-----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, HbdDoJir7Gne4TFw+GXQjiDEpjwRdfdyyifR+tax8gbw2X7Xz1/qoc84ywZ8dIXm zRkDOqSpG9+7cTOnoVeBRQ== 0001045969-00-000166.txt : 20000307 0001045969-00-000166.hdr.sgml : 20000307 ACCESSION NUMBER: 0001045969-00-000166 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 20000303 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBAL MAINTECH 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: SB-2 SEC ACT: SEC FILE NUMBER: 333-31736 FILM NUMBER: 561240 BUSINESS ADDRESS: STREET 1: 7578 MARKET PLACE DRIVE CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 BUSINESS PHONE: 6129440400 MAIL ADDRESS: STREET 1: 7578 MARKET PLACE DRIVE CITY: EDEN PRAIRIE STATE: MN ZIP: 55344-3245 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 SB-2 1 FORM SB-2 As filed with the Securities and Exchange Commission on March 3, 2000 Registration No. _________ ================================================================================ U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT Under the Securities Act of 1933 Global MAINTECH Corporation (Name of registrant as specified in its charter) Minnesota 3571 41-1523657 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) 7578 Market Place Drive Eden Prairie, Minnesota 55344 (612) 944-0400 (Address and telephone number of registrant's principal executive offices) Trent Wong Chief Executive Officer Global MAINTECH Corporation 7578 Market Place Drive Eden Prairie, Minnesota 55344 (612) 944-0400 (Name, address and telephone number of agent for service) Copies to: Kenneth L. Cutler, Esq. Wendy Skjerven, Esq. Dorsey & Whitney LLP Leonard Street & Deinard, P.A. Pillsbury Center South Suite 2300 220 South Sixth Street 150 South Fifth Street Minneapolis, Minnesota 55402 Minneapolis, Minnesota 55402 (612) 340-2600 (612) 335-1500 Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] ________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] ________ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] ________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [_] _______ CALCULATION OF REGISTRATION FEE
============================================================================================================================ Proposed Proposed Maximum Title of Each Class of Proposed Amount Maximum Offering Aggregate Amount of Securities to be Registered to be Registered Price per Unit (1) Offering Price (1) Registration Fee - ---------------------------------------------------------------------------------------------------------------------------- Common Stock, no par value 3,074,726 shares (2) $9.375 $28,825,556 $7,610 - ----------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee based upon the average of the high and low sales prices for the common stock on February 25, 2000 as reported on the over-the-counter bulletin board. (2) Pursuant to Rule 416 under the Securities Act, includes additional shares of common stock that may be issued as a result of the anti-dilution provisions of the Series B, D, E and F convertible preferred stock and warrants. The Registrant hereby amends this registration statement on the date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 (the "Securities Act"), or until the registration statement shall become effective on the date the Securities and Exchange Commission, acting pursuant to said Section 8(a), determines. PROSPECTUS Global MAINTECH Corporation -------------------------------- 3,074,726 shares of common stock -------------------------------- This prospectus relates to shares of common stock of Global MAINTECH Corporation that may be offered for resale by the selling shareholders. We will not receive any proceeds from the sale of the shares. These securities may be sold from time to time by the selling shareholders listed on page 11 through public or private transactions at prevailing market prices or at privately negotiated prices. Symbol: GLBM Market: Over-the-Counter Bulletin Board Closing sale price on March 2, 2000: $8.75 --------------------- Consider carefully the Risk Factors beginning on page 8. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The information in this prospectus is not complete and may be changed. The selling shareholders identified in this prospectus may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. The date of this prospectus is ____________________, 2000. TABLE OF CONTENTS Page ---- Prospectus Summary...........................................................2 Risk Factors.................................................................8 Use of Proceeds.............................................................11 Selling Shareholders........................................................12 Plan of Distribution........................................................13 Business....................................................................13 Management..................................................................18 Management's Discussion And Analysis of Financial Condition And Results of Operations.....................................20 Security Ownership of Certain Beneficial Owners And Management...................................................26 Executive Compensation......................................................28 Market For Common Equity And Related Stockholder Matters....................30 Dividend Policy.............................................................30 Description of Capital Stock................................................30 Certain Transactions........................................................32 Recent Developments.........................................................33 Legal Proceedings...........................................................34 Description of