Issuance Date, any holder of the Series F Preferred Stock shall be entitled to convert any whole number of such holder's shares of Series F Preferred Stock into that number of fully paid and nonassessable shares of Common Stock, which is determined (per share of Series F Preferred Stock) by dividing (x) $1,000, by (y) the Conversion Price (as defined below) (the "CONVERSION RATE"). B. For purposes of this Certificate of Designation, the following terms shall have the following meanings: A "BUSINESS DAY" shall be any day other than a Saturday, Sunday, national holiday or a day on which the New York Stock Exchange is closed. The "CLOSING BID PRICE" shall mean, for any security as of any date, the last closing bid price for such security on the Nasdaq Stock Market as reported by Bloomberg L.P. ("BLOOMBERG"), or, if the Nasdaq Stock Market is not the principal trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price of such security in the over-the-counter market on the NASD OTC Electronic Bulletin Board for such security as reported by Bloomberg, or, the last closing trade price of such security as reported by Bloomberg, or, if no last closing bid or trade price is reported for such security by Bloomberg, the closing bid price shall be determined by reference to the closing bid price as reported on the Principal Market. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually agreed by the Company and the holders of two thirds of the outstanding shares of Series F Preferred Stock. The "CONVERSION PRICE" shall mean, as of any Conversion Date (as defined below) the lesser of (i) $6.75 (the lowest Closing Bid Price of the Common Stock over the ten Trading Days ending on the Trading Day immediately prior to February 17, 2000) (the "Maximum Conversion Price") or (ii) 75% of the average of the three lowest Closing Bid Prices of the Common Stock during the 15 Trading Days (the "LOOKBACK PERIOD") immediately prior to the Conversion Date. On the last Trading Day of each month, starting on the first day of the fourth calendar month immediately following the Issuance Date, the Lookback Period will be increased by two Trading Days until the Lookback Period equals a maximum of 30 Trading Days. -83- "EFFECTIVE DATE" shall mean the date on which the Securities and Exchange Commission (the "SEC") first declares effective a Registration Statement registering the resale of up to 200% of the greater of (i) the number of shares of Common Stock issuable upon conversion of all of the Series F Preferred Stock outstanding on the Trading Day immediately preceding the day such Registration Statement is filed (ii) the number of shares of Common Stock issuable upon conversion of all of the Series F Preferred Stock outstanding on the Trading Day immediately preceding the day any amendment to such Registration Statement is filed. The "ISSUANCE DATE" shall mean, with respect to each share of Series F Preferred Stock, the date of issuance of the applicable share of Series F Preferred Stock. A "TRADING DAY" shall mean a day on which the Principal Market is open. The "PRINCIPAL MARKET" shall mean the Nasdaq National Market, the Nasdaq Small Cap Stock Market, the American Stock Exchange, the NASD OTC Electronic Bulletin Board operated by the National Association of Securities Dealers, Inc., or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock. Holders of Series F Preferred Stock may exercise their right to convert the Series F Preferred Stock by telecopying an executed and completed notice of conversion in the agreed upon form (the "NOTICE OF CONVERSION") to the Company and delivering to Company the original Notice of Conversion and the certificate representing the Series F Preferred Stock being converted by reputable overnight courier within three (3) Business Days thereafter. Each Business Day (between the hours of 6:30 a.m. and 4:00 p.m. Pacific Time) on which a Notice of Conversion is telecopied to and received by the Company shall be deemed a "CONVERSION DATE." The Company will deliver the certificates representing shares of Common Stock issuable upon conversion of any share of Series F Preferred Stock (together with the certificates representing the share or shares of Series F Preferred Stock not so converted) to the holder thereof via reputable overnight courier, by electronic transfer or otherwise within five Business Days after the later of (i) receipt by the Company of the original Notice of Conversion and the certificate representing the Series F Preferred Stock being converted, and (ii) the Conversion Date (the "DELIVERY DATE"). In addition to any other remedies which may be available to the holders of shares of Series F Preferred Stock, in the event that the Company fails to deliver such shares of Common Stock within five Business Days after the Delivery Date, the holder will be entitled to revoke the relevant Notice of Conversion by delivering a notice (by similar method) to such effect to the Company whereupon the Company and such holder shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion. The Notice of Conversion and Series F Preferred Stock certificates representing the portion of the Series F Preferred Stock converted shall be delivered as follows: -84- To the Company: Global MAINTECH Corporation 7578 Market Place Drive Eden Prairie, MN 55344 Attention: CEO Telephone: (612) 944-0400 Facsimile: (612) 944-3311 with a copy to: Dorsey & Whitney LLP Pillsbury Center South 220 South Sixth Street Minneapolis, Minnesota 55402-1498 Attention: Ken Cutler Telephone: (612) 340-2740 Facsimile: (612) 340-8378 The Company understands that a delay in the issuance of the shares of Common Stock beyond the Delivery Date could result in economic loss to the holder. As compensation to the holder for such loss, the Company agrees to pay late payments to the holder in the event that Company's failure to issue and deliver the shares on the Delivery Date in accordance with the following schedule (where "No. Business Days Late" is defined as the number of Business Days beyond five (5) Business Days after the Delivery Date): Late Payment For Each $10,000 of Preferred Stock Liquidation No. Business Days Late Amount Being Converted ---------------------- ---------------------- 1 $100 2 $200 3 $300 4 $400 5 $500 >5 $500 + $200 for each Business Day Late beyond 10 days from The Delivery Date The Company shall pay any payments incurred under this Section in immediately available funds upon demand. Nothing herein shall limit the holder's right to pursue actual damages or to cause the Company to redeem the Preferred Shares as provided below for the Company's actions or inactions resulting in the transfer agent's failure to issue and deliver the -85- Common Stock to the holder. Furthermore, in addition to any other remedies which may be available to the holder, in the event that the Company fails to deliver such shares of Common Stock within five (5) Business Days after the Delivery Date, the Holder will be entitled to revoke the relevant Notice of Conversion by delivering a notice to such effect to the Company whereupon the Company and the holder shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion. In the event the Company's actions or inactions result in the transfer agent's failure to issue and deliver the Common Stock to the holder within ten (10) days after the Delivery Date, holder may, at its option, require the Company (without limiting its other remedies hereunder) to immediately redeem all outstanding Preferred Stock in accordance with Section XI hereof. If, by the relevant Delivery Date, the Company fails for any reason to deliver the Shares to be issued upon conversion of the Preferred Stock and after such Delivery Date, the holder of the Preferred Stock being converted (a "Converting Holder") purchases, in an open market transaction or otherwise, shares of Common Stock (the "Covering Shares") in order to make delivery in satisfaction of a sale of Common Stock by the Converting Holder made after a Conversion Date (the "Sold Shares"), which delivery such Converting Holder anticipated to make using the Shares to be issued upon such conversion (a "Buy-In"), the Company shall pay to the Converting Holder, in addition to all other amounts contemplated in other provisions of this Certificate of Designation and other agreements related hereto, and not in lieu thereof, the Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the amount equal to the excess, if any, of (x) the Converting Holder's total purchase price (including brokerage commissions, if any) for the Covering Shares over (y) the net proceeds (after brokerage commissions, if any) received by the Converting Holder from the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Converting Holder in immediately available funds immediately upon demand by the Converting Holder. By way of illustration and not in limitation of the foregoing, if the Converting Holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required to pay to the Converting Holder will be $1,000. The remedies set forth in this Section V.B. shall be cumulative. C. If the Common Stock issuable upon the conversion of the Series F Preferred Stock shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise, then and in each such event, the holders of Series F Preferred Stock shall have the right thereafter to convert such shares into the kind and amount of shares of stock and other securities and property receivable upon such capital reorganization, reclassification or other change which such holders would have received had their shares of Series F Preferred Stock been converted immediately prior to such capital reorganization, reclassification or other change. D. If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section) or a merger or consolidation of the Company with or into -86- another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (any of which events is herein referred to as a "REORGANIZATION"), then as a part of such Reorganization, provision shall be made so that the holders of the Series F Preferred Stock shall thereafter be entitled to receive upon conversion of the Series F Preferred Stock, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such Reorganization, to which such holder would have been entitled if such holder had converted its shares of Series F Preferred Stock immediately prior to such Reorganization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section with respect to the rights of the holders of the Series F Preferred Stock after the Reorganization, to the end that the provisions of this Section (including adjustment of the number of shares issuable upon conversion of the Series F Preferred Stock) shall be applicable after that event in as nearly equivalent a manner as may be practicable. E. Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series F Preferred Stock as provided herein, the Company, 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 F Preferred Stock a certificate executed by the president and chief financial officer (or in the absence of a person designated as the chief financial officer, by the treasurer) setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment are based. The Company shall, upon written request at any time of any holder of Series F Preferred Stock, furnish or cause to be furnished to such holder a certificate setting forth (A) the Conversion Price at the time in effect, and (B) the number or 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 Series F Preferred Stock. F. Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of any Series F Preferred Stock certificate(s), and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon the cancellation of the Series F Preferred Stock certificate(s), if mutilated, the Company shall execute and deliver new certificates for Series F Preferred Stock of like tenure and date. However, the Company shall not be obligated to reissue such lost or stolen certificates for shares of Series F Preferred Stock if the holder contemporaneously requests the Company to convert such shares of Series F Preferred Stock into Common Stock. G. The Company shall not issue any fraction of a share of Common Stock upon any conversion. The Company shall round such fraction of a share of Common Stock up to the nearest whole share. H. In the event some but not all of the shares of Series F Preferred Stock represented by a certificate or certificates surrendered by a holder are converted, the Company shall execute and deliver to or on the order of the holder, at the expense of the Company, a new certificate representing the number of shares of Series F Preferred Stock which were not converted. I. Each share of Series F Preferred Stock outstanding two years from the Issuance Date shall automatically be converted into Common Stock on such date at the Conversion Price and such date shall be deemed the Conversion Date with respect to such shares. -87- J. The Company shall pay any and all original issue and/or transfer taxes which may be imposed upon it with respect to the issuance and delivery of Common Stock upon conversion of the Series F Preferred Stock. K. Subject to the provisions of this Section, if the Company at any time shall issue any shares of Common Stock prior to the conversion of the entire Stated Value of the Series F Preferred Stock and dividends on such Series F Preferred Stock, otherwise than: (i) pursuant to options, warrants, or other obligations to issue shares outstanding on the date hereof (including issuances pursuant to the Company's proposed transaction with Breece Hill Technologies, Inc.) as described in writing to the holders prior to the Issuance Date or in SEC filings made by the Company prior to the Issuance Date, or (ii) all shares reserved for issuance pursuant to the Company's existing stock option, incentive, or other similar plan, which plan and which grant is approved by the Board of Directors of the Company ((i) and (ii) collectively referred to as the "EXISTING OBLIGATIONS"), for a consideration less than the fixed Conversion Price set forth in (i) of the definition of Conversion Price in Section V.B. above (as adjusted from the date hereof (the "FIXED CONVERSION PRICE"), then, and thereafter successively upon each such issue, the fixed Conversion Price shall, from such date forward, equal the resulting quotient of the following formula: (y) the number of shares of Common Stock outstanding immediately prior to such issue shall be multiplied by the Fixed Conversion Price in effect at the time of such issue and the product shall be added to the aggregate consideration, if any received by the Company upon such issue of additional shares of Common Stock; and (z) the sum so obtained shall be divided by the number of shares of Common Stock outstanding immediately after such issue. Except for the Existing Obligations and options that may be issued under any employee incentive stock option and/or any qualified stock option plan adopted by the Company, for purposes of this adjustment, the issuance of any security of the Company carrying the right to convert such security into shares of Common Stock or of any warrant, right, or option to purchase Common Stock shall result in an adjustment to the Fixed Conversion Price upon the issuance of shares of Common Stock upon exercise of such conversion or purchase rights. L. In the event a holder shall elect to convert any share or shares of Series F Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such holder or anyone associated or affiliated with such holder has been engaged in any violation of law, unless an injunction from a court, restraining and/or enjoining conversion of all or part of said shares of Series F Preferred Stock shall have been issued and the Company posts a surety bond for the benefit of such holder in the amount of 133% of the Stated Value of the Series F Preferred Stock and dividends sought to be converted, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such holder in the event it obtains a favorable judgment. VI. No Reissuance of Series F Preferred Stock. No share or shares of Series F Preferred Stock acquired by the Company by reason of purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Company shall be -88- authorized to issue. The Company may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of the Series F Preferred Stock accordingly. VII. Reservation of Shares. The Company shall, so long as any share or shares of the Series F Preferred Stock are outstanding reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series F Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series F Preferred Stock then outstanding; provided that the number of shares of Common Stock so reserved shall be up to 200% of the number of shares of Common Stock for which the Series F Preferred Stock are at any time convertible and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to maintain such number of shares of Common Stock, the Company shall immediately take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. VIII. Restrictions and Limitations. A. Except as expressly provided herein or as required by law, so long as any shares of Series F Preferred Stock remain outstanding, the Company shall not, without the approval by vote or written consent by the holders of at least two thirds of the then outstanding shares of Series F Preferred Stock, voting as a separate class take any action that would adversely affect the rights, preferences or privileges of the holders of Series F Preferred Stock. B. Without limiting the generality of the preceding paragraph, the Company shall not so long as any shares of Series F Preferred Stock remain outstanding amend its Articles of Incorporation without the approval by the holders of all of the then outstanding shares of Series F Preferred Stock if such amendment would: 1. create any other class or series of capital stock entitled to seniority as to the payment of dividends in relation to the holders of Series F Preferred Stock; 2. reduce the amount payable to the holders of Series F Preferred Stock upon the voluntary or involuntary liquidation, dissolution or winding up of the Company, or change the relative seniority of the liquidation preferences of the holders of Series F Preferred Stock to the rights upon liquidation of the holders of other capital stock of the Company, 3. cancel or modify the conversion rights of the holders of Series F Preferred Stock provided for in Section V herein; or 4. cancel or modify the rights of the holders of the Series F Preferred Stock provided for in this Section. -89- IX. No Dilution or Impairment. A. The Company shall not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Certificate of Designation set forth herein, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the holders of the Series F Preferred Stock against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) shall not establish a par value of any shares of stock receivable on the conversion of the Series F Preferred Stock above the amount payable therefor on such conversion, (b) shall take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the conversion of all Series F Preferred Stock from time to time outstanding, and (c) shall not consolidate with or merge into any other person or entity, or permit any such person or entity to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person or entity shall expressly assume in writing and will be bound by all of the terms of the Series F Preferred Stock set forth herein. B. If the Company at any time after the Issuance Date shall issue any shares of Common Stock prior to the conversion of all shares of the Series F Preferred and the dividends thereon, including without limitation, shares of Common Stock issued (i) pursuant to options (including those options delivered pursuant to any employee, officer or director stock option plan), warrants, or other contractual obligations, (ii) upon any private placement or secondary offering (iii) as a result of a stock dividend or split, then upon each such issuance of Common Stock the Maximum Conversion Price shall be reduced by: (y)(I) the number of shares of Common Stock outstanding immediately prior to such issuance, multiplied by the Maximum Conversion Price in effect at the time of such issuance, plus (II) the aggregate sum, if any, received by the Company in consideration for such issuance; divided by (z) the number of shares of Common Stock outstanding immediately after such issuance. X. 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, or B. any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger of the Company, or any transfer of all or substantially all of the assets of the Company to any other corporation, or any other entity or person, or C. any voluntary or involuntary dissolution, liquidation or winding up of the Company, then and in each such event the Company shall mail or cause to be mailed to each holder of Series F Preferred Stock 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 a description of such dividend, -90- distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up is expected to become effective and (iii) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up. Such notice shall be mailed at least ten Business Days prior to the date specified in such notice on which such action is to be taken. XI. Redemption. A. For so long as the Company has not received a Notice of Conversion for such shares, the Company may, at its option, repay, in whole or in part, the Series F Preferred Stock shares at the Redemption Price (as defined below). The Series F Preferred Stock is redeemable as a series, in whole or in part, by the Company by providing written notice (the "REDEMPTION NOTICE") to the holder of the Series F Preferred Stock via facsimile at his or her address as the same shall appear on the books of the Company (the Business Day between the hours of 6:30 a.m. and 4:00 p.m. Pacific Time the Redemption Notice is received by the holders of the Series F Preferred Stock via facsimile is defined to be the "REDEMPTION NOTICE DATE"). Within ten Trading Days after the Redemption Notice Date the Company shall make payment of the Redemption Price (as defined below) in immediately available funds to the holder for the shares of Series F Preferred Stock which are the subject of the Redemption Notice (such date of payment referred to as the "REDEMPTION DATE"). Partial redemptions shall be in an aggregate principal amount of at least $100,000. If fewer than all of the outstanding shares of Series F Preferred Stock are to be redeemed, the Company will select those to be redeemed pro-rata amongst the then holders of the Series F Preferred Stock based on the number of shares of Series F Preferred Stock then outstanding. B. In the event the Company serves a Redemption Notice, the Redemption Price shall be equal to the greater of (i) 125% of the Stated Value of the shares of Series F Preferred Stock which are subject to such Redemption Notice, plus all accrued but unpaid dividends on such shares, or (ii) the "Economic Benefit" of the shares of Series F Preferred Stock which are the subject of such Redemption Notice. "ECONOMIC BENEFIT" shall mean the dollar value derived if the shares of Series F Preferred Stock which were the subject of the Redemption Notice were converted on the Redemption Notice Date and sold on the Redemption Notice Date at the Closing Bid Price of the Common Stock on the Redemption Notice Date. C. The Notice of Redemption shall set forth (i) the Redemption Date and the place fixed for redemption, (ii) the Redemption Price, (iii) a statement that dividends on the shares of Series F Preferred Stock to be redeemed will cease to accrue on such Redemption Date, (iv) a statement of or reference to the conversion right set forth herein, and (v) confirmation that the Company has the full Redemption Price reserved as set forth in F. below. If fewer than all the shares of the Series F Preferred Stock owned by such holders are then to be redeemed, the notice shall specify the number of shares thereof that are to be redeemed and, if practicable, the -91- numbers of the certificates representing such shares. Within five Trading Days of the Redemption Notice Date, the Company shall wire transfer the appropriate amount of funds to the holders of the Series F Preferred Stock. If the Company fails to comply with the redemption provisions set forth herein by the sixth Trading Day after the Redemption Notice Date (or in the case of a public offering as contemplated in F below, by the sixth Trading Day after the Redemption Notice Date) relating to the Redemption Notice, the redemption will be declared null and void and the Company shall not be permitted to serve another Redemption Notice. For the first five Trading Days after the Redemption Notice Date, the holders of the Series F Preferred Stock will retain their conversion rights with respect to a maximum of twenty percent (20%) of the number of shares subject to the redemption. If the holders of the Series F Preferred Stock elect to so convert the Series F Preferred Stock after the receipt of the Redemption Notice, the Company must receive notice of such election within twenty-four (24) hours from the time the Redemption Notice was received by the holders of the Series F Preferred Stock. In the event the Company has not complied with the redemption provisions set forth herein the Company must comply with the delivery requirements of any then outstanding Conversion Notice as set forth herein. The holders shall send the shares of Series F Preferred Stock being redeemed or converted to the Company within three (3) Business Days after they have received good funds for the Redemption Price of the redeemed shares. D. Subject to the receipt by the holders of the Series F Preferred Stock being redeemed of the wire transfer of the Redemption Price as described above, each share of Series F Preferred Stock to be redeemed shall be automatically canceled and converted into a right to receive the Redemption Price, and all rights of the Series F Preferred Stock, including the right to conversion shall cease without further action. E. The Redemption Price shall be adjusted proportionally upon any adjustment of the Conversion Price as provided herein and in the event of any stock dividend, stock split, combination of shares or similar event. F. The Company shall not be entitled to send any Redemption Notice and begin the redemption procedure hereunder unless it has: (a) the full amount of the Redemption Price in cash, available in a demand or other immediately available account in a bank or similar financial institution, specifically allotted for such redemption; (b) immediately available credit facilities, in the full amount of the Redemption Price with a bank or similar financial institution specifically allotted for such redemption; or (c) a combination of the items set forth in (i) and (ii) above, aggregating the full amount of the Redemption Price. -92- Notwithstanding the foregoing, in the event the redemption is expected to be made contemporaneously with the closing of a public offering of the Company's securities for an amount in excess of the Redemption Price, the Company shall not be required to have the full amount of the Redemption Price available to it as set forth above. XII. 4.99% Limitation. Notwithstanding the provisions hereof, in no event shall each holder be entitled to convert any shares of the Series F Preferred Stock to the extent that, after such conversion, the sum of (1) the number of shares of Common Stock beneficially owned by such holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted shares of the Series F Preferred Stock), and (2) the number of shares of Common Stock issuable upon the conversion of the shares of Series F Preferred Stock with respect to which the determination of this proviso is being made, would result in beneficial ownership by such holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Any issuance by the Company to a holder in excess of the limit contained in this Paragraph shall be null and void, AB INITIO, and upon notice of such invalid issuance, the Company shall correct its books and cause its transfer agent's books to be corrected forthwith to reflect that the holder's ownership of Common Stock is within the limit set forth herein. Holder shall immediately deliver any certificates for invalidly issued Common Stock to the Company's transfer agent. The Company further agrees to (i) immediately reissue certificates for Common Stock to the extent that a portion of the Common Stock represented by said certificates have been validly issued and (ii) immediately reissue all or a portion of those shares which were deemed invalidly issued (at a price set forth in the original conversion notices applicable to such shares) upon notice from the holder that the reissuance of such shares would not cause such holder to have a beneficial ownership interest in excess of 4.99%. The Company hereby indemnifies and holds each holder free and harmless in connection with any and all liabilities, losses, costs and expenses, including, without limitation, attorneys' fees and costs arising from or relating to claims made by any third parties with respect to any and all purported violations by each holder under Sections 13(d) and 16 resulting from a conversion(s) of the Series F Preferred Stock, unless such claim arises from such holder's default of its obligations hereunder, or representations or warranties contained herein. The 4.99% limitation shall not apply to the automatic conversion upon the Maturity Date as contained herein. XIII "Cap Regulations". The Company shall take all steps reasonably necessary to be in a position to issue shares of Common Stock on conversion of the Series F Preferred Stock without violating the "Cap Regulations". If despite taking such steps, the Company is limited in the number of shares of Common Stock it may issue by the "Cap Regulations," to the extent that the Company cannot issue such shares of Common Stock, due upon a Notice of Conversion, without violating the Cap Regulations, the Company shall immediately notify Buyer the number of shares of the Series F Preferred Stock which are not convertible as a result of said Cap Regulations (the "Unconverted Preferred Stock") and within five (5) Business Days of the applicable Notice of Conversion redeem the Unconverted Preferred Stock for an amount in cash (the "Redemption Amount") equal to the "Economic Benefit" of -93- such Unconverted Preferred Stock. "ECONOMIC BENEFIT" for purposes of this Article XIII shall mean the dollar value derived if such Unconverted Preferred Stock were converted into Common Stock as set forth in the Notice of Conversion and the Common Stock was sold on the date of the Notice of Conversion at the Closing Bid Price of the Common Stock on the date of the Notice of Conversion. IN WITNESS WHEREOF, I have subscribed my name this 21st day of April, 2000. GLOBAL MAINTECH CORPORATION By: /s/ James Geiser ------------------------------- Name: James Geiser Title: Secretary -94- ARTICLES OF MERGER OF SINGLEPOINT SYSTEMS CORPORATION INTO GLOBAL MAINTECH CORPORATION The undersigned hereby certifies as follows: 1. The Plan of Merger attached hereto as Exhibit A, for the merger with and into Global MAINTECH Corporation of its wholly owned subsidiary, Singlepoint Systems Corporation, was duly adopted and approved by the board of directors of Global MAINTECH Corporation in accordance with Section 302A.621 of the Minnesota Business Corporation Act. 2. The number of outstanding shares of each class and series of stock of Singlepoint Systems Corporation is 10 shares of common stock, $.01 par value. All of the outstanding shares of such stock are owned by Global MAINTECH Corporation. 3. Since Singlepoint Systems Corporation has no shareholders other than Global MAINTECH Corporation, no copy of the Plan of Merger was mailed to any shareholder of Singlepoint Systems Corporation. IN WITNESS WHEREOF, the undersigned, being duly authorized on behalf of Global MAINTECH Corporation, has executed this document this 10th day of August, 2000. GLOBAL MAINTECH CORPORATION /s/ Trent Wong ---------------------------------------- By: Trent Wong ------------------------------------ Its: CEO ----------------------------------- -95- EXHIBIT A PLAN OF MERGER OF SINGLEPOINT SYSTEMS CORPORATION INTO GLOBAL MAINTECH CORPORATION 1. The name of the subsidiary corporation is Singlepoint Systems Corporation. 2. The name of the parent corporation is Global MAINTECH Corporation. 3. The parent corporation shall be the surviving corporation, and its name after the merger shall be Singlepoint Systems Corporation. 4. The merger shall be effective when articles of merger with respect to the merger are filed with the Minnesota secretary of state (the "Effective Date"). 5. Upon the Effective Date, all outstanding shares of each class and series of stock of the subsidiary corporation shall be canceled, and no shares of the surviving corporation shall be issued in lieu thereof. 6. Upon the Effective Date, the provisions of section 302A.641, subdivisions 2 and 3, of the Minnesota Business Corporation Act shall apply. -96- CERTIFICATE OF DESIGNATION OF SERIES G CONVERTIBLE PREFERRED STOCK OF SINGLEPOINT SYSTEMS CORPORATION (Adopted pursuant to Section 401 of the Minnesota Business Corporation Act) The undersigned hereby certifies that the Board of Directors of SINGLEPOINT SYSTEMS CORPORATION, a Minnesota corporation (the "COMPANY"), duly adopted the following resolutions effective as of August 9, 2000: RESOLVED, a series of preferred stock of the Company is created and the relative rights, preferences, and limitations of the shares of such series are as follows: I. Designation and Amount. The shares of such series of Preferred Stock shall be designated as "Series G Convertible Preferred Stock" (the "SERIES G PREFERRED STOCK"), and the number of shares constituting the Series G Preferred Stock shall be 1,000. The Series G Preferred Stock shall have a stated value (the "STATED VALUE") of $1,000 per share. II. Dividends. A. The holders of shares of Series G Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, subject to the prior declaration or payment of any dividend to which the holders of Series A Convertible Preferred Stock of the Company (the "SERIES A Stock"), the Series B Convertible Preferred Stock of the Company (the "SERIES B STOCK"), the Series D Convertible Preferred Stock of the Company (the "SERIES D STOCK"), the Series E Convertible Preferred Stock of the Company (the "SERIES E STOCK"), and the Series F Convertible Preferred Stock of the Company (the "SERIES F STOCK" and, together with the Series A Stock, Series B Stock, Series D Stock, and Series E Stock, the "PRIORITY PREFERRED STOCK)," are entitled, and prior to, and in preference to, any declaration or payment of any dividend on the common stock, no par value, of the Company (the "COMMON STOCK"), at a per share rate equal to eight percent (8%) per annum of the amount of the Stated Value of the Series G Preferred Stock, which is payable upon conversion (based upon a 365 calendar day year) as set forth below. Dividends shall begin to accrue as of the Issuance Date (as defined below). Any dividends payable pursuant to the provisions of this paragraph shall, at the Company's option, be payable in cash, or unrestricted shares of Common Stock of the Company within five Business Days (as defined below) of when due. The number of shares of Common Stock to be issued by the Company in lieu of a cash payment for dividends due as set forth herein shall be equal to the number of shares of Common Stock resulting from dividing the dollar amount of dividends owed by the Conversion Price (as defined below) on such date as the dividends are payable (if such date is not a Trading Day, then the next Trading Day (as defined below) immediately thereafter). -97- B. Such dividends shall accrue on each share of Series G Preferred Stock from the Issuance Date, and shall accrue from day to day whether or not earned or declared. Such dividends shall be cumulative so that if such dividends in respect of any previous or current annual dividend period, at the annual rate specified above, shall not have been paid or declared and a sum sufficient for the payment thereof set apart, for all Series G Preferred Stock at the time outstanding, the deficiency shall first be fully paid before any dividend or other distribution shall be paid on or declared or set apart for the Series G Preferred Stock, Common Stock or other security of the Company subordinate in liquidation to the Series G Preferred Stock. Dividends on the Series G Preferred Stock shall be non-participating and the holders of the Series G Preferred Stock shall not be entitled to participate in any other dividends beyond the cumulative dividends specified herein. III. Liquidation, Dissolution or Winding Up. A. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, subject to the prior liquidation preference of the holders of the Priority Preferred Stock and prior and in preference to any distribution of any assets of the Company to the holders of Common Stock, holders of each share of Series G Preferred Stock shall be entitled to receive out of the assets available for distribution to shareholders the Stated Value per share of Series G Preferred Stock plus eight percent (8%) per annum thereon from the Issuance Date (as defined below) to the Trading Day (as defined below) immediately prior to such liquidation, dissolution or winding up of the Company (the "LIQUIDATION AMOUNT"). B. Upon the completion of any required distribution to the holders of the Priority Preferred Stock, if the assets of the Company available for distribution to shareholders shall be insufficient to pay the holders of shares of Series G Preferred Stock the full Liquidation Amount to which they shall be entitled, then any such distribution of assets of the Company shall be distributed ratably to the holders of shares of Series G Preferred Stock. C. After the payment of the Liquidation Amount shall have been made in full to the holders of the Series G Preferred Stock or funds necessary for such payment shall have been set aside by the Company in trust for the account of holders of the Series G Preferred Stock so as to be available for such payments, the holders of the Series G Preferred Stock shall be entitled to no further participation in the distribution of the assets of the Company, and the remaining assets of the Company legally available for distribution to shareholders shall be distributed among the holders of Common Stock and any other classes or series of Preferred Stock of the Company in accordance with their respective terms. IV. Voting. Holders of Series G Preferred Stock shall have no voting rights except as expressly required by law or as expressly provided herein. V. Conversion of Series G Preferred Stock. The holders of Series G Preferred Stock shall have the right, at such holder's option, to convert the Series G Preferred Stock into shares of Common Stock, on the following terms and conditions: -98- A. Subject to the provisions of Section XI hereof, at any time or times after the Issuance Date any holder of the Series G Preferred Stock shall be entitled to convert any whole number of such holder's shares of Series G Preferred Stock into that number of fully paid and nonassessable shares of Common Stock, which is determined (per share of Series G Preferred Stock) by dividing (x) $1,000, by (y) the Conversion Price (as defined below) (the "CONVERSION RATE"). B. For purposes of this Certificate of Designation, the following terms shall have the following meanings: A "BUSINESS DAY" shall be any day other than a Saturday, Sunday, national holiday or a day on which the New York Stock Exchange is closed. The "CLOSING BID PRICE" shall mean, for any security as of any date, the last closing bid price for such security on the Nasdaq Stock Market as reported by Bloomberg L.P. ("BLOOMBERG"), or, if the Nasdaq Stock Market is not the principal trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price of such security in the over-the-counter market on the NASD OTC Electronic Bulletin Board for such security as reported by Bloomberg, or, the last closing trade price of such security as reported by Bloomberg, or, if no last closing bid or trade price is reported for such security by Bloomberg, the closing bid price shall be determined by reference to the closing bid price as reported on the Principal Market. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually agreed by the Company and the holders of two thirds of the outstanding shares of Series G Preferred Stock. The "CONVERSION PRICE" shall mean, as of any Conversion Date (as defined below) the lesser of (i) $1.62 (the "MAXIMUM CONVERSION PRICE") or (ii) 75% of the average of the three lowest Closing Bid Prices of the Common Stock during the 15 Trading Days (the "LOOKBACK PERIOD") immediately prior to the Conversion Date. On the last Trading Day of each month, starting on the first day of the fourth calendar month immediately following the Issuance Date, the Lookback Period will be increased by two Trading Days until the Lookback Period equals a maximum of 30 Trading Days. "EFFECTIVE DATE" shall mean the date on which the Securities and Exchange Commission (the "SEC") first declares effective a Registration Statement registering the resale of 200% of the greater of (i) the number of shares of Common Stock issuable upon conversion of all of the Series G Preferred Stock outstanding on the Trading Day immediately preceding the day such Registration Statement is filed and (ii) the number of shares of Common Stock issuable upon conversion of all of the Series G Preferred Stock outstanding on the Trading Day immediately preceding the day any amendment to such Registration Statement is filed. -99- The "ISSUANCE DATE" shall mean, with respect to each share of Series G Preferred Stock, the date of issuance of the applicable share of Series G Preferred Stock. A "TRADING DAY" shall mean a day on which the Principal Market is open. The "PRINCIPAL MARKET" shall mean the Nasdaq National Market, the Nasdaq Small Cap Stock Market, the American Stock Exchange, the NASD OTC Electronic Bulletin Board operated by the National Association of Securities Dealers, Inc., or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock. Holders of Series G Preferred Stock may exercise their right to convert the Series G Preferred Stock by telecopying an executed and completed notice of conversion in the agreed upon form (the "NOTICE OF CONVERSION") to the Company and delivering to Company the original Notice of Conversion and the certificate representing the Series G Preferred Stock being converted by reputable overnight courier within three (3) Business Days thereafter. The term "CONVERSION DATE" shall mean, with respect to any conversion elected by the holder of the Series G Preferred Stock, the date specified in the Notice of Conversion, provided that the copy of the Notice of Conversion is telecopied to or otherwise delivered to the Company in accordance with the provisions hereof so that is received by the Company on or before such specified date. The Company will deliver the certificates representing shares of Common Stock issuable upon conversion of any share of Series G Preferred Stock (together with the certificates representing the share or shares of Series G Preferred Stock not so converted) to the holder thereof via reputable overnight courier, by electronic transfer or otherwise within three Business Days after the Conversion Date, provided the Company has received the original Notice of Conversion and Series G Preferred Stock certificate being so converted on or before the close of business of the third Business Day after the Conversion Date. In addition to any other remedies which may be available to the holders of shares of Series G Preferred Stock, in the event that the Company fails to deliver such shares of Common Stock within such three Business Day period, the holder will be entitled to revoke the relevant Notice of Conversion by delivering a notice (by similar method) to such effect to the Company whereupon the Company and such holder shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion; provided that any such revocation shall not affect the Company's obligation to make the payments set forth below. The Notice of Conversion and Series G Preferred Stock certificates representing the portion of the Series G Preferred Stock converted shall be delivered as follows: -100- To the Company: Singlepoint Systems Corporation c/o Singlepoint Systems, Inc. 4020 Moorpark Avenue, Suite 115 San Jose, CA 95117-1845 Attention: Trent Wong, CEO Telephone: (408) 557-6500 Facsimile: (408) 557-6510 with a copy to: Dorsey & Whitney LLP Pillsbury Center South 220 South Sixth Street Minneapolis, Minnesota 55402-1498 Attention: Ken Cutler Telephone: (612) 340-2740 Facsimile: (612) 340-8378 The Company understands that a delay in the issuance of the shares of Common Stock beyond the later of the Conversion Date or the date on which the certificates representing Series G Preferred Stock subject to the Notice of Conversion have been delivered to the Company (the "DELIVERY DATE") could result in economic loss to the holder. As compensation to the holder for such loss, the Company agrees to make late payments to the holder in the event that the Company's failure to issue and deliver the shares on the Delivery Date in accordance with the following schedule (where "NO. BUSINESS DAYS Late" is the number of Business Days beyond three (3) Business Days after the Delivery Date): Late Payment For Each $10,000 of Preferred Stock Liquidation No. Business Days Late Amount Being Converted ---------------------- ---------------------- 1 $100 2 $200 3 $300 4 $400 5 $500 >5 $500 + $200 for each Business Day Late beyond 5 Business Days Late -101- The Company shall make any payments incurred under this Section in immediately available funds upon demand. Nothing herein shall limit the holder's right to pursue actual damages or to cause the Company to redeem the Series G Preferred Stock as provided below for the Company's actions or inactions resulting in the Company's transfer agent's failure to issue and deliver the Shares to the holder. In the event the Company's actions or inactions result in the transfer agent's failure to issue and deliver the Shares to the holder within ten (10) days after the Delivery Date, holder may, at its option, require the Company (without limiting its other remedies hereunder) to immediately redeem all outstanding Preferred Stock in accordance with Section XI hereof. If, by the Delivery Date, the Company fails for any reason to deliver the Shares to be issued upon conversion of the Series G Preferred Stock and after such Delivery Date, the holder of the Series G Preferred Stock being converted (a "CONVERTING HOLDER") purchases, in an open market transaction or otherwise, shares of Common Stock (the "COVERING SHARES") in order to make delivery in satisfaction of a sale of Common Stock by the Converting Holder made after a Conversion Date (the "SOLD SHARES"), which delivery such Converting Holder anticipated to make using the Common Stock to be issued upon such conversion (a "BUY-IN"), the Company shall pay to the Converting Holder, in addition to all other amounts contemplated in other provisions of this Certificate of Designation and other agreements related hereto, and not in lieu thereof, the Buy-In Adjustment Amount (as defined below). The "BUY-IN ADJUSTMENT AMOUNT" is the amount equal to the excess, if any, of (x) the Converting Holder's total purchase price (including brokerage commissions, if any) for the Covering Shares over (y) the net proceeds (after brokerage commissions, if any) received by the Converting Holder from the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Holder in immediately available funds immediately upon demand by the Converting Holder. By way of illustration and not in limitation of the foregoing, if the Converting Holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required to pay to the Converting Holder will be $1,000. The remedies set forth in this Section V.B shall be cumulative. C. If the Common Stock issuable upon the conversion of the Series G Preferred Stock shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise, then and in each such event, the holders of Series G Preferred Stock shall have the right thereafter to convert such shares into the kind and amount of shares of stock and other securities and property receivable upon such capital reorganization, reclassification or other change which such holders would have received had their shares of Series G Preferred Stock been converted immediately prior to such capital reorganization, reclassification or other change. D. If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section) or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (any of which events is herein referred to as a "REORGANIZATION"), then as a part of such Reorganization, provision shall be made so that each of the holders of the Series G Preferred -102- Stock shall thereafter be entitled to receive upon conversion of the Series G Preferred Stock, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such Reorganization, to which such holder would have been entitled if such holder had converted its shares of Series G Preferred Stock immediately prior to such Reorganization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section with respect to the rights of the holders of the Series G Preferred Stock after the Reorganization, to the end that the provisions of this Section (including adjustment of the number of shares issuable upon conversion of the Series G Preferred Stock) shall be applicable after that event in as nearly equivalent a manner as may be practicable. E. Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series G Preferred Stock as provided herein, the Company, 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 G Preferred Stock a certificate executed by the president and chief financial officer (or in the absence of a person designated as the chief financial officer, by the treasurer) setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon written request at any time of any holder of Series G Preferred Stock, furnish or cause to be furnished to such holder a certificate setting forth (A) the Conversion Price at the time in effect, and (B) the number or 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 Series G Preferred Stock. F. Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of any Series G Preferred Stock certificate(s), and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon the cancellation of the Series G Preferred Stock certificate(s), if mutilated, the Company shall execute and deliver new certificates for Series G Preferred Stock of like tenure and date. However, the Company shall not be obligated to reissue such lost or stolen certificates for shares of Series G Preferred Stock if the holder contemporaneously requests the Company to convert such shares of Series G Preferred Stock into Common Stock. G. The Company shall not issue any fraction of a share of Common Stock upon any conversion. The Company shall round such fraction of a share of Common Stock up to the nearest whole share. H. In the event some but not all of the shares of Series G Preferred Stock represented by a certificate or certificates surrendered by a holder are converted, the Company shall execute and deliver to or on the order of the holder, at the expense of the Company, a new certificate representing the number of shares of Series G Preferred Stock which were not converted. I. Each share of Series G Preferred Stock outstanding two years from the Issuance Date (the "MATURITY DATE") shall automatically be converted ("AUTOMATIC CONVERSION") into Common Stock on such date at the Conversion Price and such date shall be deemed the Conversion Date with respect to such shares; provided, however, that in the event that the Company is in default hereunder on the Maturity Date, Automatic Conversion shall not occur until the first Business Day following the date on which such default has been cured. -103- J. The Company shall pay any and all original issue and/or transfer taxes which may be imposed upon it with respect to the issuance and delivery of Common Stock upon conversion of the Series G Preferred Stock. K. [Reserved] L. In the event a holder shall elect to convert any share or shares of Series G Preferred Stock as provided herein, the Company may not refuse conversion based on any claim that such holder or anyone associated or affiliated with such holder has been engaged in any violation of law, unless an injunction from a court, restraining and/or enjoining conversion of all or part of said shares of Series G Preferred Stock shall have been issued and the Company posts a surety bond for the benefit of such holder in the amount of 133% of the Stated Value of the Series G Preferred Stock and dividends sought to be converted, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such holder in the event it obtains a favorable judgment. VI. No Reissuance of Series G Preferred Stock. No share or shares of Series G Preferred Stock acquired by the Company by reason of purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Company shall be authorized to issue. The Company may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of the Series G Preferred Stock accordingly. VII. Reservation of Shares. The Company shall, so long as any share or shares of the Series G Preferred Stock are outstanding reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series G Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series G Preferred Stock then outstanding; provided that the number of shares of Common Stock so reserved shall at no time be less than 200% of the number of shares of Common Stock for which the Series G Preferred Stock are at any time convertible and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to maintain such number of shares of Common Stock, the Company shall immediately take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. VIII. Restrictions and Limitations. A. Except as expressly provided herein or as required by law, so long as any shares of Series G Preferred Stock remain outstanding, the Company shall not, without the approval by vote or written consent by the holders of at least two thirds of the then outstanding shares of Series G Preferred Stock, voting as a separate class, take any action that would adversely affect the rights, preferences or privileges of the holders of Series G Preferred Stock. -104- B. Without limiting the generality of the preceding paragraph, the Company shall not so long as any shares of Series G Preferred Stock remain outstanding amend its Articles of Incorporation without the approval by the holders of all of the then outstanding shares of Series G Preferred Stock if such amendment would: 1. create any other class or series of capital stock entitled to seniority as to the payment of dividends in relation to the holders of Series G Preferred Stock; 2. reduce the amount payable to the holders of Series G Preferred Stock upon the voluntary or involuntary liquidation, dissolution or winding up of the Company, or change the relative seniority of the liquidation preferences of the holders of Series G Preferred Stock to the rights upon liquidation of the holders of other capital stock of the Company; 3. cancel or modify the conversion rights of the holders of Series G Preferred Stock provided for in Section V herein; or 4. cancel or modify the rights of the holders of the Series G Preferred Stock provided for in this Section. IX. No Dilution or Impairment. A. The Company shall not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Certificate of Designation set forth herein, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the holders of the Series G Preferred Stock against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) shall not establish a par value of any shares of stock receivable on the conversion of the Series G Preferred Stock above the amount payable therefor on such conversion, (b) shall take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the conversion of all Series G Preferred Stock from time to time outstanding, and (c) shall not consolidate with or merge into any other person or entity, or permit any such person or entity to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person or entity shall expressly assume in writing and will be bound by all of the terms of the Series G Preferred Stock set forth herein. B. If the Company at any time after the issuance of the Series G Preferred Stock shall issue any shares of Common Stock prior to the conversion of all shares of the Series G Preferred Stock and the dividends thereon, including without limitation, shares of Common Stock issued (i) pursuant to options (including those options delivered pursuant to any employee, officer or director stock option plan), warrants, or other contractual obligations, except for options, warrants, outstanding on the Issuance Date, (ii) upon any private placement or secondary -105- offering (iii) as a result of a stock dividend or split, then following each such issuance of Common Stock the Maximum Conversion Price shall equal the lesser of (A) the Maximum Conversion Price immediately prior to such issuance or (B) (y)(I) the number of shares of Common Stock outstanding immediately prior to such issuance, multiplied by the Maximum Conversion Price in effect at the time of such issuance, plus (II) the aggregate sum, if any, received by the Company in consideration for such issuance; divided by (z) the number of shares of Common Stock outstanding immediately after such issuance. X. 