Property.....................................................34 Experts.....................................................................35 Legal Matters...............................................................35 Where You Can Find More Information.........................................35 Financial Statements.......................................................F-1 You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in the prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date. PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements of Global MAINTECH Corporation, including the notes to the financial statements, appearing elsewhere in this prospectus. This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. Investors should carefully consider the information under the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations--Forward Looking Statements." About Global MAINTECH Corporation We are engaged in the business of providing systems and network management products and services primarily to computer data centers located in the United States. Computer data centers, in general, operate a wide range of computer devices that are used to perform automated tasks such as monitoring and controlling external equipment and data manipulation, storage and retrieval. In recent years, systems and network management products have become increasingly important to the efficient operation of computer data centers because these centers generally have evolved to perform increasingly complex and diverse tasks. This growing complexity and diversity is partly due to the shift with respect to computer functionality from an emphasis on centralized computer centers, many of which were based upon mainframe technology, to local area networks, or LANs, and wide area networks, or WANs, that connect computer workstations to each other in one location or in numerous locations across a wide geographic area. Different devices, operating systems, configurations and applications are used for centralized computer centers than LAN and WAN systems, which typically use only one of two operating systems, UNIX or Windows NT. The systems and network management tools perform one or more of the following eight primary functions: o event management o problem or fault management o performance management o capacity management o storage management o enterprise scheduling o change management o security management Our primary product, the Virtual Command Center, or VCC(TM), is designed to connect and control systems and network management tools that collectively perform all of these functions and this connection and control can be exercised simultaneously at one or more sites anywhere in the world. The VCC provides a centralized location from which to provide systems and network management functions on an enterprise-wide basis, a process commonly referred to as computer console consolidation. Monitoring 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 UNIX, Microsoft and Windows NT platforms. Global Watch MVS/SNA. This product can operate on a stand-alone or fully integrated basis with the VCC to manage a customer's networked environment for IBM's mainframe-based Net View application and customers have confirmed it uses only approximately 5% of the processing capacity required by Net View. In addition, it reduces exposure to network outages, improves average repair times on network problems and provides many analytic problem-solving tools. Alarm Point(TM). This product can operate on a stand-alone or fully integrated basis with the VCC. It is an intelligent event notification system designed to receive status messages from event and system management tools, 2 including the VCC, Hewlett-Packard's Open View, IBM's Tivoli TME, Computer Associates' Unicenter, and Cabletron's SPECTRUM, to alert the proper people of critical alarms. Alarm Point makes note of an appropriate "event" by making calls to all types of phones, digital and alphanumeric pagers, faxes and e-mail. Professional Services. We also provide systems management consulting services. Our goal is to train people in data center operations regarding the proper installation and optimal use of our systems management products, as well as those of other manufacturers. We also install the industry's leading systems management products, including our own. Tape Library Storage Products - ----------------------------- Through our acquisition of Breece Hill Technologies, Inc., effective on April 1, 1999, we supplied automated tape libraries used to backup, restore and archive information stored in networks on servers, PC's and workstations, and on-line data storage subsystems. On February 3, 2000, we entered into an agreement relating to the sale of Breece Hill to Tandberg Data ASA of Oslo, Norway. The sale is subject to shareholder approval. See "Recent Developments." About the Offering The selling shareholders named on page 12 are offering 3,074,726 shares of Global MAINTECH's common stock for resale. Global MAINTECH will not receive any proceeds from the sale of these shares. Dilution The shares of common stock offered by this prospectus are shares issued or issuable to holders of four types of our convertible preferred stock that we recently sold to these holders: Series B, Series D, Series E and Series F. Series B Stock -------------- From August 15, 1998 to December 31, 1998, we sold 67,192 units in a private placement at a purchase price per unit of $32.50, as adjusted for our reverse stock split. Each unit consisted of one share of Series B convertible preferred stock and one warrant to purchase shares of common stock. Each share of Series B stock is convertible into the number of shares calculated by dividing the per unit purchase price of $32.50 by the conversion