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, or B. any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger of the Company, or any transfer of all or substantially all of the assets of the Company to any other corporation, or any other entity or person, or C. any voluntary or involuntary dissolution, liquidation or winding up of the Company, then and in each such event the Company shall mail or cause to be mailed to each holder of Series G Preferred Stock 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 a description of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up is expected to become effective and (iii) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up. Such notice shall be mailed at least ten Business Days prior to the date specified in such notice on which such action is to be taken. XI. Redemption. A. For so long as the Company has not received a Notice of Conversion for such shares, the Company may, at its option, repay, in whole or in part, the Series G Preferred Stock shares at the Redemption Price (as defined below). The Series G Preferred Stock is redeemable as a series, in whole or in part, by the Company by providing written notice (the "REDEMPTION NOTICE") to the holder of the Series G Preferred Stock via facsimile at his or her address as the same shall appear on the books of the Company (the Business Day between the hours of 6:30 a.m. and 4:00 p.m. Pacific Time the Redemption Notice is received by the holders of the Series G Preferred Stock via facsimile is defined to be the "REDEMPTION NOTICE DATE"). Within ten Trading Days after the Redemption Notice Date the Company shall make payment of the Redemption Price (as defined below) in immediately available funds to the holder for the shares -106- of Series G Preferred Stock which are the subject of the Redemption Notice (such date of payment referred to as the "REDEMPTION DATE"). Partial redemptions shall be in an aggregate principal amount of at least $100,000. If fewer than all of the outstanding shares of Series G Preferred Stock are to be redeemed, the Company will select those to be redeemed pro-rata amongst the then holders of the Series G Preferred Stock based on the number of shares of Series G Preferred Stock then outstanding. B. In the event the Company serves a Redemption Notice, the Redemption Price shall be equal to the greater of (i) 125% of the Stated Value of the shares of Series G Preferred Stock which are subject to such Redemption Notice, plus all accrued but unpaid dividends on such shares, or (ii) the "ECONOMIC BENEFIT" of the shares of Series G Preferred Stock which are the subject of such Redemption Notice. "ECONOMIC BENEFIT" shall mean the dollar value derived if the shares of Series G Preferred Stock which were the subject of the Redemption Notice were converted on the Redemption Notice Date and sold on the Redemption Notice Date at the Closing Bid Price of the Common Stock on the Redemption Notice Date. C. The Notice of Redemption shall set forth (i) the Redemption Date and the place fixed for redemption, (ii) the Redemption Price, (iii) a statement that dividends on the shares of Series G Preferred Stock to be redeemed will cease to accrue on such Redemption Date, (iv) a statement of or reference to the conversion right set forth herein, and (v) confirmation that the Company has the full Redemption Price reserved as set forth in Section F below. If fewer than all the shares of the Series G Preferred Stock owned by such holders are then to be redeemed, the notice shall specify the number of shares thereof that are to be redeemed and, if practicable, the numbers of the certificates representing such shares. Within five Trading Days of the Redemption Notice Date, the Company shall wire transfer the appropriate amount of funds to the holders of the Series G Preferred Stock. If the Company fails to comply with the redemption provisions set forth herein by the sixth Trading Day after the Redemption Notice Date (or in the case of a public offering as contemplated in Section F below, by the sixth Trading Day after the Redemption Notice Date) relating to the Redemption Notice, the redemption will be declared null and void and the Company shall not be permitted to serve another Redemption Notice. For the first five Trading Days after the Redemption Notice Date, the holders of the Series G Preferred Stock will retain their conversion rights with respect to a maximum of twenty percent (20%) of the number of shares subject to the redemption. If the holders of the Series G Preferred Stock elect to so convert the Series G Preferred Stock after the receipt of the Redemption Notice, the Company must receive notice of such election within twenty-four (24) hours from the time the Redemption Notice was received by the holders of the Series G Preferred Stock. In the event the Company has not complied with the redemption provisions set forth herein the Company must comply with the delivery requirements of any then outstanding Conversion Notice as set forth herein. The holders shall send the shares of Series G Preferred Stock being redeemed or converted to the Company within three (3) Business Days after they have received good funds for the Redemption Price of the redeemed shares. -107- D. Subject to the receipt by the holders of the Series G Preferred Stock being redeemed of the wire transfer of the Redemption Price as described above, each share of Series G Preferred Stock to be redeemed shall be automatically canceled and converted into a right to receive the Redemption Price, and all rights of the Series G Preferred Stock, including the right to conversion, shall cease without further action. E. The Redemption Price shall be adjusted proportionally upon any adjustment of the Conversion Price as provided herein and in the event of any stock dividend, stock split, combination of shares or similar event. F. The Company shall not be entitled to send any Redemption Notice and begin the redemption procedure hereunder unless it has: (i) the full amount of the Redemption Price in cash, available in a demand or other immediately available account in a bank or similar financial institution, specifically allotted for such redemption; (ii) immediately available credit facilities, in the full amount of the Redemption Price, with a bank or similar financial institution specifically allotted for such redemption; or (iii) a combination of the items set forth in (i) and (ii) above, aggregating the full amount of the Redemption Price. Notwithstanding the foregoing, in the event the redemption is expected to be made contemporaneously with the closing of a public offering of the Company's securities for an amount in excess of the Redemption Price, the Company shall not be required to have the full amount of the Redemption Price available to it as set forth above. XII. 4.99% Limitation. Notwithstanding the provisions hereof, in no event shall any holder be entitled to convert any shares of the Series G Preferred Stock to the extent that, after such conversion, the sum of (1) the number of shares of Common Stock beneficially owned by such holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted shares of the Series G Preferred Stock), and (2) the number of shares of Common Stock issuable upon the conversion of the shares of Series G Preferred Stock with respect to which the determination of this proviso is being made, would result in beneficial ownership by such holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. Any issuance by the Company to a holder in excess of the limit contained in this Paragraph shall be null and void, AB INITIO, and upon notice of such invalid issuance, the Company shall correct its books and cause its transfer agent's books to be corrected forthwith to reflect that the holder's ownership of Common Stock is within the limit set forth herein. Holder shall immediately deliver any certificates for invalidly issued Common Stock to the Company's transfer agent. The Company further agrees to (i) -108- immediately reissue certificates for Common Stock to the extent that a portion of the Common Stock represented by said certificates have been validly issued and (ii) immediately reissue all or a portion of those shares which were deemed invalidly issued (at a price set forth in the original conversion notices applicable to such shares) upon notice from the holder that the reissuance of such shares would not cause such holder to have a beneficial ownership interest in excess of 4.99%. The Company hereby indemnifies and holds each holder free and harmless in connection with any and all liabilities, losses, costs and expenses, including, without limitation, attorneys' fees and costs arising from or relating to claims made by any third parties with respect to any and all purported violations by each holder under Sections 13(d) and 16 resulting from a conversion(s) of the Series G Preferred Stock, unless such claim arises from such holder's default of its obligations hereunder, or representations or warranties contained herein. The 4.99% limitation shall not apply to the automatic conversion upon the Maturity Date as contained herein. XIII. Cap Regulations. The Company shall take all steps reasonably necessary to be in a position to issue shares of Common Stock on conversion of the Series G Preferred Stock without violating the "CAP REGULATIONS." If despite taking such steps, the Company is limited in the number of shares of Common Stock it may issue by the "Cap Regulations," to the extent that the Company cannot issue such shares of Common Stock, due upon a Notice of Conversion, without violating the Cap Regulations, the Company shall immediately notify the holder of the number of shares of the Series G Preferred Stock which are not convertible as a result of said Cap Regulations (the "UNCONVERTED PREFERRED STOCK") and within five (5) Business Days of the applicable Notice of Conversion redeem the Unconverted Preferred Stock for an amount in cash (the "REDEMPTION AMOUNT") equal to the greater of (i) 125% of the Stated Value of the shares of the Unconverted Preferred Stock, plus all accrued but unpaid dividends on such shares or (ii) the "Economic Benefit" of such Unconverted Preferred Stock. "ECONOMIC BENEFIT" for purposes of this Article XIII shall mean the dollar value derived if such Unconverted Preferred Stock were converted into Common Stock at the price set forth in the Notice of Conversion and the Common Stock was sold on the date of the Notice of Conversion at the Closing Bid Price of the Common Stock on the date of the Notice of Conversion. IN WITNESS WHEREOF, I have subscribed my name this 29th day of August, 2000. SINGLEPOINT SYSTEMS CORPORATION By: /s/ Charles A. Smart ------------------------------------ Name: Charles A. Smart Title: Secretary -109- AMENDMENT OF ARTICLES OF INCORPORATION The following amendments to articles regulating Singlepoint Systems Corporation were adopted: ARTICLE 1. NAME The name of the corporation is changed from Singlepoint Systems Corporation to Global MAINTECH Corporation. ARTICLE 2. REGISTERED OFFICE AND REGISTERED AGENT The address of the registered office of the Corporation has changed from 7578 Market Place Drive, Eden Prairie, Minnesota 55344 to 2150 Third Avenue North, Suite 20, Anoka, Minnesota 55303. ARTICLE 5. DIRECTORS The names of the Directors are William A. Erhart and Dale Ragan. Dated: 2/28/01 /s/ William A. Erhart --------------- ----------------------------------- William A. Erhart Secretary, Corporate Counsel -110- EX-4 3 global011838_ex4-12.txt EXHIBIT 4.12 FORM OF SECURITIES PURCHASE AGRMT EXHIBIT 4.12 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT, dated as of August 31, 2000, is entered into by and between SINGLEPOINT SYSTEMS CORPORATION, a Minnesota corporation, with headquarters located at 4020 Moorpark Avenue, Suite 115, San Jose, CA 95117 (the "Company"), and the undersigned (the "Buyer"). W I T N E S S E T H: WHEREAS, the Company and the Buyer are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration afforded, INTER ALIA, by Rule 506 under Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the 1933 Act; WHEREAS, in consideration of the foregoing, the Buyer wishes to purchase, upon the terms and subject to the conditions of this Agreement, 8% Cumulative Convertible Redeemable Preferred Stock, Series G, $1,000 stated value (the "Preferred Stock"), of the Company which will be convertible into shares of Common Stock, no par value, of the Company (the "Common Stock"), together with the Common Stock Purchase Warrants described herein, upon the terms and subject to the conditions of such Preferred Stock, and subject to acceptance of this Agreement by the Company; NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. AGREEMENT TO PURCHASE; PURCHASE PRICE. a. PURCHASE; CERTAIN DEFINITIONS. (i) The Buyer hereby agrees to purchase from the Company shares of the Preferred Stock in the amount set forth on the signature page of this Agreement, out of a total offering of $1,000,000 of such Preferred Stock, and having the terms and conditions set forth in the Certificate of Designation, attached hereto as ANNEX I (the "Certificate of Designation"). The purchase price for the Preferred Stock shall be as set forth on the signature page hereto (the "Purchase Price") and shall be payable in United States Dollars. (ii) As used herein, the term "Preferred Stock" includes all preferred shares, if any, issued as dividends thereon, unless the context otherwise requires. 1 (iii) As used herein, the term "Securities" means the Preferred Stock and the Common Stock issuable upon conversion of the Preferred Stock. b. FORM OF PAYMENT. The Buyer shall pay the purchase price for the Preferred Stock by delivering immediately available good funds in United States Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow Instructions attached hereto as ANNEX II (the "Joint Escrow Instructions"). No later than the Closing Date (as defined below), the Company shall deliver one or more certificates representing the Preferred Stock duly executed on behalf of the Company (collectively, the "Certificate") to the Escrow Agent. By signing this Agreement, the Buyer and the Company, and subject to acceptance by the Escrow Agent, each agrees to all of the terms and conditions of, and becomes a party to, the Joint Escrow Instructions, all of the provisions of which are incorporated herein by this reference as if set forth in full. c. METHOD OF PAYMENT. Payment into escrow of the Purchase Price for the Preferred Stock shall be made by wire transfer of funds as instructed in the Joint Escrow Instructions. Not later than 1:00 p.m., PST time, on the date which is one (1) New York Stock Exchange trading day after the Company shall have accepted this Agreement and returned a signed counterpart of this Agreement to the Escrow Agent by facsimile, the Buyer shall deposit with the Escrow Agent the aggregate purchase price for the Preferred Stock, in immediately available funds. Time is of the essence with respect to such payment, and failure by the Buyer to make such payment shall allow the Company to cancel this Agreement. d. ESCROW PROPERTY. The Purchase Price and the Certificate delivered to the Escrow Agent as contemplated by Sections 1(b) and (c) hereof are referred to as the "Escrow Property." 2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION. Buyer represents and warrants to, and covenants and agrees with, the Company as follows: a. Without limiting Buyer's right to sell the Common Stock pursuant to the Registration Statement (as that term is defined in the Registration Rights Agreement defined below), the Buyer is purchasing the Preferred Stock and will be acquiring the shares of Common Stock issuable upon conversion of the Preferred Stock (the "Converted Shares") for its own account for investment, and not with a view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof. b. The Buyer is (i) an "accredited investor" as that term is defined in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of Rule 501(a)(3), (ii) experienced in making investments of the kind described in this Agreement and the related 2 documents, (iii) able, by reason of the business and financial experience of its officers (if an entity) and professional advisors (who are not affiliated with or compensated in any way by the Company or any of its affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement, and the related documents, and (iv) able to afford the entire loss of its investment in the Securities. c. All subsequent offers and sales of the Preferred Stock and the shares of Common Stock representing the Converted Shares (such Common Stock sometimes referred to as the "Shares") by the Buyer shall be made pursuant to registration of the Shares under the 1933 Act or pursuant to an exemption from registration. d. The Buyer understands that the Preferred Stock s being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Preferred Stock. e. The Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Preferred Stock and the offer of the Shares which have been requested by the Buyer, including ANNEX V hereto. The Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and have received complete and satisfactory answers to any such inquiries. Without limiting the generality of the foregoing, the Buyer has also had the opportunity to obtain and to review (i) the Company's annual report on Form 10-KSB for the year ending December 31, 1999, (ii) the Company's reports on Form 10-QSB for the periods ending March 31, 2000 and June 30, 2000, and (iii) the Company's registration statement on Form SB-2 effective July 24, 2000 (the "SEC Reports"); f. The Buyer understands that its investment in the Securities involves a high degree of risk. g. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities. h. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Buyer and is a valid and binding agreement of the Buyer enforceable in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors' rights generally. i. Notwithstanding the provisions hereof or of the Preferred Stock, in no event (except with respect to an automatic conversion of the Preferred Stock as provided in the 3 Certificate of Designation) shall Buyer be entitled to convert any Preferred Stock to the extent that, after such conversion, the sum of (1) the number of shares of Common Stock beneficially owned by Buyer and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Preferred Stock), and (2) the number of shares of Common Stock issuable upon the conversion of the Preferred Stock with respect to which the determination of this proviso is being made, would result in beneficial ownership by such Buyer and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Any issuance by the Company to the Buyer in excess of the limit contained in this Section 3.i. shall be null and void, AB INITIO, and upon notice of such invalid issuance, the Company shall correct its books and cause its transfer agent's books to be corrected forthwith to reflect that the Buyer's ownership of Common Stock is within the limit set forth herein. Buyer shall immediately deliver any certificates for invalidly issued Common Stock to the Company's transfer agent. The Company further agrees to (i) immediately reissue certificates for Common Stock to the extent that a portion of the Common Stock represented by said certificates have been validly issued and (ii) immediately reissue all or a portion of those shares which were deemed invalidly issued (at a price set forth in the original conversion notices applicable to such shares) upon notice from the Buyer that the reissuance of such shares would not cause the Buyer to have a beneficial ownership interest in excess of 4.99%. The Company hereby indemnifies and holds Buyer free and harmless in connection with any and all liabilities, losses, costs and expenses, including, without limitation, attorneys' fees and costs arising from or relating to claims made by any third parties with respect to any and all purported violations by the Buyer under Sections 13(d) and 16 resulting from a conversion(s) of Preferred Stock, unless such claim arises from Buyer's default of its obligations hereunder, or representations or warranties contained herein. Buyer agrees that it shall not knowingly attempt to convert that number of shares of Common Stock that would cause it to own beneficially an amount greater than 4.99% of the Common Stock. j. Buyer represents that it neither is nor will be obligated for any finders' fee or commission nor is it aware of any such fee or commission payable in connection with this transaction other than as set forth on the Joint Escrow Instructions (attached hereto as Annex II). Buyer agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Buyer or any of its officers, partners, employees, or representatives is responsible. 3. COMPANY REPRESENTATIONS, ETC. The Company represents and warrants and hereby covenants and agrees with Buyer that: a. CONCERNING THE PREFERRED STOCK AND THE SHARES. The Preferred Stock has been duly authorized and, when issued, will be duly and validly issued, fully paid and non- 4 assessable and will not subject the holder thereof to personal liability by reason of being such holder. There are no preemptive rights of any stockholder of the Company, as such, to acquire the Preferred Stock or the Shares. b. REPORTING COMPANY STATUS. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a material adverse effect on the business, operations or prospects or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole. The Company has registered its Common Stock pursuant to Section 12 of the 1934 Act, and the Common Stock is listed and traded on the OTC Bulletin Board. The Company has received no notice, either oral or written, with respect to the continued eligibility of the Common Stock for such listing, and the Company has maintained all requirements for the continuation of such listing. c. AUTHORIZED SHARES. The Company has at June 30, 2000, 6,460,662 shares of Common Stock outstanding, and has sufficient authorized and unissued Shares as may be reasonably necessary to effect the conversion of the Preferred Stock (assuming all future conversions occurred are based upon an average 5-day closing bid of the Common Stock, as reported by Bloomberg, LP which was one-half (1/2) of the closing bid price of the Common Stock on the Closing Date [the "Closing Date Bid"]) and exercise of the Warrants (as defined in Section 4.j.) at the Closing Date Bid. The Common Stock has been duly authorized and, when issued upon conversion of the Preferred Stock in accordance with its terms, will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder. d. SECURITIES PURCHASE AGREEMENT; REGISTRATION RIGHTS AGREEMENT AND STOCK. This Agreement and the Registration Rights Agreement, the form of which is attached hereto as ANNEX IV (the "Registration Rights Agreement"), and the transactions contemplated hereby and thereby, have been duly and validly authorized by the Company, this Agreement has been duly executed and delivered by the Company and this Agreement is, and the Preferred Stock, and the Registration Rights Agreement, when executed and delivered by or on behalf of the Company, will be, valid and binding agreements of the Company enforceable in accordance with their respective terms, subject, as to enforceability, to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors' rights generally. e. NON-CONTRAVENTION. The execution and delivery of this Agreement and the Registration Rights Agreement by the Company, the issuance of the Securities, and the consummation by the Company of the other transactions contemplated by this Agreement, the Registration Rights Agreement, and the Preferred Stock do not and will not conflict with or 5 result in a breach by the Company of any of the terms or provisions of, or constitute a default under (i) the articles of incorporation or by-laws of the Company, each as currently in effect, (ii) except as disclosed in ANNEX V, any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock (except as herein set forth), (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, or (iv) any listing agreement for its Common Stock, except such conflict, breach or default which would not have a material adverse effect on the transactions contemplated herein. f. APPROVALS. No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders of the Company is required to be obtained by the Company for the issuance and sale of the Securities to the Buyer as contemplated by this Agreement, except such authorizations, approvals and consents that have been obtained. g. SEC FILINGS. None of the Company's SEC Reports contained, at the time they were filed, any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements made therein in light of the circumstances under which they were made, not misleading, except as corrected by an amended filing made prior to the date hereof. Except as set forth on ANNEX V hereto, the Company has since June 1997 timely filed all requisite forms, reports and exhibits thereto with the SEC., h. ABSENCE OF CERTAIN CHANGES. Since December 31, 1999, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or otherwise), or results of operations of the Company and its subsidiaries, taken as a whole, except as disclosed in ANNEX V or in the Company's SEC Reports. Since December 31, 1999, the Company has not (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices; (iii) declared or made any payment or distribution of cash or other property to stockholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other tangible assets, or canceled any debts or claims, except in the ordinary course of business consistent with past practices; (v) suffered any substantial losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any changes in employee compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment. 6 i. FULL DISCLOSURE. There is no fact known to the Company (other than general economic conditions known to the public generally or as disclosed in the Company's SEC Reports), that has not been disclosed in writing to the Buyer that (i) would reasonably be expected to have a material adverse effect on the business or financial condition of the Company or (ii) would reasonably be expected to materially and adversely affect the ability of the Company to perform its obligations pursuant to this Agreement or any of the agreements contemplated hereby (collectively, including this Agreement, the "Transaction Agreements"). j. ABSENCE OF LITIGATION. Except as set forth in ANNEX V hereto, and in the Company's SEC Reports, which the Buyer has reviewed, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company, wherein an unfavorable decision, ruling or finding would have a material adverse effect on the properties, business or financial condition, results of operation or prospects of the Company and its subsidiaries taken as a whole or the transactions contemplated by any of the Transaction Agreements or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, any of the Transaction Agreements. k. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in ANNEX V hereto or the Company's SEC Reports, no Event of Default (or its equivalent term), as defined in the respective agreement to which the Company is a party, and no event which, with the giving of notice or the passage of time or both, would become an Event of Default (or its equivalent term) (as so defined in such agreement), has occurred and is continuing, which would have a material adverse effect on the Company's financial condition or results of operations. l. PRIOR ISSUES. Except as set forth in ANNEX V or the Company's SEC Reports, during the twelve (12) months preceding the date hereof, the Company has not issued any Common Stock or convertible securities in capital transactions which have not been fully disclosed in the Company's filings with the SEC. Except as set forth in ANNEX V, all such issuances (except for issuances to Buyer) have been fully converted into shares of common stock and there are no outstanding unconverted debt or convertible securities from those transactions. m. NO UNDISCLOSED LIABILITIES OR EVENTS. Except as set forth in ANNEX V or the Company's SEC Reports, the Company has no liabilities or obligations other than those disclosed in the Company's SEC Reports or those incurred in the ordinary course of the Company's business since December 31, 1999, and which, individually or in the aggregate, do not or would not have a material adverse effect on the properties, business, condition (financial or otherwise), results of operations or prospects of the Company and its subsidiaries, taken as a whole. No event or circumstances has occurred or exists with respect to the Company or its properties, business, condition (financial or otherwise), results of operations or prospects, which, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed. 7 n. NO DEFAULT. Except as disclosed in ANNEX V or the Company's SEC Reports, the Company is not in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust or other material instrument or agreement to which it is a party or by which it or its property is bound. o. NO INTEGRATED OFFERING. Neither the Company nor any of its affiliates nor any person acting on its or their behalf has, directly or indirectly, made any offer or sales of any security or solicited any offers to buy any security under circumstances that would eliminate the availability of the exemption from registration under Regulation D or Section 4(2) of the 1933 Act, as applicable in connection with the offer and sale of the Securities as contemplated hereby. p. DILUTION. The number of Shares issuable upon conversion of the Preferred Stock may increase substantially in certain circumstances, including, but not necessarily limited to, the circumstance wherein the trading price of the Common Stock declines prior to the conversion of the Preferred Stock. The Company's executive officers and directors have studied and fully understand the nature of the Securities being sold hereby and recognize that they have a potential dilutive effect. The board of directors of the Company has concluded that, in its good faith business judgment, such issuance is in the best interests of the Company. The Company specifically acknowledges that its obligation to issue the Shares upon conversion of the Preferred Stock is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company. q. ACKNOWLEDGMENT BY COMPANY. Company represents and warrants that neither the Buyer, nor any persons or entities representing or purporting to represent the Buyer have made any representation or warranty which is not contained expressly in this Agreement or any other agreements referred to herein. Without limiting the foregoing, Company specifically acknowledges that the Buyer has made no representations that it is a "long term" investor in the Company, or that it intends to hold the Preferred Stock or Shares for any period beyond that which is required under the 1933 Act. Company further acknowledges that the Buyer may hedge the shares of stock in the Company prior to or after the conversions of any of the Preferred Stock, provided that such hedging is done in compliance with the 1933 Act, Securities Exchange Act, any rules applicable to securities traded on the OTC Bulletin Board and the express terms of this Agreement, the Certificate of Designation for the Preferred Stock and the Registration Rights Agreement. Notwithstanding the foregoing, provided that the Company has not defaulted hereunder or under any other agreement entered into in connection herewith (including, without limitation, the Registration Rights Agreement and the Certificate of Designation), the Buyer shall not "short" (as such term is defined by the Securities Act) shares of Common Stock (calculated pursuant hereto at the time such shares of Common Stock are shorted) so that its "short" position in the Common Stock, from time-to-time, is in excess of twenty percent (20%) of the sum of (i) the aggregate number of shares of Common Stock the Buyer would receive if all of the shares of Preferred Stock and all of the Company's Series E Convertible Preferred Stock (then held by the 8 Buyer) were converted by Buyer on the day of the "short" sale, plus (ii) the number of shares of Common Shares held by (or deliverable to) the Buyer on the day of the "short sale" as a result of prior conversions of the Company's Series E Preferred and the Preferred Stock. r. BROKERS FEE. The Company represents that it neither is nor will be obligated for any finders' fee or commission nor is it aware of any such fee or commission payable in connection with this transaction other than as set forth on the Joint Escrow Instructions (attached hereto as ANNEX II). The Company agrees to indemnify and to hold harmless the Buyer from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, partners, employees, or representatives is responsible. 4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS. a. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the Preferred Stock has not been and is not being registered under the provisions of the 1933 Act and, except as provided in the Registration Rights Agreement, the Shares have not been and are not being registered under the 1933 Act, and may not be transferred unless (A) subsequently registered thereunder or (B) the Buyer shall have delivered to the Company an opinion of counsel, reasonably satisfactory in form, scope and substance to the Company, to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; (2) any sale of the Securities made in reliance on Rule 144 promulgated under the 1933 Act may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such Securities under circumstances in which the seller, or the person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the 1933 Act, may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (3) neither the Company nor any other person is under any obligation to register the Securities (other than pursuant to the Registration Rights Agreement) under the 1933 Act or to comply with the terms and conditions of any exemption thereunder. b. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the Preferred Stock and, until such time as the Common Stock has been registered under the 1933 Act as contemplated by the Registration Rights Agreement and sold pursuant to an effective Registration Statement, certificates and other instruments representing any of the Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of any such Securities): THESE SECURITIES (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 MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION 9 STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. c. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter into the Registration Rights Agreement on or before the Closing Date. d. FILINGS. The Company undertakes and agrees to make all necessary filings in connection with the sale of the Preferred Stock to the Buyer under any United States laws and regulations, or by any domestic securities exchange or trading market, and to provide a copy thereof to the Buyer promptly after such filing. e. REPORTING STATUS. So long as the Buyer beneficially owns any of the Preferred Stock, the Company shall file all reports required to be filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination. f. USE OF PROCEEDS. The Company will use the proceeds from the sale of the Preferred Stock (excluding amounts paid by the Company for legal fees, finder's fees and escrow agent fees in connection with the sale of the Preferred Stock) for general capital purposes and, without limiting the foregoing, shall not, directly or indirectly, use any of such proceeds for investment in any other affiliate. g. FUTURE PURCHASES. Intentionally Deleted. h. CERTAIN AGREEMENTS. (i) The Company covenants and agrees that it will not, without the prior written consent of the Buyer, enter into any subsequent or further offer or sale of Common Stock or securities convertible into Common Stock with any third party until one hundred eighty (180) days after the Effective Date (as defined below). (ii) The provisions of subSection (h)(i) will not apply to (w) Common Stock issued as "restricted stock" as defined in SEC Rule 144, provided the holder thereof holds such Common Stock for at least one year from the date of issuance; (x) a secondary public offering of shares of Common Stock at market; (y) an offering of convertible debentures at market or above; or (z) the issuance of securities (other than for cash) in connection with a merger, consolidation, sale of assets, disposition or the exchange of the capital stock for assets, stock or other joint venture interests; provided, such securities would not be included in the Registration Statement relating to the Shares and a registration statement in respect of such stock shall not be filed prior to sixty (60) days after the Effective Date. (iii) The term "Effective Date" means the effective date of the Registration Statement covering the Registrable Securities (as defined in the Registration Rights Agreement). 10 (iv) In the event the Company breaches the provisions of this Section 4(h), the Conversion Price shall be amended to be the lesser of (I) 70% of the average of the three (3) lowest closing bid prices (not necessarily consecutive) during the fifteen (15) day trading period immediately prior to the Conversion Date, or (II) $1.62, and Buyer may, within thirty (30) days after it receives written notice of such breach from the Company, deliver a written notice to the Company requiring it to immediately redeem all outstanding Preferred Stock for an amount equal to the greater of (x) 125% of (A) the Stated Value of the then outstanding Preferred Stock, plus (B) all accrued but unpaid dividends on such Preferred Stock, or (y) "Economic Benefit" of such Preferred Stock. "ECONOMIC BENEFIT" for purposes of this Section 4.h.(iv) shall mean the dollar value derived if the converted Preferred Stock were converted into Common Stock on the date of the redemption notice at the Conversion Price and the Common Stock was sold on the date of the redemption notice at the closing bid price of the Common Stock on such date. i. AVAILABLE SHARES. The Company shall have at all times authorized and reserved for issuance, free from preemptive rights, shares of Common Stock equal to two hundred percent (200%) of the number of shares of Common Stock issuable upon conversion of all of the outstanding Preferred Stock, and the exercise of the Warrants (as defined below). j. WARRANTS. The Company agrees to issue to Buyer at the Closing, transferable divisible warrants with cashless exercise provisions (the "Warrants") for 62,000 shares of Common Stock. Such Warrants shall bear an exercise price equal to the Closing Bid price of the Company's common stock on the Closing Date, and shall be exercisable immediately upon issuance, and for a period of five (5) years thereafter, in the form annexed hereto as ANNEX VI, together with piggy-back registration rights, and demand registration rights under the Registration Rights Agreement. k. LIMITATION ON ISSUANCE OF SHARES. The Certificate of Designation for the Preferred Stock shall provide that the Company shall take all steps reasonably necessary to be in a position to issue shares of Common Stock on conversion of the Preferred Stock without violating the "Cap Regulations". If despite taking such steps, the Company is limited in the number of shares of Common Stock it may issue by the "Cap Regulations," to the extent that the Company cannot issue such shares of Common Stock, due upon a Notice of Conversion, without violating the Cap Regulations, the Company shall immediately notify Buyer the number of shares of the Preferred Stock which are not convertible as a result of said Cap Regulations (the "Unconverted Preferred Stock") and within five (5) business days of the applicable Notice of Conversion redeem the Unconverted Preferred Stock for an amount in cash (the "Redemption Amount") equal to the greater of (i) 125% of (A) the Stated Value of the Unconverted Preferred Stock, plus (B) all accrued but unpaid dividends on such shares or (ii) "Economic Benefit" of such Unconverted Preferred Stock. "ECONOMIC BENEFIT" for purposes of this Section 4.k. shall mean the dollar value derived if such Unconverted Preferred Stock were converted into Common Stock at the price set forth in the Notice of Conversion and the Common Stock was sold on the date of the Notice of Conversion at the closing bid price of the Common Stock on the date of the Notice of Conversion. The Certificate of Designation for the Preferred Stock shall contain provisions substantially consistent with the above terms, with such additional provisions as may 11 be consented to by the Buyer. The provisions of this section are not intended to limit the scope of the provisions otherwise included in the Certificate of Designation. l. RESTRICTIONS WITH RESPECT TO OPTIONS AND WARRANTS. For a period of nine months from the Closing Date, the Company shall not: (i) reprice (or otherwise adjust downward the exercise prices of) any options or warrants outstanding as of the Closing Date; or (ii) grant options with respect to more than 250,000 shares of Common Stock under the Company's 1999 Omnibus Stock Option Plan. 5. TRANSFER AGENT INSTRUCTIONS. a. Promptly following the delivery by the Buyer of the aggregate purchase price for the Preferred Stock in accordance with Section 1(c) hereof, the Company will irrevocably instruct its transfer agent to issue Common Stock from time to time upon conversion of the Preferred Stock in such amounts as specified from time to time by the Company to the transfer agent, bearing the restrictive legend specified in Section 4(b) of this Agreement prior to registration of the Shares under the 1933 Act, registered in the name of the Buyer or its nominee and in such denominations to be specified by the Buyer in connection with each conversion of the Preferred Stock. The Company warrants that no instruction other than such instructions referred to in this Section 5 and stop transfer instructions to give effect to Section 4(a) hereof prior to registration and sale of the Shares under the 1933 Act will be given by the Company to the transfer agent and that the Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement, the Registration Rights Agreement, and applicable law. Nothing in this Section shall affect in any way the Buyer's obligations and agreement to comply with all applicable securities laws upon resale of the Securities. If the Buyer provides the Company with an opinion of counsel reasonably satisfactory to the Company that registration of a resale by the Buyer of any of the Securities in accordance with clause (1)(B) of Section 4(a) of this Agreement is not required under the 1933 Act, the Company shall (except as provided in clause (2) of Section 4(a) of this Agreement) permit the transfer of the Securities and, in the case of the Shares, promptly instruct the Company's transfer agent to issue one or more certificates for Common Stock without legend in such name and in such denominations as specified by the Buyer. b. (i) The Company will permit the Buyer to exercise its right to convert the Preferred Stock by telecopying an executed and completed Notice of Conversion (as defined in the Certificate of Designation) to the Company and delivering within three (3) business days thereafter, the original Notice of Conversion, together with the original share certificate, by express courier. (ii) The term "Conversion Date" means, with respect to any conversion elected by the holder of the Preferred Stock after the Effective Date, the date specified in the Notice of Conversion, provided the copy of the Notice of Conversion is telecopied to or otherwise delivered to the Company in accordance with the provisions hereof so that is received 12 by the Company on or before such specified date. The Conversion Date for any mandatory conversion at maturity shall be the Maturity Date of the Preferred Stock. (iii) The Company shall, at its expense, take all actions and use all means necessary and diligent to cause its transfer agent to transmit the certificates representing the Shares issuable upon conversion of any Preferred Stock (together with Preferred Stock not being so converted) to the Buyer via express courier, by electronic transfer or otherwise, within three (3) business days after receipt by the Company of the later of (i) receipt by the Company of the copy of the original Notice of Conversion and share certificate, and (ii) the Conversion Date (the "Delivery Date"). c. The Company understands that a delay in the issuance of the Shares of Common Stock beyond the Delivery Date could result in economic loss to the Buyer. As compensation to the Buyer for such loss, the Company agrees to pay late payments to the Buyer in the event that due entirely to the Company's failure to issue and deliver the Shares upon Conversion in accordance with the following schedule (where "No. Business Days Late" is defined as the number of business days beyond three (3) business days from Delivery Date): Late Payment For Each $10,000 of Preferred Stock Liquidation No. Business Days Late Amount Being Converted ---------------------- ---------------------- 1 $100 2 $200 3 $300 4 $400 5 $500 >5 $500 +$200 for each Business Day Late beyond 5 days from The Delivery Date The Company shall pay any payments incurred under this Section in immediately available funds upon demand. Nothing herein shall limit the Buyer's right to pursue actual damages or to cause the Company to redeem the Preferred Shares as provided below for the Company's actions or inactions resulting in the transfer agent's failure to issue and deliver the Common Stock to the Buyer. Furthermore, in addition to any other remedies which may be available to the Buyer, in the event that the Company fails to deliver such shares of Common Stock within five (5) business days after the Delivery Date, the Buyer will be entitled to revoke the relevant Notice of Conversion by delivering a notice to such effect to the Company whereupon the Company and the Buyer shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion. In the event the Company's actions or inactions result in the transfer agent's failure to issue and deliver the Common Stock to the Buyer within ten (10) days after the Delivery Date, Buyer may, at its option, deliver to the 13 Company a redemption notice requiring the Company (without limiting its other remedies hereunder) to immediately redeem all outstanding Preferred Stock in accordance with Section 4.h.(iv) hereof. d. If, by the relevant Delivery Date, the Company fails for any reason to deliver the Shares to be issued upon conversion of the Preferred Stock and after such Delivery Date, the holder of the Preferred Stock being converted (a "Converting Holder") purchases, in an open market transaction or otherwise, shares of Common Stock (the "Covering Shares") in order to make delivery in satisfaction of a sale of Common Stock by the Converting Holder made after a Conversion Date (the "Sold Shares"), which delivery such Converting Holder anticipated to make using the Shares to be issued upon such conversion (a "Buy-In"), the Company shall pay to the Converting Holder, in addition to all other amounts contemplated in other provisions of the Transaction Agreements, and not in lieu thereof, the Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the amount equal to the excess, if any, of (x) the Converting Holder's total purchase price (including brokerage commissions, if any) for the Covering Shares over (y) the net proceeds (after brokerage commissions, if any) received by the Converting Holder from the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Buyer in immediately available funds immediately upon demand by the Converting Holder. By way of illustration and not in limitation of the foregoing, if the Converting Holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required to pay to the Converting Holder will be $1,000. The remedies set forth in Sections 5(c) and (d) shall be cumulative. e. In lieu of delivering physical certificates representing the unlegended securities issuable upon conversion, provided the Company's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, upon request of the Buyer and its compliance with the provisions contained in this Section, so long as the certificates therefor do not bear a legend and the Buyer thereof is not obligated to return such certificate for the placement of a legend thereon, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Buyer by crediting the account of Buyer's Prime Broker with DTC through its Deposit Withdrawal Agent Commission system. f. The original certificate representing the Preferred Stock shall be delivered by the Buyer to the Company simultaneous with the final Notice of Conversion. 6. DELIVERY INSTRUCTIONS. The Preferred Stock shall be delivered by the Company to the Escrow Agent pursuant to Section 1(b) hereof, on a delivery against payment basis, no later than on the Closing Date. 14 7. CLOSING DATE. (i) The closing of the issuance and sale of the Preferred Stock shall occur on the date (the "Closing Date") which is the first NYSE trading day after the fulfillment or waiver of all closing conditions pursuant to Sections 8 and 9 hereof or such other date and time as is mutually agreed upon by the Company and the Buyer. (ii) The closing of the purchase and issuance of Preferred Stock shall occur on the Closing Date, at the offices of the Escrow Agent and shall take place no later than 12:00 Noon, PST, on such day or such other time as is mutually agreed upon by the Company and the Buyer. (iii) Notwithstanding anything to the contrary contained herein, the Escrow Agent will be authorized to release the Escrow Property (as defined in the Escrow Agreement) only upon satisfaction of the conditions set forth in Sections 8 and 9 hereof. 8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The Buyer understands that the Company's obligation to sell the Preferred Stock on the Closing Date and to the Buyer pursuant to this Agreement is conditioned upon: a. The receipt and acceptance by the Buyer of this Agreement as evidenced by execution of this Agreement by the Buyer for One Million Dollars ($1,000,000) in principal amount of the Preferred Stock (or such lesser amount as the Company, in its sole discretion, shall determine on the Closing Date); b. Delivery by the Buyer to the Escrow Agent of good funds as payment in full of an amount equal to the Purchase Price for the Preferred Stock in accordance with Section 1(c) hereof; c. The accuracy on the Closing Date of the representations and warranties of the Buyer contained in this Agreement as if made on the Closing Date, and the performance by the Buyer on or before the Closing Date of all covenants and agreements of the Buyer required to be performed on or before the Closing Date; d. There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained. 9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. The Company understands that the Buyer's obligation to purchase the Preferred Stock on the Closing Date is conditioned upon: 15 a. Acceptance by the Company of this Agreement for the sale of Preferred Stock, as indicated by execution of this Agreement; b. Delivery by the Company to the Escrow Agent of the appropriate Preferred Stock in accordance with this Agreement, together with a certified copy of the Certificate of Designation for the Preferred Stock; c. The accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained in this Agreement as if made on the Closing Date and the performance by the Company on or before the Closing Date of all covenants and agreements of the Company required to be performed on or before the Closing Date and as to Preferred Stock, the conditions set forth in Section 4g; d. On the Closing Date, Buyer having received (i) an opinion of counsel for the Company, dated the Closing Date, in form, scope and substance reasonably satisfactory to the Buyer, to the effect set forth in ANNEX III attached hereto, (ii) the Registration Rights Agreement annexed hereto as ANNEX IV and the Warrants; e. No statute, rule, regulation, executive order, decree, ruling or injunction shall be enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits or adversely effects any of the transactions contemplated by this Agreement or the Transaction Documents, and no proceeding or investigation shall have been commenced or threatened which may have the effect of prohibiting or adversely effecting any of the transactions contemplated by this Agreement or the Transaction Documents; and f. From and after the date hereof to and including the Closing Date, the trading of the Common Stock shall not have been suspended by the SEC, or the NASD and trading in securities generally on the New York Stock Exchange, NASDAQ/Small Cap, or Bulletin Board, as applicable, shall not have been suspended or limited, nor shall minimum prices been established for securities traded on NASDAQ/Small Cap or Bulletin Board, as applicable, nor shall there be any outbreak or escalation of hostilities involving the United States or any material adverse change in any financial market that in either case in the reasonable judgment of the Buyer makes it impracticable or inadvisable to purchase the Preferred Stock. 