price. The conversion price is based on 80% of the average closing bid price of the common stock for the 20 consecutive trading days immediately before the conversion date but may not be more than $12.50 or less than $3.75. The warrants entitle the holder to purchase common stock at $16.25 per share at any time before five years after the date the warrants were issued, unless we previously redeem them. Each warrant entitles the holder to purchase the same number of shares of common stock into which the share of Series B stock to which the warrant was attached shall have been converted. The holders of Series B stock also are entitled to receive dividends at the annual rate of 8% of the per unit purchase price, which is payable upon conversion of the Series B stock. Global MAINTECH may pay this in cash or as shares of common stock. The number of shares of common stock issuable as a dividend payment will be equal to the total dividend payment then due divided by the average closing bid price for one share of common stock for the 10 consecutive trading days immediately before the payment of the dividends. Series C Stock -------------- On March 25, 1999, we sold 1,600 shares of Series C convertible preferred stock and warrants to purchase 20,000 shares of common stock in a private placement, as adjusted for the reverse stock split. In addition, the placement agent for this sale received 75 shares of Series C stock and a warrant to purchase an aggregate of 20,000 shares of common stock. On January 19, 2000, the holders of Series C stock and warrants to purchase shares of common stock exchanged their Series C shares and those warrants for shares of Series D stock and new warrants, adjusted for our reverse stock split, as described below under "Series D Stock." 3 Series D Stock -------------- On January 19, 2000, we 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 Global MAINTECH, (3) 1,600 shares to the holders of Global MAINTECH'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 as compensation for placement agent services. In addition, in connection with the Series D Stock offering (1) 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. We 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. 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 Global MAINTECH. 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. Series E Stock -------------- On December 30, 1999, we issued 2,650 shares of Series E Convertible Preferred Stock and warrants to purchase 51,000 shares of common stock in a private placement for consideration totaling $2,650,000. Each share of Series E 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 $5.125. The holders of Series E Stock are also entitled to receive dividends at the annual rate of 8% of the per share purchase price. The dividends are payable upon conversion of the Series E Stock, in either cash or shares of common stock, at the option of Global MAINTECH. 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 $5.125 per share at any time before the fifth anniversary of the date of issuance of the warrant. Series F Stock -------------- On February 17, 2000, we issued 2,000 shares of Series F Convertible Preferred Stock and warrants to purchase 50,000 shares of common stock in a private placement for consideration totaling $2,000,000. Each share of Series F 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 $6.75. The holders of Series F Stock are also entitled to receive dividends at the annual rate of 8% of the per share purchase price. The dividends are payable upon conversion of the Series F Stock, in either cash or shares of common stock, at the option of Global MAINTECH. 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 $11.00 per share at any time before the fifth anniversary of the date of issuance of the warrant. 4 Conversion ---------- The tables below show the total number and the percentage amounts of common shares issuable upon conversion of the Series B stock (and related warrants) based on the minimum and maximum conversion prices described above, and the same information for the Series D stock, Series E stock and Series F stock (and related warrants) based on the maximum conversion price described above. The tables also include the maximum number of shares of common stock that may be issued to the holders as dividends during the three years following the issuance of the preferred stock.
Approximate percentage of Common shares Common shares common stock Conversion issuable upon issuable upon Common shares outstanding as price of conversion of conversion of issuable as of February 23, Series B Stock Series B Stock warrants dividends 2000 - ----------------- ------------------- ----------------- ----------------- -------------------- $12.50 per share 134,660 -- -- 2.3% $3.75 per share 448,865 -- -- 7.6%
Approximate percentage of Common shares Common shares common stock Conversion issuable upon issuable upon Common shares outstanding as price of conversion of conversion of issuable as of February 23, Series D Stock Series D Stock warrants dividends 2000 - ----------------- ------------------- ----------------- ----------------- -------------------- $5.4375 per share 651,149 20,000 -- 8.5%
Approximate percentage of Common shares Common shares common stock Conversion issuable upon issuable upon Common shares outstanding as price of conversion of conversion of issuable as of February 23, Series E Stock Series E Stock warrants dividends 2000 - ----------------- ------------------- ----------------- ----------------- -------------------- $5.125 per share 517,073 51,000 -- 9.6%