10. GOVERNING LAW; MISCELLANEOUS. a. This Agreement and all agreements entered into in connection herewith shall be governed by and interpreted in accordance with the laws of the State of California for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict of laws. Any litigation based thereon, or arising out of, under, or in connection with, this agreement or any course of conduct, course of dealing, statements (whether oral or written) or actions of the Company or Buyer shall be brought and maintained exclusively in the state or Federal courts of the State of California, sitting in the City of Los Angeles. The 16 Company hereby expressly and irrevocably submits to the jurisdiction of the state and federal Courts of the State of California for the purpose of any such litigation as set forth above and irrevocably agrees to be bound by any final judgment rendered thereby in connection with such litigation. The Company further irrevocably consents to the service of process by registered mail, postage prepaid, or by personal service within or without the State of California. The Company hereby expressly and irrevocably waives, to the fullest extent permitted by law, any objection which it may have or hereafter may have to the laying of venue of any such litigation brought in any such court referred to above and any claim that any such litigation has been brought in any inconvenient forum. To the extent that the Company has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise) with respect to itself or its property, the Company hereby irrevocably waives such immunity in respect of its obligations under this Agreement and the related agreements entered into in connection herewith. b. A facsimile transmission of this signed Agreement shall be legal and binding on all parties hereto. c. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original. d. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. e. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. f. This Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement thereof. g. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. h. In the event of any action for breach of or to enforce or declare rights under any provision of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees and costs, to be paid by the losing party. 11. NOTICES. Any notice or communication required or permitted by this Agreement shall be given in writing addressed as follows: 17 COMPANY: Singlepoint Systems Corporation 4020 Moorpark Avenue, Suite 115 San Jose, CA 95117-1845 ATTN: CEO Telecopier No.: (408) 557-6510 Telephone No.: (408) 557-6500 with a copy to: Dorsey & Whitney LLP Pillsbury Center South 220 South Sixth Street Minneapolis, Minnesota 55402-1498 Attention: Ken Cutler Telephone: (612) 340-2740 Facsimile: (612) 340-8378 BUYER: At the address set forth on the signature page of this Agreement. ESCROW AGENT: Law Offices of Michael S. Rosenblum 1875 Century Park East, Suite 700 Los Angeles, CA 90067 Telephone: (310) 286-2100 Telecopier No. (310) 286-3010 All notices shall be served personally by telecopy, by telex, by overnight express mail service or other overnight courier, or by first class registered or certified mail, postage prepaid, return receipt requested. If served personally, or by telecopy, notice shall be deemed delivered upon receipt (provided that if served by telecopy, sender has written confirmation of delivery); if served by overnight express mail or overnight courier, notice shall be deemed delivered forty-eight (48) hours after deposit; and if served by first class mail, notice shall be deemed delivered seventy-two (72) hours after mailing. Any party may give written notification to the other parties of any change of address for the sending of notices, pursuant to any method provided for herein. 12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's representations and warranties herein shall survive the execution and delivery of this Agreement and the delivery of the Preferred Stock and the Purchase Price, and shall inure to the benefit of the Buyer and its successors and assigns. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 18 NUMBER OF SHARES OF PREFERRED STOCK TO BE PURCHASED: 1,000* AGGREGATE PURCHASE PRICE OF SUCH PREFERRED STOCK: $1,000,000* *As detailed below SIGNATURES FOR ENTITIES IN WITNESS WHEREOF, the undersigned represents that the foregoing statements are true and correct and that it has caused this Securities Purchase Agreement to be duly executed on its behalf as of this 31st day of August, 2000. Printed Name of Buyer By: See Annexed ----------- (Signature of Authorized Person) ------------------------------------- Printed Name and Title As of the date set forth below, the undersigned hereby accepts this Agreement and represents that the foregoing statements are true and correct and that it has caused this Securities Purchase Agreement to be duly executed on its behalf. SINGLEPOINT SYSTEMS CORPORATION, a Minnesota corporation By: /s/ Charles A. Smart -------------------------------------------- Name: Charles A. Smart Title: Chief Financial Officer, Treasurer and Secretary Date: ANNEX TO SIGNATURE PAGE AMOUNT SHARES $1,000,000 1,000 Nash, LLC, a Cayman Islands limited liability company By: ----------------------------- Manager ADDRESS: c/o Thomson Kernaghan & Co. 365 Bay Street, Suite 1000, 10th Fl. Toronto, Ontario M5H 2V2 Telephone No.: (416) 860-4160 Telecopier No.: (416) 860-8313 ANNEX I CERTIFICATE OF DESIGNATION ANNEX II JOINT ESCROW INSTRUCTIONS ANNEX III OPINION OF COUNSEL ANNEX IV REGISTRATION RIGHTS AGREEMENT ANNEX V COMPANY DISCLOSURE MATERIALS ANNEX VI COMMON STOCK PURCHASE WARRANT ANNEX V COMPANY DISCLOSURE [TO BE SUPPLIED BY COMPANY] EX-4 4 global011838_ex4-13.txt EXHIBIT 4.13 FORM OF CERTIFICATE - SERIES G EXHIBIT 4.13 PLEASE SEE RESTRICTIVE LEGENDS ON REVERSE SIDE HEREOF INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA SPECIMEN SPECIMEN GLOBAL MAINTECH CORPORATION THIS CERTIFIES THAT SPECIMEN IS THE OWNER AND ------------------------------------------- REGISTERED HOLDER OF SPECIMEN SHARES OF ------------------------------------------------- fully paid and nonassessable shares of Series G Convertible Preferred Stock, no par value, of Global MAINTECH Corporation TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE SIGNED BY ITS DULY AUTHORIZED OFFICERS AND TO BE SEALED WITH THE SEAL OF THE CORPORATION. NO THIS ______________________ DAY OF _________________, _______. CORPORATE SEAL ----------------------------- ----------------------------- SECRETARY PRESIDENT EX-10 5 global011838_ex10-6.txt EXHIBIT 10.6 SUBLEASE AGREEMENT EXHIBIT 10.6 SUBLEASE AGREEMENT THIS AGREEMENT made this 18th day of April, 2001, by and between Global Maintech Corporation, a corporation (hereinafter "Sublessee") and Minnesota News Service, Inc., a corporation (hereinafter "Sublessor"). WITNESSETH: WHEREAS, OMS Bloomington Partnership, L.L.P., (hereinafter "Landlord") leases certain real property ("Building") to Sublessor pursuant to a Lease dated July 25, 1997, (hereinafter "Lease"); a copy of said Lease being attached hereto, marked Exhibit A, and incorporated by reference herein; and WHEREAS, Sublessor desires to sublease a portion of the Building consisting of approximately 3,073 square feet in the area marked with diagonal lines on Exhibit B which is incorporated by reference herein (hereinafter "Premises") to Sublessee, and Sublessee desires to sublet the Premises from Sublessor. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants, conditions and agreements contained herein, the parties hereto do hereby agree as follows: 1. Commencing on May 1, 2001, Sublessee shall sublease the Premises from Sublessor for a term expiring April 30, 2004, unless sooner terminated as provided herein. In the event Sublessor does not extend the current term of its Lease, the term of this Sublease shall expire at midnight on July 31, 2002. 2. Sublessee agrees to pay rent to Sublessor at the address set forth in paragraph 7 below on the first day of each calendar month during the term hereof in the amount of $2,645.00 per calendar month which sum is inclusive of real estate taxes and utilities, provided, however, that Sublessee shall pay monthly with its rent payment 30.73% of any increases over 15% in real estate taxes levied on and in the cost of all utilities supplied to the Building over the amount of said real estate taxes and the cost of said utilities during the period May 1, 2000 through April 30, 2001, the amounts of which increases, if any, shall be communicated by Sublessor to Sublessee from time to time. Utilities include gas, electricity, water and sewer. 3. Sublessee acknowledges that it is familiar with the Premises and accepts said Premises in "as is" condition. No alterations, additions or improvements shall be made to the Premises without the prior written consent of Sublessor. 4. This Agreement is subject to all the provisions of the Lease, except as otherwise provided herein. 5. Sublessor and Sublessee shall be entitled to exercise all the rights and remedies of Landlord and Tenant, respectively, under the Lease. It is understood and agreed that if under the Lease the Tenant has any time period to cure a default, give a notice or for any other beneficial purpose, for the purposes of this Agreement said time period shall be five days less than the time period set forth in the Lease. It is further understood and agreed that if the Landlord under the Lease has any time period within which to cure a default, give a notice or for any other beneficial purpose, for the purposes of this Agreement, said time period shall be five days greater than the time period set forth in the Lease. No termination of this Sublease and no repossession of the Premises shall relieve Sublessee of its obligations under this Sublease. It is understood and agreed that paragraphs 1-8 of this Agreement control in the event of a conflict with the provisions of the Lease. 6. This Agreement is contingent upon and shall be of no force and effect unless and until the consent of the Landlord is obtained to the terms and provisions of this Agreement. -2- 7. For the purpose of notices pursuant to this Agreement, all notices shall be in writing and served personally or by certified mail, prepaid, return receipt requested, addressed to Sublessor at 7836 2nd Avenue South, Bloomington, MN 55439, Attn: Chris Mandery, and to Sublessee at the Premises, or to such other address provided by either party to the other in the manner stated herein. 8. Sublessee shall pay to Sublessor, prior to May 1, 2001, the first and last months rent provided for hereunder. The amount of rent for the last month of the Sublease term may be used by Sublessor to pay for any damage caused to the Premises by Sublessee. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. SUBLESSOR: By: /s/ Chris Mandery ------------------------------------ Its: Vice President - MN News ----------------------------------- Date: 4-18-01 ---------------------------------- SUBLESSEE: By: /s/ Dale Ragan ------------------------------------ Its: CEO ----------------------------------- Date: 4-18-01 ---------------------------------- -3- The undersigned, Landlord under the Lease, hereby consents to the terms and provisions of this Agreement. LANDLORD: By: /s/ Charles S. Schuler ------------------------------------ Its: Partner ----------------------------------- Date: 4-18-01 ---------------------------------- By: /s/ J. Wayne Mandey ------------------------------------ Its: Partner ----------------------------------- Date: 4-18-01 ---------------------------------- -4- EX-10 6 global011838_ex10-7.txt EXHIBIT 10.7 EXTENSION OF LEASE EXHIBIT 10.7 EXTENSION OF LEASE This EXTENSION OF LEASE made this 23rd day of July, 1999, by and between PLEASANT HILL INDUSTRIAL PARK ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP, LESSOR, and LAVENIR TECHNOLOGY, INC. LESSEE, hereinafter respectively called "Lessor" and "Lessee". WITNESSETH 1. On April 3,1990 a Lease was executed and on May 21, 1993, May 9,1994, July 31,1995 and September 12, 1996 Extensions of Lease were executed by and between Pleasant Hill Industrial Park Associates, A California Limited Partnership, Lessor, and Lavenir Technology, Inc., Lessee, for those certain premises commonly known and designated as 2440 Estand Way, Pleasant Hill, California. 2. The parties do hereby agree to: a. Extend the term of said Lease for a period of Two (2) years commencing September 1, 1999 and ending on August 31, 2001. b. The monthly rent shall be payable as follows to LOWENBERG CORPORATION: the sum of EIGHT THOUSAND SIX HUNDRED FORTY AND 001100 ($8,640.00) DOLLARS per month commencing September 1,1999 and continuing on the first day of each and every month thereafter to and including the first of August 2000; Thereafter, the sum of EIGHT THOUSAND EIGHT HUNDRED EIGHTY-EIGHT AND 00/100 ($8,880.00) DOLLARS on the first day of September, 2000, and continuing on the first day of each and every month thereafter to and including the fast day of August, 2001: 3. Lessee, at its option may convert this Extension of Lease to a Three-year extension rather than the Two-year extension as stated above. Lessee must notify Lessor, in writing, of its election to exercise this option prior to October 31,1999. If Lessee elects to convert this Extension of Lease to the Three-year term then the termination date of this Extension shall be extended to August 31, 2002 and the monthly rent shall be modified as follows: November 1, 1999 through August 31, 2000 - $8,520.00 per month September 1, 2000 through August 31, 2001- $8,640.00 per month September 1, 2001 through August 31, 2002 - $8,760.00 per month If Lessee does not elect to convert this Extension of Lease to a Three-year extension then the termination date and the monthly rent outlined in Paragraph 2 b shall remain in effect. 4. All other terms and conditions of the above Lease shall remain the same. IN WITNESS WHEREOF, the undersigned "Lessor" and "Lessee" have executed these presents the day and year first above mentioned. LESSOR: PLEASANT HILL INDUSTRIAL LESSEE: LAVENIR TECHNOLOGY, INC. PARK ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP By: /s/ William J. Lowenberg By: /s/ Max P. Henzi --------------------------------- --------------------------------- LOWENBERG HOLDINGS, MAX P. HENZI, PRESIDENT GENERAL PARTNER LAVENIR TECHNOLOGY, INC. WILLIAM J. LOWENBERG, ITS PRESIDENT PARTIES THIS LEASE, made at San Francisco, California this 3rd day of April, 1990, by and between PLEASANT HILL INDUSTRIAL PARK ASSOCIATES and LAVENIR TECHNOLOGY, INC. hereinafter called respectively, Lessor and Lessee, without regard to number or gender, PURPOSE WITNESSETH: that Lessor hereby leases to Lessee, and Lessee hires from Lessor, for the purpose of conducting therein the assembly and testing of photo-plotters and related products, the company's administrative and research and development activities and for no other purpose, those certain premises with the appurtenances, situated in the City of Pleasant Hill, County of Contra Costa, State of California and more particularly described as follows, to-wit: PREMISES Approximately 7,940 square feet, more commonly known and designated as 2440 Estand Way, Pleasant Hill, California. TERM The term shall be for Three (3) years, commencing on the 1st day of May, 1990, and ending on the 31st day of April, 1993, at the following rent in lawful money of the United States of America, which Lessee agrees to pay to Lessor, without deduction or offset, at such place or places as may be designated from time to time by Lessor, in installments as follows: RENT The sum of FIVE THOUSAND FORTY-ONE AND 90/100 DOLLARS on the first day of June, 1990 and the further sum of FIVE THOUSAND FORTY-ONE AND 90/100 ($5,041.90) DOLLARS on the first day of each and every month thereafter during the term and amended as per Paragraph 22 of the Lease herein. It is further understood and agreed that said monthly rent will be increased as per Paragraph 22 by a minimum of 4% per annum and a maximum of 8% per annum. Rent checks should be made payable to LOWENBERG CORPORATION. INTEREST All base rent, additional rent and all other sums which may from time to time become due and payable by Lessee to Lessor under any of the provisions of this Lease shall bear interest from and after the due date thereof at the greater of ten percent (10%) per annum, or the maximum rate of interest permitted by law. POSSESSION It is further mutually agreed between the parties as follows: 1. If Lessor, for any reason whatsoever, cannot deliver possession of the said premises to Lessee at the commencement of the said term, as hereinbefore specified, this lease shall not be voided or voidable, nor shall Lessor be liable to Lessee for any loss or damage resulting therefrom; but in that even there shall be a proportionate deduction of rent covering the period between the commencement of the said term and the time when Lessor can deliver possession. 2. Lessee shall not commit, or suffer to be committed, any waste upon the said premises, or any nuisance, or other act or thing which may disturb the quiet enjoyment of any other tenant in the building in which the demised premises may be located. Lessee shall not make, or suffer to be made, any alterations of the said premises, or any part thereof, without the written consent of Lessor first had and obtained, and any additions to, or alterations of , the said premises, except movable furniture and trade fixtures, shall become at once a part of the realty and belong to Lessor. ABANDONMENT 3. Lessee shall not vacate or abandon the premises at any time during the term; and if Lessee shall abandon, vacate or surrender said premises, or be dispossessed by process of law, or otherwise, any personal property belonging to Lessee and left on the premises shall be deemed to be abandoned, at the option of Lessor, excerpt such property as may be under a security agreement with Lessor. USES PROHIBITED 4. Lessee shall not use, or permit said premises, or any part thereof, to be used, for any purpose or purposes other than that purpose or purposes for which said premises are hereby leased; and no use shall be made or permitted to be made of the said premises, nor acts done, which will increase the existing rate of insurance upon the building in which said premises may be located, or cause a cancellation of any insurance policy covering said building, or any part thereof nor or shall Lessee sell, or permit to be kept, used, or sold, in or about said premises, any article which may be prohibited by the standard form of fire insurance policies. Lessee shall, it his sole cost and expense, comply with any and all requirements pertaining to said premises, of any insurance organization or company, necessary for the maintenance of reasonable fire and public liability insurance, covering said building and appurtenances. FREE FROM LIENS 5. Lessee shall keep the demised premises and the property in which the demised premises are situated, free from any liens arising out of any work performed, materials furnished, or obligations incurred by Lessee. COMPLIANCE WITH GOVERNMENTAL REGULATIONS 6. Lessee shall, at his sole cost and expense, comply with all of the requirements of all Municipal, State and Federal authorities now in force, or which may hereafter be in force, pertaining to the said premises, and shall faithfully observe in the use of the premises all Municipal ordinances and State and Federal statutes now in force or which may hereafter be in force. The judgment of any court of competent jurisdiction, or the admission of Lessee in any action or proceeding against Lessee, whether Lessor be a party thereto or not, that Lessee has violated any such ordinance or statute in the use of the premises, shall be conclusive of that fact as between Lessor and Lessee. INDEMNIFICATION OF LESSOR 7. Lessee, as a material part of the consideration to be rendered to Lessor, hereby waives all claims against Lessor for damages to goods, wares, merchandise and other personal property, in , upon or about said premises and for injuries to person in or about said premises, from any cause arising at any time, and Lessee will hold Lessor exempt and harmless from any damage or injury to any person, or to the good, wares, merchandise and other personal property of any person arising from the use of the premises by Lessee, or from the failure of Lessee to keep the premise in good condition and repair, as herein provided. UTILITIES 8. Lessee shall pay for all water, gas, heat, light, power, telephone service, sewer service charge and all other services supplied to the said premises, together with any taxes thereon. ENTRY OF LESSOR 9. Lessee shall permit Lessor and his agents to enter into and upon said premises at all reasonable times for the purpose of inspecting the same or for the purpose of maintaining the building in which said premises are situated, or for the purpose of making repairs, alterations or additions to any other portion of said building, including the erection and maintenance of such scaffolding, canopies, fences and props as may be required, or for the purpose of posting notices of non-liability for alterations, additions, or repairs, or for the purpose of placing upon the property in which the said premises are located any usual or ordinary "for sale" signs, without any rebate of rent and without any liability to Lessee for any loss of occupation or quiet enjoyment of the premises thereby occasioned; and shall permit Lessor, at any time within thirty days prior to the expiration of this lease, to place upon said premises any usual "to lease" signs. DESTRUCTION OF PREMISES 10. In the event of a partial destruction of the said premises during the said term, from any cause, Lessor shall forthwith repair the same, provided such repairs can be made within sixty (60) days under the laws and regulations of State, Federal, County or Municipal authorities, but such partial destruction shall in no wise annual or void this lease, except that Lessee shall be entitled to a proportionate deduction of rent while such repairs are being made, such proportionate deduction to be based upon the extent to which the making of such repairs shall interfere with the business carried on by Lessee in the said premises. If such repairs cannot be made in sixty (60) days, Lessor may, at its option, make same within a reasonable time, this lease continuing in full force and effect and the rent to be proportionately rebated aforesaid in this paragraph provided. In the event that Lessor does not so elect to make such repairs which cannot be made in sixty (60) days, or such repairs cannot be made under such laws and regulations, this lease may be terminated at the option of either party. In the event that the building in which the demised premises may be situated by destroyed to the extent of not less than 33 1/3% of the replacement cost thereof,, Lessor may elect to terminate this lease, whether the demised premises be injured or not. A total destruction of the building in which the said premises may be situated shall terminated this lease. Lessee waives any right to terminate this lease as a result of any statutory provision now or hereafter in effect pertaining to the damage or destruction of the demised premises or the building of which the demised premises are a portion except as expressly provided herein. ASSIGNMENT AND SUBLETTING 11. Lessee may assign this lease or any interest therein and may also sublet the whole of said premises, provided that written consent of Lessor to any such assignment or subletting is first obtained by Lessee. If, during the term of this lease Lessee requests the written consent of Lessor to any such assignment or subletting, Lessor's consent thereto shall not unreasonably be withheld. A consent to one assignment or subletting shall not be deemed to be a consent to any subsequent assignment or subletting, and any such subsequent assignment or subletting without Lessor's consent shall be void and shall, at Lessor's option , terminate the lease. This lease shall not, nor shall any interest therein, be assignable as the interest of Lessee by operation of law without the written consent of Lessor, but such consent shall not unreasonably be withheld. In the event hat the demised premises are assigned or subleased at a rental consideration in excess of the then current rent, then all of such excess shall be paid to the Lessor as additional rent thereunder. INSOLVENCY OR BANKRUPTCY 12. In addition to any and all rights or remedies of Lessor hereunder or as provided by law, the term of this Lease may be ended at the option of Lessor and Lessor, at its option, ay reenter and take possession of the demised premise and remove all persons therefrom and, upon the exercise of such option by Lessor, Lessee shall have no further claim in or to the demised premises, and the Lease Agreement and any interest in or to the demised premises shall no longer be an asset of the Lessee or any successor in interest, if any one of more of the following events occur: (a) Lessee admits in writing its inability to pay its debts as they come due; (b) Lessee makes, to it unsecured creditors generally, an offer of settlement, extension or composition; (c) Lessee files any petition or action for relief under the provisions of any bankruptcy, reorganization, insolvency or moratorium law, or any other law or law for the relief of, or relating to, debtors; (d) Lessee files any petition or action for relief under the provisions of any bankruptcy, reorganization, insolvency or moratorium law, or any other law or laws for the relief of, or relating to, debtors. (e) Lessee is the subject of an involuntary petition or similar action for relief under any bankruptcy, reorganization, insolvency, or moratorium law, or any other law or laws for the relief of, or relating to, debtors; (f) A receiver or trustee is appointed, with or without Lessee's consent, to take possession of all or part of the assets or properties of Lessee. In the event that any one or more of the preceding events shall occur, failure by Lessor to assert immediately its right to reenter and take possession of the demised premises or to exercise any other rights or remedies granted to Lessor by law or hereunder shall not constitute a waiver of any such right or remedy nor shall Lessor be estopped to assert, at a later time, any such right or remedy. DEFAULT 13. In the event of any breach of this lease by Lessee, then Lessor, besides other rights and remedies he may; have, shall have the immediate right of re-entry and may remove all persons and property from the premises. If Lessor's right of re-entry is exercised following abandonment of the premises by the Lessee, then Lessor may consider any personal property belonging to Lessee and left on the premises to also have been abandoned, in which case Lessor may dispose of all such personal property in any manner Lessor shall deem proper and is hereby relieved of all liability for doing so. If Lessee breaches this lease and abandons the property before the end of the term, or if Lessee's right to possession is terminated by Lessor because of a breach of the Lease, then in either such case, Lessor may recover from Lessee all damages suffered by Lessor, as the result of Lessee's failure to perform his obligations thereunder, including but not restricted to, the worth at the time of the award by the court having jurisdiction thereof of the amount by which the rent then unpaid hereunder for the balance of the lease term exceeds the amount of such rental loss for the same period which Lessee proves could be reasonably avoided by Lessor, and in such case, Lessor, prior to the award, may relet the premises for the purpose of mitigating damages suffered by Lessor because of Lessee's failure to perform his obligations hereunder; provided, however that even though Lessee has abandoned the premises following such breach, this lease shall nevertheless continue in full force an defect for as long as Lessor does not terminate Lessee's right of possession, and until such termination, Lessor may enforce all his rights and remedies under this lease, including the right to recover the rent from Lessee as it becomes due hereunder. REPAIRS 14. Lessee shall, at his sole cost, keep and maintain said premises and appurtenances and every part thereof (excepting interior walls and roofs which Lessor agrees to repair), including glazing, sidewalks adjacent to said premises, parking areas, driveways, lighting standards, landscaping and striping, any store front and the interior of the premises, in good and sanitary order, condition and repair. By entry hereunder, Lessee accepts the premises as being in good and sanitary order condition and repair and agrees on the last day of said term, or sooner termination of this lease, to surrender unto Lessor all and singular said premises with said appurtenances in the same condition as when received, reasonable use and wear thereof and damage by fire, act of God or by the elements excepted, and to remove all of Lessee's sings form said premises. ADVERTISEMENTS AND SIGNS 15. Lessee shall not conduct or permit to be conducted any sale by auction on said premises. Lessee shall not place or permit to be placed any projecting sign, marquee or awning on the front of the said premises without the written consent of Lessor; Lessee, upon request of Lessor, shall immediately remove any sign or decoration which Lessee has placed or permitted to be placed in, on , or about the front of the premises and which, in the opinion of Lessor, is objectionable or offensive, and if Lessee fails so to do, Lessor may enter upon said premises and remove the same. Lessor has reserved the exclusive right to the two exterior sidewalls, rear wall and roof of said premises, and Lessee shall not place or permit to be place upon the said sidewalls, rear wall or roof, any sign, advertisement or notice without the written consent of Lessor. SURRENDER OF LEASE 16. The voluntary or other surrender of this lease by Lessee, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of the Lessor, terminate all or any existing subleases or subtenancies, or may, at the option of Lessor, operate as an assignment to him of any or all such subleases or subtenancies. CONDEMNATION 17. If any part of the demised premises shall be taken or condemned for a public or quasi-public use, and a part thereof remains which is susceptible of occupation hereunder, this lease shall, as to the part so taken, terminate as of the date title shall vest in the condemnor, and the rent payable hereunder shall be adjusted so that the Lessee shall be required to pay for the remainder of the term only such portion of such rent as the value of the part remaining after condemnation bears to the value of the entire premises at the date of condemnation; but in such event Lessor shall have the option to terminate this lease as of the date when title to the part so condemned vests in the condemnor. If all of the demised premises, or such part thereof be taken or condemned so that there does not remain a portion susceptible for occupation thereunder, this lease shall thereupon terminate. If part or all of the demised premises bee taken or condemned, all compensation awarded upon such condemnation or taking shall go the Lessor and the Lessee shall have no claims thereto, and the Lessee hereby irrevocably assigns and transfers to the Lessor any right to compensation or damages to which the Lessee may become entitled during the term hereof by reason of the condemnation of all or a part of the demised premises. ATTORNEY'S FEES 18. In case suit is brought by either party because of the breach of any term, covenant or condition herein contained, the prevailing party shall be entitled to recover against the other party a reasonable attorney's fee to be fixed by the court. ARBITRATION 19. In the event of a dispute between Lessor and Lessee relative to the provisions of this lease, the matter shall be determined by competent and disinterested arbitrators, one of whom shall be selected and paid by Lessor and one selected and paid by Lessee. Each party shall notify the other party the name and address of the arbitrator so selected within 15 days after a written request for arbitration has been given by one party to the other. In the event these two cannot agree within 30 days after their appointment, the arbitrators shall select a competent and disinterested part as the third arbitrator, the expense to be borne equally by Lessor and Lessee. In the event these two do not so select a third arbitrator within the next 15 days, then the third arbitrator shall be appointed by the President of the Chamber of Commerce of San Francisco, State of California, upon the request o f either party. The decision of any two of the three arbitrators so chosen shall be final and conclusive on the parties hereto. The decision of the arbitrators shall be in writing, and a copy thereof shall be given to Lessor and Lessee within 90 days after the date of the request for arbitration. SECURITY DEPOSIT 20. Lessee shall deposit with Lessor upon execution hereof the sum of Fifteen Thousand and 00/100 ($15,000.00) Dollars as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefore, deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount hereinabove stated and Lessee's failure to do so shall be a breach of this Lease, and Lessor may at its option terminate this lease. Lessor shall not be required to keep said deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit or so much thereof as had not theretofore been applied by Lessor, shall be returned without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest hereunder) within fifteen (15) days after the expiration of the term thereof, or after Lessee has vacated the Premises, whichever is later. TAXES AND ASSESSMENTS 21. In the event that in any tax year during the term of this lease the amount of the Municipal, State or County Real Estate taxes including the amount of any general or special assessments, or levies or charges made by any municipal or political subdivision for local improvements shall exceed the amount of such taxes including such general or special assessments, levies or charges for the fiscal year 1989-1990, the Lessee shall pay to the Lessor for such year upon demand an amount equal to 7.94% of the total increase in such taxes, assessments, levies and charges upon the whole of the land and building upon and within which the leased premises are situate, whether such increase is caused by increased or added rate or increased assessed valuation or by increase in, or by reason of any new, general or special assessment. It is understood that, if the right to pay any assessments in installments is given to Lessor, then for the purposes of this paragraph it shall be deemed that the same are paid in such installments regardless of whether or not the Lessor may pay the same in one sum or in any larger amounts than the installment basis. It is agreed that any increase in taxes caused by an increase in assessed valuation due to work done in the demised premises by Lessee or by work done in any other parts of the building by Lessor or any other tenant in the building shall not be included in computing the amount of increase in taxes to be paid by Lessee under the preceding paragraph of this Paragraph 21, but shall be computed separately in the following manner: 1. Any increase in taxes caused by an increase in assessed valuation due to the work done by Lessee in the demised premises at any time during said term shall be borne entirely by Lessee. 2. If there is any increase in taxes caused by work done in any other parts of the building by Lessor or by any other tenant in the building, the Lessee shall not be responsible for any portion of such increase in taxes. The amount of Lessee's obligation under this paragraph for the year in which this lease terminates shall be prorated in the proportion that the period this lease is in effect during the tax year in which this lease terminates bears to the full tax year. Lessee also shall pay, before delinquency, any and all taxes levied or assessed and which become payable during the term hereof upon Lessee's equipment, furniture, fixtures and other personal property located in the premises. In addition to rental and other charges to be paid by Lessee hereunder, Lessee shall reimburse to Lessor, upon demand, any and all taxes payable by Lessor (other than net income taxes) whether or not now customary or within the contemplation of the parties hereto: (a) upon, allocated to, or measured by or on the rental payable hereunder, including, without limitation, any gross income tax or exercise tax levied by the State, any political subdivision thereof, or Federal Government with respect to the receipt of such rental; or (b) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Lessee of the premises or any portion thereof; or (c) upon or measured by the value of Lessee's equipment, furniture, fixtures and other personal property located in the premises or by the cost or value of any leasehold improvements located in the premises; or (d) upon this transaction or any document to which Lessee is a party creating or transferring an interest or an estate in the premises; or (e) any tax or charge made by any authority having jurisdiction upon any automobile parking facilities used by Lessee and any sewer tax, water control tax or Environmental Quality Control charge. 22. The monthly rental in the amount of $5,041.90, set forth above shall be increased on May 1, 1991 and May 1, 1992 in the same proportion that the Consumer Price Index figure published by the United States Department of Labor, Bureau of Labor Statistics, all items retail for San Francisco-Oakland for the month prior to the adjustment month bears to the Consumer Price Index figure for the month prior to the month in which lease commences (1967 = 100) hereinafter called "basic index figure", provided, however, that in no event shall the monthly rental for any such period be less than the monthly rental being paid by Lessee immediately prior to such adjustment. If prior to the effective date of any rental adjustment in Bureau of Labor Statistics should revise or change the methods or basic data used in calculating the said index, in such a way as to affect the direct comparability of such revised or changed index, with the original index used herein, then the Bureau shall be requested to furnish a conversation factor designated to adjust to the new basis, the said original index. If said Consumer Price Index, as now constituted, compiled and published shall cease to be compiled and published during the term hereof, then the Bureau of Labor Statistics shall be requested to furnish a statement converting the basic index figure to a figure that would be comparable in another index published by the Bureau of Labor Statistics and such other index shall be used in computing the rental increase provided above. If no such conversion or other index is available, then the said rental increase shall be determined by arbitration in the manner provided in Paragraph 19 hereof. INSURANCE 23. Lessee agrees during the full term of this lease to carry comprehensive bodily injury insurance covering the demised premises, its appurtenances and ways immediately adjoining, including any parking areas and driveways that may be used by Lessee, in a single limit of $1,000,000 for injury or death to any number of persons in any one occurrence, property damage insurance in the amount of $100,000.00 and plate glass insurance in Companies satisfactory to the Lessor, in the joint names of the Lessor and Lessee, and to pay the premiums therefore and to deliver said policies, or certificates thereof, unto the Lessor, and the failure of the Lessee either to effect said insurance in the names herein called for or to pay the premiums therefore or to deliver said policies, or certificates thereof, unto the Lessor shall permit the Lessor to effect said insurance and to pay the requisite premiums therefore, which premiums shall be repayable unto him with the next installment of rental, and failure to repay the same shall carry with it the same consequence as failure to pay any installment of rental. Each insurer mentioned in this paragraph shall agree, by endorsement upon the policy or policies issued by it, or by independent instrument furnished to the Lessor, that it will give the Lessor ten (10) days written notice before the policy or policies in question shall be altered or cancelled. NOTICES 24. Whenever it is required that any notice be given hereunder, the same shall be sufficiently served by depositing the same in the United States Mail, postage prepaid, and addressed to the addresses set forth below: To Lessor at: 44 Montgomery Street San Francisco, California 94104 To Lessee at: 2440 Estand Way Pleasant Hill, CA or to such other addresses as a party may designate by written notice to the other party in the manner herein provided. LESSOR'S LIABILITY 25. The term "Lessor", as used in this Paragraph, shall mean only the owner or owners at the time in question of the fee title or its interest in a ground lease of the Premises, and in the event of any transfer of such title or interest. Lessor herein named (and in case of any subsequent transfers the then grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall be binding on Lessor's successors and assigns only during their respective periods of ownership. WAIVER 26. The waiver by Lessor of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of the same or any other term, covenant or condition therein contained. The subsequent acceptance of rent hereunder by Lessor shall not be deemed to be a waiver of any preceding breach o by Lessee of any term, covenant or condition of this lease, other than the failure of Lessee to pay the particular rental so accepted, regardless of Lessor's knowledge of such proceeding breach at the time of acceptance of such rent. HOLD OVER 27. Any holding over after the expiration of the said term, with the consent of Lessor, shall be construed to be a tenancy from month to month, at a rental in the amount of the last monthly rental plus all other charges payable hereunder, and shall otherwise be on the terms and conditions herein specified, so far as applicable. SUCCESSORS 28. The covenants and conditions herein contained shall, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and assigns of all of the parties hereto; and all of the parties hereto shall be jointly and severally liable hereunder. TIME 29. Time is of the essence of this Lease. CAPTIONS 30. The captions in the margins of this Lease are for convenience only and are not a part of this lease and do not in any way limit or amplify the terms and provisions of this Lease. SUBORDINATION 31. The Lessee covenants that this lease is and at all times shall be subject and subordinate to the lien of any mortgage or deed of trust now existing or which the Lessor or any subsequent owner of the demised premises shall make covering said demised premises or the building of which said premises are a part, and to any and all advances made or to be made under or upon said mortgage or deed of trust, and to the interest thereon. Notwithstanding such subordination Lessee's right to quiet possession of the premises shall not be disturbed if Lessee is not in default hereunder and so long as Lessee shall pay the rent and observe and perform all of the provisions of this lease. ESTOPPEL CERTIFICATE 32. Lessee shall at any time and from time to time upon not less than ten (10) days prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified stating the nature of such modification and certifying that this Lease as so modified, is in full force and effect) and the dates to which the rental and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the parts of Lessor hereunder, or specifying such defaults if any are claimed. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the premises are a part. Lessee's failure to deliver such statement within such time shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification except, as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and (iii) that not more than one month's rental has been paid in advance. SPECIAL PROVISIONS 33. Special provisions of this Lease numbered 34 through 36 are attached hereto and are made a part hereof. Also incorporated hereby is Lease A Addendum dated April 6, 1990. 34. LESSEE WARRANTS THAT IT SHALL NOT MAKE ANY USE OF THE PREMISES WHICH MAY CAUSE CONTAMINATION OF THE BUILDING AND IMPROVEMENTS, THE SOIL OR GROUND WATER AND HEREBY INDEMNIFIES AND AGREES TO HOLD LESSOR HARMLESS FROM ANY CLAIM FOR DAMAGES ARISING FROM ANY CONTAMINATION CAUSED BY LESSEE'S USE OF THE PREMISES INCLUDING, BUT NOT LIMITED TO, DAMAGE TO LESSOR'S PROPERTY, THE PROPERTY OF ANY THIRD PARTY OR PERSONAL INJURY TO ANY PERSON. THE INDEMNIFICATION GIVEN HEREUNDER SHALL BE CONTINUING AND SHALL SURVIVE THE TERMINATION OF THE LEASE TERM. 35. IF AT ANY TIME LESSOR DETERMINES TO LEASE ALL OR PART OF THE ADJACENT EASTERN 4,000 (APPROXIMATELY) SQUARE FEET VACANT SPACE COMMON KNOWN AND DESIGNATED AS 2447 ESTAND WAY, PLEASANT HILL, CALIFORNIA, LESSOR AGREES TO GRANT TO LESSEE A FIRST RIGHT OF REFUSAL ON SAID SPACE. LESSOR SHALL NOTIFY LESSEE OF THE RENT AND TERMS FOR WHICH LESSOR IS WILLING TO LEASE SAID SPACE. IF LESSEE, WITHIN 3 CALENDAR DAYS AFTER RECEIPT OF LESSOR'S NOTICE, INDICATES IN WRITING ITS AGREEMENT TO LEASE THE SPACE, THE SPACE SHALL BE INCLUDED WITHIN THE PREMISES AND LEASED TO THE LESSEE PURSUANT TO THE PROVISIONS OF THIS LEASE. HOWEVER, THE RENT PAYABLE UNDER THIS LEASE SHALL BE INCREASED BY THE AMOUNT OF RENT ATTRIBUTED TO THE ADDITIONAL SPACE LEASED BY LESSEE. THE PARTIES SHALL IMMEDIATELY EXECUTE AN AMENDMENT TO THE LEASE STATING THE ADDITION OF THE EXPANSION SPACE, TO THE PREMISES. IF THE LESSEE DOES NOT INDICATE WITHIN THREE CALENDAR DAYS ITS AGREEMENT TO LEASE THE ADDITIONAL SPACE, LESSOR THEREAFTER SHALL HAVE THE RIGHT TO LEASE THE SPACE TO A THIRD PARTY, AND THIS OPTION TO EXPAND PREMISES SHALL BE OF NO FURTHER FORCE AND EFFECT. 36. LESSEE SHALL BE GRANTED BY LESSOR A $10,000 TENANT IMPROVEMENT ALLOWANCE. LESSEE SHALL PROVIDE LESSOR WITH A LIST OF SUCH IMPROVEMENTS. IN THE EVENT THAT SAID IMPROVEMENT EXCEED $10,000, SAID EXCESS SHALL BE PAID BY LESSEE. LESSOR SHALL PROVIDE LESSEE WITH A WRITTEN BID BY A LICENSED CONTRACTOR FOR SAID IMPROVEMENTS FOR LESSEE'S APPROVAL. IN WITNESS WHEREOF, the parties hereto have executed this lease the day and year first above written. LESSORS LESSEES PLEASANT HILL INDUSTRIAL PARK LAVENIR TECHNOLOGY, INC. ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP By: By: /s/ Max P. Henzi ---------------------------------- ---------------------------------- LOWENBERG HOLDINGS, GENERAL PARTNER WILLIAM J. LOWENBERG, PRESIDENT Max P. Henzi - April 6, 1990 ---------------------------------- PRESIDENT ---------------------------------- This lease has been prepared for submission to your attorney for his approval. No representation or recommendation is made by Lowenberg Realty Company, or its agents or employees as to the legal sufficiency, legal effect, or tax consequences of this lease or the transaction relating thereto. LEASE ADDENDUM April 6, 1990 Addendum to the lease dated April 3, 1990, by and between Pleasant Hill Industrial Park Associates as Lessor and Lavenir Technology, Inc. as Lessee for the Premises designated as 2440 Estand Way, Pleasant Hill, California. Lessor and Lessee do hereby agree to clarify and amend the terms of said lease as follows: 1. Lessee shall be given possession and shall be allowed to occupy the premises upon execution of this lease by Lessor, subject to all of the terms and conditions of the lease. 2. Lessor warrants that all heating, air conditioning, plumbing and electrical systems on the premises are in good operating condition and repair at the time of possession by Lessee. Lessee shall have thirty (30) days from date of occupancy to verify that such systems are in good operating condition. Lessor to be responsible for the repair/correction of malfunctions discovered by Lessee during said thirty (30) day period. 3. Notwithstanding the provisions of paragraph 14 of this lease, Lessor shall be responsible for the maintenance and repair of sidewalks, parking areas, driveways, lighting standards, landscaping and striping adjacent to the premises. 4. Lessor hereby agrees to allow Tenant to paint over the existing signage painted on the front exterior wall of the premises and to allow Lessee to place its own signage in its place, subject to Lessor's approval of Lessee's sign. 5. Upon Lessee's request and submission of plans and specifications acceptable to Lessor, Lessor to install windows at the mezzanine level of the rear wall of the premises, at Lessee's sole expense. Said work shall be done with all required permits from the City of Pleasant Hill and shall be subject to lessor's prior approval of the structural engineering and architectural plans for said windows. 6. Line one of paragraph 35 of this lease is hereby amended as follows: "If at any time Lessor receives a firm offer to lease all or part of the adjacent Eastern" . . . 7. The following is hereby added to paragraph 36 of the lease: If Lessee feels Lessor's contractor's bid is not competitive, Lessee shall be allowed to solicit competitive bids from two additional contractors, and Lessor shall have the work performed for the price bid by the lowest-priced, qualified contractor, or allow Lessor's contractor to do the work at the low-bid price. Agreed and Accepted: Agreed & Accepted: Lessor: Pleasant Hill Industrial Lessee: Lavenir Technology Inc. Parking Associates By: By: /s/ Max P. Henzi William J. Lowenberg, President Max P. Henzi, President EX-10 7 global011838_ex10-9.txt EXHIBIT 10.9 RESCISSION AND SETTLEMENT AGREEMENT EXHIBIT 10.9 RESCISSION AND SETTLEMENT AGREEMENT This Rescission and Settlement Agreement (this "Agreement") is effective December 20, 2000, among Singlepoint Systems Corporation, a Minnesota corporation ("SSC"), Global Maintech, Inc., a Minnesota corporation which is a wholly-owned subsidiary of SSC ("GMI"), Singlepoint Systems, Inc., a Minnesota corporation which is a wholly-owned subsidiary of GMI ("SSI"), Enterprise Solutions, Inc., an Ohio corporation ("ESI"), Stewart Trent Wong ("Wong"), and Desi Dos Santos ("Dos Santos"), together, the "ESI Shareholders." RECITALS A. SSC (formerly known as Global Maintech Corporation), GMI, SSI and ESI are parties to an Asset Purchase Agreement dated as of November 1, 1998 (the "APA"), pursuant to which the parties undertook a transaction (the "Transaction") by which ESI sold and transferred to SSI certain assets (the "Transferred Assets," which, as used herein, has the meaning given to that term in the APA). B. Pursuant to the Transaction, SSI paid ESI $200,000 (the "Cash Consideration"), issued to the ESI Shareholders options to purchase an aggregate of 580,000 post-split shares(1) of SSC common stock (collectively, the "Shareholder Options") and assumed certain of ESI's liabilities (the "Assumed Liabilities," which, as used herein, has the meaning given to that term in the APA). In addition, pursuant to Section 4.4(a) of the APA, each of Wong and Dos Santos became an employee of SSI and entered into an Employment Agreement prescribed by the APA (collectively, the "Employment Agreements"). C. Section 1.4(d) of the APA required SSI, as further consideration for the Transferred Assets, to make an additional payment to ESI pursuant to a formula based on the economic performance of SSI over an 18-month earn-out period (the "Earn Out Payment"). Pursuant to that formula, the parties have determined the Earn Out Payment to be approximately $10,200,000 if paid in cash or $11,700,000 if paid by delivery of shares of SSC common stock, as set forth on Exhibit A attached hereto. The Earn Out Payment was not made on the date provided under the APA. In addition, Section 4.9(f) of the APA provides that, if during the 18-month earn-out period certain events (the "Triggering Events") occurred, then ESI will have the right to require SSI to return the Transferred Assets to ESI under the terms and conditions set forth in Sction 1.4(e) of the APA. Following the occurrence of a number of the Triggering Events during the earn-out period, ESI sent a notice to SSI pursuant to Section 4.9(f) (the "Section 4.9(f) Notice"). Also, during the earn-out period, SSI contributed in excess of $500,000 of working capital to SSC, notwithstanding SSC's undertaking to provide working capital to SSI during this period. D. Based on the facts set forth in Recital C above and certain other events, disputes exist among the parties regarding the performance of obligations required by the APA. However, over the last several months the parties have pursued efforts to find a resolution to the disputes, and the parties agreed that, during that period, any required notice under the agreement and any claim that might be based upon the disputes would be held in abeyance. - ---------------------------- (1) The intent of this agreement is to include in the shareholders' options are all shares that are referenced in the Asset Purchase Agreement and if the amount varies, then the amount in the APA governs adjusted to splits accordingly. E. SSC has not determined that delivery of the Earn Out Payment either in cash or stock would not be in the best interest of SSC, GMI or SSI, and it has proposed a rescission of the Transaction and a settlement of the disputes under the terms and conditions set forth below. ESI has agreed to the proposed rescission and settlement based on such terms and conditions. NOW, THEREFORE, the parties agree as follows: 1. Rescission of the Transaction. Subject to the other terms and conditions of this Agreement, effective upon the execution of this Agreement, and in settlement of all disputes and claims that any of the parties may have with or against each other, SSI will transfer back, assign back and reconvey to ESI all of the Transferred Assets and all other assets that are now part of the business that was purchased by SSI under the APA (the "Business"); provided that, as the only consideration for such transfer, (i) all of the Shareholder Options held by the ESI Shareholders shall be cancelled, and (ii) ESI shall assume all liabilities related to such retransferred assets that are of the same name, character, and nature the Assumed Liabilities which SSI assumed on the closing of the APA and will indemnify SSI against any claims with respect to such assumed liabilities which result from ESI's failure to pay or otherwise satisfy any of such liabilities. (Such retransfer of assets is referred to herein as the "Rescission.") ESI shall have no obligation to return the Cash Consideration. In clarification of the obligation of ESI to assume liabilities as provided above, the parties further agree as follows: A. The amounts shown on Exhibits A and B as liabilities to be assumed by ESI ($547,739.51 of the accounts payable listed on Exhibit A and $49,867.76 of the obligations incurred listed on Exhibit B) constitute some, but not necessarily all, of the liabilities assumed by ESI hereunder. To the extent there are other liabilities which ESI is to assume, as described above, and which are not identified on Exhibit A or Exhibit B, and which were incurred prior to December 21, 2000, SSC may bring these to ESI's attention and the parties will work together to determine if any such additionally identified liabilities should be wholly assumed by ESI, or wholly retained by SSC, or prorated between them abed on the relative benefits received by the parties in relation to the liability in question. If the parties are unable to resolve amicably any disagreements with respect to the assumption, retention or proration of any such additionally identified liabilities, then the matter shall be determined by arbitration as set forth under Paragraph 8(g). Any claim by SSC that a liability not identified on Exhibit A or Exhibit B is an additional liability assumed in whole or part by ESI hereunder will be barred unless brought within 180 days of the date hereof. B. As security for ESI's obligation to indemnify SSC with respect to the payment of the liabilities assumed by ESI hereunder, ESI hereby grants SSC a security interest in the XO Shares (as defined below), which security interest will be perfected by a pledge and delivery of the stock certificates for the XO Shares to SSC, and ESI further agrees that, until the assumed liabilities are fully paid or otherwise satisfied, ESI will not transfer, sell or otherwise encumber the XO Shares. -2- 2. Nature of the Transferred Assets. By way of illustration, and without limiting the generality of the description set forth in Section 1, the assets to be transferred to ESI hereunder shall include: (i) The tradenames "Singlepoint Systems," "Singlepoint Systems, Inc.," "Singlepoint," "AlarmPoint" and "PhonePoint" and all other trademarks, tradenames, patent rights, copyrights, trade secrets and other intellectual property of any nature (including all derivatives thereof) which were transferred by ESI to SSI under the APA or which have since been developed by SSI in connection with the Business. (SSC, GMI and SSI hereby agrees within 30 days from the date of this agreement to cease all use of any tradenames or other intellectual property, and acknowledge that ESI will retain ownership of the LegacyPoint product and name, which portion was developed solely by using ESI resources, specifically the HP-ITO code only); (ii) All office equipment, furniture or other property or assets that were acquired by SSI following the closing under the APA, whether such property or assets constitute replacements of Transferred Assets; and (iii) Generally, all property which is now part of the Business and is of a type described in subsections 1.1(a) through 1.1(u) of the APA. (iv) All rights to future cash payments from XO Technologies, Inc. with respect to intellectual property rights to ESI's PhonePoint software, and all shares of stock of XO Technologies, Inc. (the "XO Shares") received by SSC with respect thereto. 3. Wong and Dos Santos Employment Agreements. Subject to the other terms and conditions of this Agreement, upon the Rescission, the Employment Agreements for Wong and Dos Santos will terminate, and neither will have any further rights or obligations thereunder. 4. Other Employees. Subject to the other terms and conditions of this Agreement, upon the Rescission, the employment of Dario Liberate, Robert Bogdan and Tracy Cook by SSI will be terminated. ESI agrees to provide them comparable employment following execution of this document. ESI also agrees that if there are any options given to its employees for stock of SSC, GMI, and SSI under the APA, ESI shall indemnify and hold harmless these companies from any such claim. 5. Termination of Agreements and Obligations. Subject to the other terms and conditions of this Agreement, upon the Rescission, SSC, GMI and SSI, on the one hand, and ESI and the ESI Shareholders, on the other, will mutually and consensually terminate all existing agreements and obligations between them. 6. Release Provisions. (a) Release. Subject to the other terms and conditions of this Agreement, upon the Rescission, each of the parties hereto, on behalf of itself, its officers, directors, subsidiaries, affiliates, employees, representatives, agents, predecessors, successors and assigns, and each of them (collectively, the "Releasing Parties"), hereby jointly and severally releases, acquits and forever discharges each of the other parties and each of such other parties' respective -3- officers, partners, subsidiaries, affiliates, employees, representatives, agents, predecessors, successors and assigns, and each of them, from any and all claims, demands, actions, causes of actions, liabilities, obligations, costs, expenses, loss of service, debts, attorneys' fees, claims for sanctions, or damages of any kind or nature whatsoever, and in any and all forums and courts, whether known or unknown, suspected or unsuspected, arising from the beginning of time up to and including the date of the Rescission, arising out of, resulting from of or in any way related to the APA or the transactions undertaken or contemplated thereby, other than any obligations under this Agreement. (b) Waiver of Rights Under Civil Code Section 1542. With regard to the claims released hereby, the Releasing Parties expressly waive the benefits of any and all rights they may have under California Civil Code Section 1542, which provides as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. (c) Knowledge of Civil Code Section 1542. The Releasing Parties acknowledge that they fully understand the statutory language of Civil Code Section 1542 and, having been so apprised by their attorneys and/or their independent review of this Civil Code section and any related sections and authorities referring to said section, nevertheless elect, and do assume, all risks and responsibilities for release of all claims as set forth above, and for all other claims heretofore and hereafter arising within the coverage of this release, whether known or unknown, suspected or unsuspected. (d) No Prior Assignment of Claims. The Releasing Parties represent and warrant that they have not sold, assigned, transferred, conveyed (except to the parties to this Agreement) or otherwise disposed of any claims, demands, actions or causes of action released herein. -4- 7. Lien Release Condition; Reinstatement. ESI and the ESI Shareholders have entered into this Agreement on the condition that, within 90 days following the Rescission (subject to extension at the sole discretion of ESI) (the "Lien Release Period"), all of the liens in favor of Hambrecht & Quist which currently encumber some or all of the assets to be transferred to ESI hereunder (collectively, the "H&Q Liens") will be removed and released at no cost to ESI. The parties acknowledge that SSC is currently considering the disposition of certain other assets it owns; that Hambrecht & Quist had indicated that, in connection with the closing of that transaction under the terms currently being considered, it will release all of the H&Q Liens; and that the expectation of that transaction and release of liens was a material consideration for the decision of ESI and the ESI Shareholders to enter into this Agreement. Accordingly, the parties expressly agree that, unless all of the H&Q Liens are removed and released at no cost to ESI within the Lien Release Period, ESI shall have the absolute right and option, by notice given to SSC at any time within 90 days following the expiration of the Lien Release Period, to rescind this Agreement, in which case (i) ESI shall transfer back to SSI (or to SSC if SSI has been dissolved), and SSI (or SSC) shall be obligated to accept, all of the assets (or replacements thereof) that ESI received pursuant to this Agreement, together with all related liabilities, and SSC shall grant to the ESI Shareholders options for SSC common stock having the exact same terms as the Shareholder Options terminated at the Rescission; (ii) all other actions taken hereunder upon the Rescission shall be rescinded and reversed; (iii) the release provider under Section 6 above (the "Release") shall be rescinded and deemed to have never come into existence; and (iv) all claims that any party hereunder may have had against any other party prior to the Rescission shall be reinstated and deemed to have not been released by the Release. 8. General Provisions. (a) Law Governing. This Agreement shall be construed in accordance with the laws of the State of Minnesota. This Agreement was produced by all parties hereto and shall not be construed against any of them. (b) Execution by Counterparts. This Agreement may be executed as a single document or in counterparts, each of which shall be deemed an original, equally admissible in evidence, and all of which together shall constitute one and the same agreement. (c) Entire Agreement; Modifications and Amendments. This Agreement represents the entire agreement between the parties hereto and supersedes any previous oral or written agreement between them. No modification or amendment of this Agreement shall be of any force or effect unless in writing and executed by all parties to this Agreement. (d) Consultation with Counsel. All parties hereto acknowledge that they have received independent legal advice from their attorneys with respect to the advisability of executing this Agreement. (e) Further Assurances. Each of the parties, at the request of any other party, will execute all such further instruments and take all such further action consistent with the provisions hereof as may be reasonably necessary to carry out the intent of this Agreement. -5- (f) Capacity; Authority. The parties represent and warrant that they each have full legal capacity to execute, deliver and perform this Agreement. The parties represent and warrant that: (i) no consent or approval of any other person is required in connection with their execution, delivery and performance of this Agreement except to the extent that such consent or approval already has been obtained; (ii) they have duly executed this Agreement; and (iii) this Agreement constitutes a valid and binding obligation of each of them, enforceable against each of them in accordance with its terms. Each of the people executing and delivering this Agreement on behalf of an entity represents and warrants to the other that he or she is authorized to do so. (g) Arbitration. This Agreement is intended to set forth the important terms between the parties but is unlikely to cover all circumstances. In this regard, if the parties are unable to resolve any disagreement between them, or problems that arise in the future, which may or may not be covered by this Agreement, an arbitrator shall be selected by agreement, and if the parties are unable to agree on an arbitrator, then one shall be selected from the American Arbitration Association in accordance with their normal procedures. The arbitrator's procedural and substantive decision shall be binding upon all parties. The arbitrator so selected shall decide the issues to be determined, based upon the following: (i) That both parties be treated fairly and equitably; (ii) The intent of this Agreement or any subsequent amendments; and (iii) Practical considerations. Any decision of the arbitrator shall be binding in any court of law so that the terms of the decision can be enforced. -6- IN WITNESS WHEREOF, the parties have entered into this Rescission and Settlement Agreement as of the date first set forth above. Singlepoint Systems Corporation, Global Maintech, Inc., a Minnesota corporation a Minnesota corporation By: /s/ John E. Haugo By: /s/ John E. Haugo --------------------------------- --------------------------------- Name: John E. Haugo Name: John E. Haugo Title: Director Title: Director Singlepoint Systems, Inc., Enterprise Solutions, Inc. a Minnesota corporation an Ohio corporation By: /s/ John E. Haugo By: /s/ Trent Wong --------------------------------- --------------------------------- Name: John E. Haugo Name: Trent Wong Title: Director Title: President By: /s/ Desi Dos Santos --------------------------------- Name: Desi Dos Santos Title: Vice President /s/ Stewart Trent Wong /s/ Desi Dos Santos - ------------------------------------- ------------------------------------- Stewart Trent Wong Desi Dos Santos -7- As of 11/16/00 _______________ Absolutely Write Marketing Communications $ 13,275.00 $ Acordla 616.25 ADP Investor Communication Services 15,439.51 Aethlon Capital, LLC 387.50 Airborne Express 642.30 Alltel Ohio, INC 59.11 Americable 979.07 American Electric Power 260.17 260.17 ? American Express 257.16 257.16 American Express New 68,938.00 68,938.00 Adjusted American Info-Center 291.50 Ameritech--Eden Prairie 202.73 Ameritech--MICH (2.02) Anderson Consulting, Inc. 111,402.65 111,402.65 Adjusted APEX 3,935.85 Applied Communications of Minnesota 1,016,74 Ascend Communications 50,681.34 Asset Sentinel Inc. 20,897.50 AT&T 4,733.23 AT&T--Dabew 651.61 AT&T--Digital 2,623.89 AT&T--Eden Prarie (Atlanta) 3,577.61 AT&T--Eden Prarie (Aurora) (6.93) AT&T--Eden Prarie (Louisville) 8,257.56 AT&T--Eden Prarie (Omaha) 1,145.78 AT&T--Newark 1,341.45 AT&T--Uniplan 5,403.54 AT&T Interstate 1,064.14 AT&T Services (4,393.73) AT&T Teleconference Service (Eden Prarie) 5,410.80 AT&T Tom Miller 135.77 AT&T UniPlan 2,136.80 AT&T Web 390.20 AT&T Wireless Services 99.72 AT&T Worldnet 32168 8,120.11 AT&T Worldnet 85117 3,192.73 Bardel, Gale Expenses 110.09 110.09 Bay Tact Corporation 573.70 Bell South Pro Center 991.53 Black Mountain 257.60 257.60 Blue Cross & Blue Shield of Illinois--DN 1,543.56 Blue Cross & Blue Shield of Minnesota 28,052.00 Blue Cross Blue Shield of Florida--VT (378.00) bright.net 43.90 BRS, Ltd. (583.33) Brunettl, Gregory Expense 474.08 BT Office Products 4,514.31 Business Wire 3,350.00 Cable & Wireless USA, Inc. 2,026.28 California Board of Equalization (165.00) (165.00) California Tshirt 49.73 49.73 CC Graphics 1,426.67 1,426.67 Centura Software 622.00
-8- Chasin, Larry 1,650.00 Ching, Clayton--Expense 6,353.45 6,353.45 CoffeeCup Software 9.86 9.86 Columbia Gas 21.55 Columbus & Central Ohio Systems, Inc. (46.06) Compaq DEC 33,168.78 Computerworld 24,128.95 24,128.95 Compuware Corporation 14,850.00 Coudert Brothers 17,273.26 17,273.26 Country Inns & Suites 263.07 Cross Consulting Group 15,543.72 Crystal Springs Water Co. 57.65 57.65 ? Cuneo & Associates 11,282.85 CUSIP 105.00 Cybex (1,344.80) Cygcom 4,120.72 4,120.72 Dabew, Inc. 300,000.00 Dally Printing (787.41) DCMS Inc./AFCOM 1,600.00 Dell Marketing L.P. 853.02 Deluxe 215.56 Digi-Key Corp. 149.61 Digi International, Inc. (200.00) Dillion Advertising 23,537.33 Dombrowski, Leo 1,800.00 Dorsey & Whitney LLP 423,258.52 Dos Santos, Desi Expenses 6,252.59 6,252.59 DSL Networks 948.27 948.27 DSL Networks (New Haven) 199.62 199.62 DSL Solutions Inc. 1,031.37 1,031.37 ? El Microcircuits, Inc. (9,316.51) Euler Solutions 26,708.21 Federal Express 213.84 213.84 First Place, Inc. 2,108.51 2,108.51 Flanagan, Christopher Expenses 1,151.32 1,151.32 Flynn, Leslie Expense 2,820.65 Fore Systems 34,445.05 Fortis Benefits 1,022.23 Four Seasons 448.00 448.00 Four Star Systems 1,687.75 Frey & Palma 555.00 555.00 Frontier Communications 10,406.25 Fry's Electronics 705.23 705.23 Gartner Group 81,975.00 Gateway Systems 7,756.47 7,756.47 Glenborough Fund IX LLC 34,873.82 Global Solutions Network 15,000.00 15,000.00 Grade-A Mailing Service, LLC 350.57 Gruenwald, Janice V. 3,200.00 3,200.00 Hall, Estill, Hardwick, Gable, Golden 1,085.30 Hambrect & Quist 481.75 Hayden & Associates 54,133.31 Hewlett-Packard 10,800.00 10,800.00 Highline Capital Corp. 135,000.00 Hitachi Data Systems 7,350.00 Homestead Village 188.52
-9- IBM (Eden Prarie) 2,794.72 Ideas for You 1,455.02 1,455.02 IDS/American Express Financial Advisors 10,369.74 IKON Capital (182.64) Ikon Office Solutions--SF 2,232.66 2,232.66 InfoMart 395.00 Internal Revenue Services 108,462.00 108,462.00 Intertech 15,745.90 InterVision Systems Tech., Inc. 450.32 450.32 IOS Capital (Ikon)--Dallas 9,295.75 Iron Mountain/Safesite--Dept #384 110.00 110.00 IT&T 968.06 Jacobs, Steven 7,105.76 7,105.76 Jennings, Strouss & Salmon 309.52 Jesanda 845.43 845.43 Kershaw & Company 945.00 Key3Media Events Networld 2001 3,047.50 Kinko's 9,989.76 KLIV--AM Radio 625.00 625.00 KPMG 181,500.00 Kramer, Rich--Exp Rpt 1,750.18 Krass Monroe, P.A. 37,608.75 Laguna Groupware Inc 16,200.00 Langill, Kenneth 958.00 958.00 Langill, Kenneth Exp Rpt (886.00) (886.00) Lanstar 2,737.15 Last Minute Air 3,731.03 LD Enterprises 1,200.00 Legacy Transportation Services 1,225.60 Liberati, Dario Expenses 1,710.87 1,710.87 Liljesater, Per Expense 161.28 161.28 Linotext 1,704.97 1,704.97 Liviakia Financial Communications, Inc. 15,000.00 May, Dale Expense 2,127.94 MCI 1,484.28 1,484.28 McMaster-Carr Supply Co. 198.11 Medical Mutual of Ohio 940.28 940.28 Merchant & Gould 38,465.76 Meta Group 32,000.00 Micro 1 Research Group 1,200.00 Micro Edge 4,189.00 Midwest Delivery Service 27.04 Miller & Schroeder Financial, Inc. (4,099.52) Miller, Tom Expense 1,722.61 Milligan, Craig Expense 873.11 Minnegasco 77.64 monstar.com 825.00 825.00 Moore, Alan Expenses 2,475.95 2,475.95 MSDN Subscriptions 2,145.67 2,145.67 Murray, Diane 223.06 223.06 Network Solutions, Inc. 35.00 Neuger Henry Bartkowski 3,170.07 Nevada Employment Security Division 43.46 Nextpress 16,059.98 16,059.98 Nicholas Hicks, Inc. 300.00 300.00 Norm Van Haaften 2,455.97
-10- Northern States Power Company 1,938.51 Object Space 495.00 Objectivity 22,755.49 Occidental Technologies 34,695.73 Office Depot 5,012.37 5,012.37 Office Max 1,468.26 1,468.26 OfficeMax 1,273.01 1,273.01 Pabst, Anja Expense 340.13 340.13 Pacific Bell (Eden Prarie) (801.50) Pacific Gateway Properties 15,312.08 15,312.08 Pacific Investment Services 11.50 Panarese, Richard Expenses 77.40 77.40 Paulson, Richard Expense 4,686.26 4,686.26 PBCC 305.08 PC Connection 3,188.94 Peterson, David Expense 581.31 581.31 Pick Of The Letter Graphics 30.00 Pitney Bowes 295.63 295.63 Pitney Bowes Credit Corporation 269.82 Postal Privilege 262.72 Potant Technology 6,162.00 PR Newswire, Inc. 11,810.00 Price Waterhouse Cooper 28,698.43 Pulmano, Sherard--Expense 672.03 Radford, Roger Expense 505.22 Rahrig, Brian Expense 3.20 3.20 Ray, Andy--Expenses 913.39 913.39 Reliable Office Supplies 409.74 Reliant Energy 60.12 Roanoke Trade 400.00 Roger Radford 10,660.34 Rogue Wave Software, Inc. 1,236.00 Roos, Stacey Expense 1,572.01 RR Donnelley Receivables, Inc. 32,451.92 Singlepoint Systems Inc. 7,724.00 7,724.00 SkyTel (119.44) Smart Modular Technology 115,743.00 Smart, Charles--Expenses 8,329.96 Softmart 1,726.69 Southwestern Bell 1,080.55 Southwestern Bell--Eden Prarie 980.50 Spieker Properties 7,867.74 Standard & Poor's 2,975.00 Staples 179.64 179.64 Stephens, James Expense 703.43 Sue C. Barber (120.00) Sunbelt Software 7,815.50 7,815.50 Tech Data Corporation 33.00 Tech Target.com 12,221.00 Techware 716.97 Tharco 119.71 The Depository Trust Co. 3,285.00 The Muller Company 220.00 Think & Dream 14,682.17 14,682.17 Top Priority Computer 350.00 Trademark Research Corp. 2,450.00
-11- Travel One 20,370.50 Treutel, Vic Expense 9,312.57 9,312.57 Tuff's Office Supplies, Inc. 378.88 Universal Pensions, Inc. 1,102.76 UPS 1,502.73 1,502.73 UPS--Eden Prarie (101.87) US Software 1,500.00 Veritae Software Corporate 122.20 Verizon Wireless Messaging Services 236.26 VMI, Inc. 378.88 VoiceNet 12.02 12.02 Waste Management 135.55 WaveFront Communications, Inc. 2,100.00 Wells Fargo Shareowner Services 1,064.13 West Coast Internet 1,390.70 Williams Communication LLC 15,037.46 Wincorp 26,649.72 Wong, Trent Expenses 41,826.30 41,826.30 Woodley, Mike Expense 55.78 55.78 Wright, Dana Expenses 205.05 205.05 ------------- ------------ TOTAL 2,734,203.43 547,519.51 ============= ============
-12-
Salary Bonus Vacation Terminated Employees Owed Commission Expenses Accrual - ---------------------------- ------------ ------------- ------------ ------------ GMI Employees $ $ $ $ $ May, Dale (11/15/00) 11/1/00--11/15/00 2,916.87 Vacation as of 11/15/00 2,805.74 TOTAL 2,918.87 -- -- 2,805.74 5,722.41 Tom Miller (11/24/00) 11/21/00--11/24/00 1,076.80 11/16/00--11/20/00 807.60 Vacation as of 11/21/00 3,182.78 Vacation 11/21/00-- 11/24/00 48.12 Expenses 10/30/00-- 11/11/00 646.69 Expenses 11/13/00-- 11/24/00 655.62 TOTAL 1,884.40 -- 1,302.31 3,230.90 6,417.81 Milligan, Craig (11/15/00) Two week severence notice 11/1/00--11/15/00 2,291.67 11/16/00--11/30/00 2,115.20 Vacation as of 11/15/00 1,417.21 2,554.69 TOTAL 4,408.87 -- 2,554.59 6,981.46 Sundin, Bill (11/15/00) Salary 2,422.80 BackPay 01/99 2,500.00 Commissions 30,778.31 Vacation 11,441.00 Expenses 46,284.60 TOTAL 4,922.80 30,778.31 46,294.60 11,441.00 93,436.71 Total GMI Employees 112,538.19 SSI Employees Ching, Clayton (12/04/00) 12/1/00--12/4/00 Vacation as of 12/04/00* Expenses TOTAL Flannagan, Chris (11/20/00) 11/16/00--11/20/00 Vacation as of 11/20/00* Expenses TOTAL Kramer, Rich (11/17/00) 11/16/00--11/17/00 Vacation as of 11/17/00 Expenses Nov. 2000 TOTAL
-13- Moore, Alan* 11/15/00 moved to commission only 11/1/00--11/15/00 3,541.67 Vacation as of 11/16/00 2,177.02 Commissions Due 11,206.85 Expenses 1,066.87 TOTAL 3,541.67 11,206.85 1,066.87 2,177.02 17,992.21 Panarese, Rich (11/24/00) Vacation accrual is an approx. 11/18/00--11/24/00 Vacation as of 11/24/00 Expenses TOTAL -- -- -- -- -- Peterson, David (11/24/00) Vacation accrual is an approx. 11/16/00--11/24/00 2,019.22 Vacation as of 11/24/00 3,000.00 Expenses TOTAL 2,019.22 -- -- 3,000.00 5,019.22 Sharard Pulmano (12/1/00) 11/16/00--12/01/00 2,867.31 Vacation as of 12/1/00* 1,000.00 Expenses 497.79 TOTAL 2,867.31 -- 497.79 1,000.00 4,365.10 Ray, Andy (11/24/00) Vacation accrual is an approx. 11/18/00--11/24/00 942.48 Vacation as of 11/24/00 662.49 Expenses Nov. 2000 328.55 TOTAL 942.48 -- 328.55 662.49 1,933.52 Treutel, Vic (10/31/00) 16,348.95 TOTAL -- -- -- 16,348.95 16,348.95 Wright, Dana (11/24/00) Prepaid ? Total SSI Employees 49,867.78 Grand Total 162,405.95
-14- EX-10 8 global011838_ex10-10.txt EXHIBIT 10.10 STOCK OPTION AGREEMENT-WILD CAT EXHIBIT 10.10 STOCK OPTION AGREEMENT THIS AGREEMENT, made as of this 20th day of December, 2000, by and between Singlepoint Systems Corporation, a Minnesota corporation, (the intent is to change the name to Global Maintech Corporation, Inc.) (hereinafter "Global" or "the company"), and Wild Cat Management, Inc. (hereinafter "Wild Cat"). WHEREAS, Global wishes to immediately retain the services of Wild Cat and in lieu of salary offer him stock options as delineated hereafter. WHEREAS, Wild Cat is willing to provide sufficient time, skill, and attention to diligently fill the roles of either Chief Executive Officer and/or Chairman of the Board of Directors. WHEREAS, Wild Cat will receive $1 salary over the three year period and the following other considerations enumerated hereafter. NOW, THEREFORE, in consideration of the mutual covenants and promises, the parties agree as follows: 1. Wild Cat has been providing services since approximately November 1, 2000, and agrees to continue to provide services to fulfill the functions of either Chief Executive Officer and/or Chairman of the Board for a period of two years or the earlier of the transfer of control of the corporation as defined hereafter. 2. Global grants Wild Cat as consideration for the services rendered to date and continuing into the future for a period of FIVE years the right to purchase 2,000,000 shares of common stock of the company on the terms described herein under the Company Stock Option Plan and such shares shall be deemed incentive stock options to the maximum extent. 3. Duration and Exerciseability. Wild Cat shall have the immediate right upon signing this document to exercise the option of purchasing 500,000 shares of common stock at the closing price as of December 20, 2000 ($0.16) (hereinafter the "strike price"). 4. Six months from the date of this agreement, Wild Cat shall be entitled to purchase an additional 750,000 shares of common stock at the strike price and another 750,000 shares after one year. 5. Wild Cat agrees that any or all of the share options hereunder may be restricted, but the company shall make its best efforts in conformance with the law and shareholder approval to register the shares under the company's S-8 Registration Statements so they are publicly marketable. -1- 6. Change in Control. (a) Except for an assumption of the Option as described in subsection (d), in the event that there is a change in control (as hereinafter defined) of Global, the vesting schedule set forth in Section 2 shall accelerate and the Option shall become exercisable with respect to 100% of the Shares upon the occurrence of such transaction; provided, however, that if, in connection with the consummation of the transaction resulting in the Change in Control, Wild Cat is offered consideration, in exchange for the Option, equal to the excess of the value received for one share of Common Stock in such transaction over the exercise price of the Option multiplied by the number of Shares subject thereto, the Option shall terminate upon the consummation of the Change in Control. (b) A change in control of Global shall be deemed to have occurred if: (i) Any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act) who did not own shares of the capital stock of the company on the date of grant of the Option shall, together with his, her or its Affiliates and Associates (as such terms are defined in Rule 12b-2 promulgated under the Exchange Act), become the Beneficial Owner (as such term is defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the company representing 50% or more of the combined voting power of Global then outstanding securities (any such person being hereinafter referred to as an Acquiring Person); (ii) The Continuing Directors (as hereinafter defined) shall cease to constitute a majority of the Global Board of Directors; (iii) There should occur (A) any consolidation or merger involving Global and Global shall not be the continuing or surviving corporation or the shares of the company's capital stock shall be converted into cash, securities or other property; provided, however, that this subclause (A) shall not apply to a merger or consolidation in which (i) the company is the surviving corporation and (ii) the shareholders of the company immediately prior to the transaction have the same proportionate ownership of the capital stock of the surviving corporation immediately after the transaction; (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the company; or (C) any liquidation or dissolution of the company; or (iv) The majority of the Continuing Directors determine, in their sole and absolute discretion, that there has been a Change in Control. (c) Continuing Director shall mean any person who is a member of the Board of Directors of the company, while such person is a member of the Board of Directors, who is not an Acquiring Person, an Affiliate or Associate of an Acquiring Person or a representative of an -2- Acquiring Person or of any such Affiliate or Associate and who (i) was a member of the company's Board of Directors on the date of grant of the Option or (ii) subsequently became a member of the Board of Directors, upon the nomination or recommendation, or with the approval of, a majority of the Continuing Directors. (d) In the case of a Change in Control as described in Subsections (b)(iii)(A) or (B), the Options may be assumed by the surviving or acquiring corporation, as the case may be. 7. Effect of Termination of Relationship with Global. (a) In the event that Wild Cat relationship with the company or its subsidiaries shall terminate, for any reason other than Wild Cat's gross and willful misconduct or Wild Cat's death or disability, Wild Cat shall have the right to exercise the Option at any time within [term of option after termination] after such termination to the extent of the full number of Shares Wild Cat was entitled to purchase under the Option on the date of termination, subject to the condition that the Option shall not be exercisable after the expiration of its term. (b) In the event that Wild Cat's relationship with the company or its subsidiaries shall terminate by reason of Wild Cat's gross and willful misconduct during the course of his/her relationship with the company (as reasonably determined by the company), the Option shall terminate as of the date of the misconduct and shall not be exercisable thereafter. (c) If Wild Cat shall die during its relationship with the company or its subsidiaries, or within three months after termination of such relationship with the company for any reason other than gross and willful misconduct, or if Wild Cat shall become disabled within the meaning of Section 22(e)(3) of the Code during its relationship with the company or its subsidiaries, and Wild Cat shall not have fully exercised the Option, the Option may be exercised at any time within twelve months after Wild Cat's death or disability by the legal representative or, if applicable, guardian of Wild Cat or by any person to whom the Option is transferred by will or the applicable laws of descent and distribution to the extent of the full number of Shares Wild Cat was entitled to purchase under the Option on the date of death (or termination of its relationship with the company, if earlier) or disability and subject to the condition that the Option shall not be exercisable after the expiration of its term. 8. Manner of Exercise. (a) The Option may only be exercised by Wild Cat or other proper party within the option period by delivering written notice of exercise to the company at its principal executive office. The notice shall state the number of Shares as to which the Option is being exercised and shall be accompanied by payment in full of the option price for all of the Shares designated in the notice. (b) Wild Cat may, at the company's election, pay the option price in cash, by check (bank check, certified check or personal check). -3- (c) The exercise of the Option is contingent upon receipt from Wild Cat (or other proper person exercising the Option) of a representation that, at the time of such exercise, it is Wild Cat's intention to acquire the Shares being purchased for investment and not with a view to the distribution or sale thereof within the meaning of the Securities Act of 1933, as amended (the Securities Act); provided, however, that the receipt of such representation shall not be required upon exercise of the Option if, at the time of such exercise, the issuance of the Shares subject to the Option shall have been properly registered under the Securities Act and all applicable state securities laws. Such representation shall be in writing and in such form as the company may reasonably request. The certificate representing the Shares so issued for investment shall be imprinted with an appropriate legend setting forth all applicable restrictions on their transferability. 9. Adjustments. If Wild Cat exercises all or any portion of the Option subsequent to any change in the Common Stock through merger, consolidation, reorganization, recapitalization, stock dividend, stock split or other change in the corporate or capital structure of the company, Wild Cat shall then receive for the aggregate price paid by him or her on such exercise, the number and type of securities or other consideration which he or she would have received if the Option had been exercised prior to the event changing the outstanding Common Stock in order to prevent dilution or enlargement of the rights granted hereunder. 10. Miscellaneous. (a) This Agreement shall not confer on Wild Cat any right with respect to continuance of employment by or continuance of the relationship with the company or any of its subsidiaries, nor will it interfere in any way with the right of the company to terminate such employment at any time. Wild Cat shall have none of the rights of a shareholder with respect to the Shares until such Shares shall have been issued to him upon exercise of the Option. (b) The company shall at all times during the term of the Option reserve and keep available such number of Shares as will be sufficient to satisfy the requirements thereof. The exercise of all or any part of the Option shall only be effective at, and may be deferred until, such time as the sale of the Shares pursuant to such exercise will not violate any federal or state securities laws, it being understood that the company shall have no obligation to register the issuance or sale of the Shares for such purpose. 11. Arbitration. This Agreement is intended to set forth the important terms between the parties but is unlikely to cover all circumstances. In this regard, if the parties are unable to resolve any disagreement between them, or problems that arise in the future, which may or may not be covered by this Agreement, an arbitrator shall be selected by agreement, and if the parties are unable to agree on an arbitrator, then one shall be selected from the American Arbitration Association in accordance with their normal procedures. The arbitrator's decision shall be binding upon all parties. The arbitrator so selected shall decide the issues to be determined, based upon the following: -4- (a) That both parties be treated fairly and equitably; (b) The intent of this Agreement or any subsequent amendments; and (c) Practical considerations. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written. Singlepoint Systems Corporation By /s/ Trent Wong -------------------------------------- Trent Wong Its President By /s/ Dale Ragan -------------------------------------- Dale Ragan Wild Cat Management, Inc. -5- EX-10 9 global011838_ex10-11.txt EXHIBIT 10.11 STOCK OPTION AGREEMENT-ERHART EXHIBIT 10.11 STOCK OPTION AGREEMENT THIS AGREEMENT, made as of this 20th day of December, 2000, by and between Singlepoint Systems Corporation, a Minnesota corporation, (the intent is to change the name to Global Maintech Corporation, Inc.) (hereinafter "Global" or "the company"), and William Erhart (hereinafter "Director"). WHEREAS, Global wishes to immediately retain the services of Director and in lieu of salary offer him stock options as delineated hereafter. WHEREAS, Director in lieu of salary is offered stock options as delineated hereafter. WHEREAS, Director is willing to fulfill the role of Director. WHEREAS, Director has provided a substantial amount of services since November 2000 with no compensation. NOW, THEREFORE, in consideration of the mutual covenants and promises, the parties agree as follows: 1. Director will begin or has been providing services as of November 2000, and agrees to, as the date of this agreement, provide and fulfill the function of Director for a period of three years or the earlier of the transfer of control of the corporation as defined hereafter. 2. Global grants Director as consideration for the services rendered to date and continuing into the future for a period of FIVE years the right to purchase 200,000 shares of common stock of the company on the terms described herein under the Company Stock Option Plan and such shares shall be deemed incentive stock options to the maximum extent. 3. Duration and Exerciseability. Director shall have the immediate right upon signing this document to exercise the option of purchasing 50,000 shares of common stock at the closing price as of December 20, 2000 ($0.16) (hereinafter the "strike price"). 4. One year from the date of this agreement, Director shall be entitled to purchase an additional 75,000 shares of common stock at the strike price and another 75,000 shares at the end of two years of service. 5. Director agrees that any or all of the share options hereunder may be restricted, but the company shall make its best efforts in conformance with the law and shareholder approval to have these shares become unrestricted and publicly marketable will use its best effort to register the shares under the company's S-8 Registration Statement. -1- 6. Change in Control. (a) Except for an assumption of the Option as described in subsection (d), in the event that there is a change in control (as hereinafter defined) of Global, the vesting schedule set forth in Section 2 shall accelerate and the Option shall become exercisable with respect to 100% of the Shares upon the occurrence of such transaction; provided, however, that if, in connection with the consummation of the transaction resulting in the Change in Control, Director is offered consideration, in exchange for the Option, equal to the excess of the value received for one share of Common Stock in such transaction over the exercise price of the Option multiplied by the number of Shares subject thereto, the Option shall terminate upon the consummation of the Change in Control. (b) A change in control of Global shall be deemed to have occurred if: (i) Any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act) who did not own shares of the capital stock of the company on the date of grant of the Option shall, together with his, her or its Affiliates and Associates (as such terms are defined in Rule 12b-2 promulgated under the Exchange Act), become the Beneficial Owner (as such term is defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the company representing 50% or more of the combined voting power of Global then outstanding securities (any such person being hereinafter referred to as an Acquiring Person); (ii) The Continuing Directors (as hereinafter defined) shall cease to constitute a majority of the Global Board of Directors; (iii) There should occur (A) any consolidation or merger involving Global and Global shall not be the continuing or surviving corporation or the shares of the company's capital stock shall be converted into cash, securities or other property; provided, however, that this subclause (A) shall not apply to a merger or consolidation in which (i) the company is the surviving corporation and (ii) the shareholders of the company immediately prior to the transaction have the same proportionate ownership of the capital stock of the surviving corporation immediately after the transaction; (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the company; or (C) any liquidation or dissolution of the company; or (iv) The majority of the Continuing Directors determine, in their sole and absolute discretion, that there has been a Change in Control. (c) Continuing Director shall mean any person who is a member of the Board of Directors of the company, while such person is a member of the Board of Directors, who is not -2- an Acquiring Person, an Affiliate or Associate of an Acquiring Person or a representative of an Acquiring Person or of any such Affiliate or Associate and who (i) was a member of the company's Board of Directors on the date of grant of the Option or (ii) subsequently became a member of the Board of Directors, upon the nomination or recommendation, or with the approval of, a majority of the Continuing Directors. (d) In the case of a Change in Control as described in Subsections (b)(iii)(A) or (B), the Options may be assumed by the surviving or acquiring corporation, as the case may be. 7. Effect of Termination of Relationship with Global. (a) In the event that Director relationship with the company or its subsidiaries shall terminate, for any reason other than Director's gross and willful misconduct or Director's death or disability, Director shall have the right to exercise the Option at any time within [term of option after termination] after such termination to the extent of the full number of Shares Director was entitled to purchase under the Option on the date of termination, subject to the condition that the Option shall not be exercisable after the expiration of its term. (b) In the event that Director's relationship with the company or its subsidiaries shall terminate by reason of Director's gross and willful misconduct during the course of his/her relationship with the company (as reasonably determined by the company), the Option shall terminate as of the date of the misconduct and shall not be exercisable thereafter. (c) If Director shall die during its relationship with the company or its subsidiaries, or within three months after termination of such relationship with the company for any reason other than gross and willful misconduct, or if Director shall become disabled within the meaning of Section 22(e)(3) of the Code during its relationship with the company or its subsidiaries, and Director shall not have fully exercised the Option, the Option may be exercised at any time within twelve months after Director's death or disability by the legal representative or, if applicable, guardian of Director or by any person to whom the Option is transferred by will or the applicable laws of descent and distribution to the extent of the full number of Shares Director was entitled to purchase under the Option on the date of death (or termination of its relationship with the company, if earlier) or disability and subject to the condition that the Option shall not be exercisable after the expiration of its term. 8. Manner of Exercise. (a) The Option may only be exercised by Director or other proper party within the option period by delivering written notice of exercise to the company at its principal executive office. The notice shall state the number of Shares as to which the Option is being exercised and shall be accompanied by payment in full of the option price for all of the Shares designated in the notice. -3- (b) Director may, at the company's election, pay the option price in cash, by check (bank check, certified check or personal check). (c) The exercise of the Option is contingent upon receipt from Director (or other proper person exercising the Option) of a representation that, at the time of such exercise, it is Director's intention to acquire the Shares being purchased for investment and not with a view to the distribution or sale thereof within the meaning of the Securities Act of 1933, as amended (the Securities Act); provided, however, that the receipt of such representation shall not be required upon exercise of the Option if, at the time of such exercise, the issuance of the Shares subject to the Option shall have been properly registered under the Securities Act and all applicable state securities laws. Such representation shall be in writing and in such form as the company may reasonably request. The certificate representing the Shares so issued for investment shall be imprinted with an appropriate legend setting forth all applicable restrictions on their transferability. 9. Adjustments. If Director exercises all or any portion of the Option subsequent to any change in the Common Stock through merger, consolidation, reorganization, recapitalization, stock dividend, stock split or other change in the corporate or capital structure of the company, Director shall then receive for the aggregate price paid by him or her on such exercise, the number and type of securities or other consideration which he or she would have received if the Option had been exercised prior to the event changing the outstanding Common Stock in order to prevent dilution or enlargement of the rights granted hereunder. 10. Miscellaneous. (a) This Agreement shall not confer on Director any right with respect to continuance of employment by or continuance of the relationship with the company or any of its subsidiaries, nor will it interfere in any way with the right of the company to terminate such employment at any time. Director shall have none of the rights of a shareholder with respect to the Shares until such Shares shall have been issued to him upon exercise of the Option. (b) The company shall at all times during the term of the Option reserve and keep available such number of Shares as will be sufficient to satisfy the requirements thereof. The exercise of all or any part of the Option shall only be effective at, and may be deferred until, such time as the sale of the Shares pursuant to such exercise will not violate any federal or state securities laws, it being understood that the company shall have no obligation to register the issuance or sale of the Shares for such purpose. 11. Arbitration. This Agreement is intended to set forth the important terms between the parties but is unlikely to cover all circumstances. In this regard, if the parties are unable to resolve any disagreement between them, or problems that arise in the future, which may or may not be covered by this Agreement, an arbitrator shall be selected by agreement, and if the parties are unable to agree on an arbitrator, then one shall be selected from the American Arbitration Association in accordance with their normal procedures. The arbitrator's decision shall be binding upon all parties. -4- The arbitrator so selected shall decide the issues to be determined, based upon the following: (a) That both parties be treated fairly and equitably; (b) The intent of this Agreement or any subsequent amendments; and (c) Practical considerations. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written. Singlepoint Systems Corporation By -------------------------------------- Trent Wong Its President By -------------------------------------- Director -5- EX-23 10 global011838_ex-23.txt EXHIBIT 23 REPORT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders Global MAINTECH Corporation Bloomington, MN We have audited the accompanying consolidated balance sheet of Global MAINTECH Corporation and Subsidiaries as of December 31, 2000 and the related consolidated statements of operations, changes in stockholders' equity (deficit), and cash flows for the years ended December 31, 2000 and 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Global MAINTECH Corporation and Subsidiaries as of December 31, 2000, and the results of their operations and their cash flows for the years ended December 31, 2000 and 1999, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered losses from operations and has a working capital deficiency and an accumulated deficit that 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note 1 to the consolidated financial statements, effective January 1, 1999, the Company changed its method of accounting for depreciation. /s/ Feldman Sherb & Co., P.C. Certified Public Accountants May 15, 2001 New York, New York EX-99 11 global011838_ex-99.txt EXHIBIT 99 CAUTIONARY STATEMENT EXHIBIT 99 CAUTIONARY STATEMENT The Company, or persons acting on behalf of the Company, or outside reviewers retained by the Company making statements on behalf of the Company, or underwriters, from time to time, may make, in writing or orally, "forward- looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in conjunction with an identified forward-looking statement, this Cautionary Statement is for the purpose of qualifying for the "safe harbor" provisions of such sections and is intended to be a readily available written document that contains factors that could cause results to differ materially from such forward-looking statements. These factors are in addition to any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statement. The following matters, among others, may have a material adverse effect on the business, financial condition, liquidity, results of operations or prospects, financial or otherwise, of the Company. Reference to this Cautionary Statement in the context of a forward-looking statement or statements shall be deemed to be a statement that any one or more of the following factors may cause actual results to differ materially from those in such forward-looking statement or statements: WE HAVE EXPERIENCED SUBSTANTIAL LOSSES AND WE CANNOT ASSURE YOU THAT WE WILL OPERATE PROFITABLY IN THE FUTURE. We reported net losses from operations of approximately $12.1 million for 2000. At December 31, 2000, we had negative working capital of approximately $9.1 million. Our losses in 2000 are primarily attributable to losses from operations and losses attributable to the rescission and discontinuation of operations of substantially all or our subsidiaries. We cannot be certain that we can achieve or sustain profitability in the future. IF WE FAIL TO COMPETE EFFECTIVELY WITH CURRENT OR FUTURE COMPETITORS, OUR REVENUES AND OPERATING RESULTS WILL BE HARMED. We compete in the systems and network management products and services market. The market for our products and services is highly competitive and we expect competition to intensify in the future. Most of our competitors have significantly greater financial, technical and marketing resources than we do. These competitors may be able to respond more rapidly than us to new technologies or changes in customer requirements. They may also devote greater resources to the development and promotion of their products than we do. Increased competition could result in price reductions, reduced margins and loss of market share. New products or technologies developed by our competitors could reduce sales and market acceptance of our products or make our products obsolete. Our failure to compete successfully against current or future competitors could seriously harm our business, financial condition and results of operations. IF OUR VIRTUAL COMMAND CENTER PRODUCT DOES NOT ACHIEVE BROAD MARKET ACCEPTANCE, OUR PRODUCT REVENUE WILL DECREASE AND MAY DECREASE SIGNIFICANTLY. Our VCC product is still relatively new and we cannot be certain that it will achieve high levels of demand and market acceptance. In 2000, we sold approximately 10 units of the VCC system to 4 customers. If we are not able to increase the number of customers, or if we are not able to renew a significant portion of our maintenance agreements with existing customers, our business and financial performance will be adversely affected. IF OUR EFFORTS TO SELL OUR OTHER LINES OF BUSINESS AND PRODUCTS AND TO FOCUS ON THE SYSTEMS AND NETWORK MANAGEMENT BUSINESS ARE NOT SUCCESSFUL, OUR BUSINESS MAY BE ADVERSELY AFFECTED We have decided to sell our other lines of business and products and to focus our business on our enterprise management professional services and on our VCC system. We operate in a highly competitive market that is characterized by rapid technological change and changing customer requirements. Our future success depends in part on our ability to develop and introduce new products and enhancements to existing products on a successful and timely basis. If we fail to develop and introduce new products or product enhancements on a successful and timely basis, we may not be able to compete effectively and our revenues may decline. For example, we are currently developing software products that are intended to bridge the gap between operational data from the mainframe environment and open distributed systems management tools. We may not be successful in developing or introducing to the market these or any other new products. If we do not meet our future capital needs, our ability to grow and continue as a going concern will be limited. The Company's management expects to be cash-flow positive in the first quarter of 2001; however, the Company may need additional funds to continue the marketing of our products and to meet our long-term growth needs. To meet our needs, we may have to obtain additional funding through public or private financings, including equity and debt financings. Any additional equity financings may be dilutive to our shareholders, and debt financing, if available, may have restrictive covenants. We may not be able to obtain financing and, if we do, such financing may not be available at reasonable rates and terms. If we raise additional funds through the issuance of equity or debt securities, those securities may have rights, preferences or privileges senior to those of our common stock and the percentage ownership of our shareholders may be reduced. WE ARE DEPENDENT ON NEW KEY PERSONNEL. IF WE ARE NOT ABLE TO ATTRACT AND RETAIN THESE NEW KEY EMPLOYEES, OUR BUSINESS COULD BE HARMED. Our success depends to a large extent on the ability of our new key personnel to integrate within our operations and successfully interact with our customers. In particular, we are highly dependent on the services of Wild Cat Management, Inc., through its President Dale Ragan, our new chief executive officer, and Sue Korsgarden, our new chief accounting officer. We do not carry key-man life insurance for any of our officers or employees. The loss of these new key personnel, current key personnel or the failure to attract and retain additional key personnel, could negatively affect our business. IF THIRD PARTIES INFRINGE ON OUR INTELLECTUAL PROPERTY, OUR BUSINESS AND OUR ABILITY TO COMPETE EFFECTIVELY WILL BE SIGNIFICANTLY HARMED. Our success depends in part on our ability to protect our proprietary technology. We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality agreements and licensing arrangements. We may be required to spend significant financial and managerial resources to monitor and police our intellectual property rights. We may not be able to detect infringement or misappropriation. If we fail to protect or enforce our intellectual property rights, our business and competitive position could suffer. THIRD PARTIES MAY CLAIM WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY, AND WE COULD INCUR SUBSTANTIAL COSTS OR BE PREVENTED FROM SELLING PRODUCTS IF THESE CLAIMS ARE SUCCESSFUL. Third parties may claim that we are infringing their intellectual property rights. Any litigation regarding patents or other intellectual property could result in substantial costs to us, a loss of revenues and a diversion of key personnel from our business operations. If we become subject to an infringement claim, we may be required to modify our products and technologies or obtain a license to permit our continued use of those rights. We may not be able to do either of these things on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions from developing and selling our products. UNDETECTED ERRORS MAY INCREASE OUR COSTS AND IMPAIR THE MARKET ACCEPTANCE OF OUR PRODUCTS. Our products have occasionally contained and may contain in the future undetected errors when first introduced or when new versions are released. Errors in our products or technology could result in: * loss of revenues; * liability claims for damages; and * failure to achieve market acceptance. 2 We do not have product liability insurance. We cannot assure you that disclaimer of warranty and limitation-of-liability provisions included in our customer agreements will be successful in limiting our liability. SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE. Sales of substantial amounts of our common stock in the public market could cause the market price of our common stock to drop. This factor could make it more difficult for us to raise funds in the future through the sale of equity securities. As of May 15, 2001, we had 10,052,155 shares of our common stock outstanding. A substantial portion of these shares is eligible for sale in the public market. OUR STOCK PRICE IS VOLATILE, WHICH MAY RESULT IN SIGNIFICANT LOSSES TO SHAREHOLDERS. The market price of our common stock could be subject to significant fluctuations due to factors such as: * variations in our operating results; * announcements by us or our competitors; and * realization of any of the risks described in this section. The stock market has experienced extreme price and volume fluctuations. These broad market fluctuations may adversely affect the trading price of our common stock. 3 -----END PRIVACY-ENHANCED MESSAGE-----