Approximate percentage of Common shares Common shares common stock Conversion issuable upon issuable upon Common shares outstanding as price of conversion of conversion of issuable as of February 23, Series F Stock Series F Stock warrants dividends 2000 - ----------------- ------------------- ----------------- ----------------- -------------------- $6.75 per share 296,296 50,000 -- 5.8%
5 The tables below show the total number and the percentage amounts of common shares issuable upon conversion of the preferred stock and warrants as if such preferred stock and warrants were converted as of February 23, 2000. The conversion of the Series B stock (and related warrants) is based on a conversion price of $7.11, which is 80% of the closing bid price for the common stock for the 20-day period ending on February 23, 2000. The conversion of the Series D stock, Series E stock and Series F stock is based on a conversion price of $7.04, which is 75% of the average of the three lowest closing bid prices of the common stock for the 15-day period ending on January 24, 2000. The following tables exclude shares of common stock that may be issued as dividends on the Series B stock, Series D stock, Series E stock and Series F stock. Common shares Approximate issuable upon percentage of Conversion conversion of common stock price of Series B Stock outstanding as of Series B Stock and warrants February 23, 2000 - --------------------- ------------------------- --------------------- $7.11 per share 240,307 4.1% Common shares Approximate issuable upon percentage of Conversion conversion of common stock price of Series D Stock outstanding as of Series D Stock and warrants February 23, 2000 - --------------------- ------------------------ ---------------------- $7.04 per share 537,039 9.1% Common shares Approximate issuable upon percentage of Conversion conversion of common stock price of Series E Stock outstanding as of Series E Stock and warrants February 23, 2000 - --------------------- ------------------------ ---------------------- $7.04 per share 376,387 6.4% Common shares Approximate issuable upon percentage of Conversion conversion of common stock price of Series F Stock outstanding as of Series F Stock and warrants February 23, 2000 - --------------------- ------------------------ ---------------------- $7.04 per share 334,066 5.6% 6 Investors should be aware that as the common stock's market price decreases, the number of common stock shares underlying the preferred stock continues to increase. Therefore, the lower the common stock's market price at the time of conversion of the preferred stock and exercise of the warrants described above, the more common stock shares the holder is entitled to receive upon conversion of preferred shares. If a holder of preferred stock converts and then sells the common stock received upon conversion, the common stock's market price may decrease due to the additional shares in the market, allowing the selling holder to convert the preferred stock into greater amounts of common stock shares, the sale of which could further depress the common stock's market price. The significant downward pressure on the common stock's market price as a holder of the preferred stock converts and sells material amounts of the common stock shares could encourage short sales by other holders or others, placing further downward pressure on the common stock's market price. The conversion of the preferred stock may result in substantial dilution to the interests of other common shareholders since each holder of the preferred stock may ultimately convert and then sell the full amount of common stock shares issuable upon conversion. Investors should consider carefully this potential dilutive effect and the other risks described beginning on page 8 of this prospectus. Summary Financial Data The following table summarizes the financial data for our business. The unaudited financial data for the nine months ended September 30, 1999 includes Breece Hill Technologies, Inc.'s operating results for the nine month period ended September 30, 1999 but does not include Breece Hill Technologies, Inc.'s results of operations prior to April 1, 1999, which was the effective date of our acquisition of Breece Hill. The nine months ended September 30, 1999 (giving effect to discontinued operations) presents Breece Hill as a discontinued operation as a result of actions taken by management in December 1999 to offer Breece Hill for sale. Please see the financial information beginning on page F-1.
Nine Months Ended September Year Ended Nine Months Ended 30, 1999 (giving December 31, September 30, effect to -------------------- ----------------------- discontinued 1998 1997 1999 1998 operation) --------- -------- ---------- --------- -------------- (dollars in thousands, except per share data) Statement of Operations Data: Net Sales................................ $ 6,209 $ 3,002 $ 25,895 $ 5,132 $ 7,134 Cost of Sales............................ (2,323) (762) (16,310) (1,770) (2,169) --------- -------- ---------- --------- -------------- Gross Profit............................. 3,886 2,240 9,585 3,362 4,965 Operating Expenses....................... (5,705) (1,969) (14,958) (2,926) (8,724) Other Expense, Net....................... (184) (113) (2,171) (124) (1,678) --------- -------- ---------- --------- -------------- Net Income (Loss) before cumulative effect of accounting change............ (2,003) 158 (7,544) 312 (5,437) Net Loss from Operations of Discontinued Operation................ -- -- -- -- (2,107) Gain from Discontinued Operations........ -- 70 -- -- -- Cumulative Effect of Change in Accounting Principle.................. -- -- 100 -- 100 --------- -------- ---------- --------- -------------- Net Income (Loss)........................ $ (2,003) $ 228 $ (7,444) $ 312 $ (7,444) ========= ======== ========== ========= ============== Basic Income (Loss) per Share: Continuing Operations................. (0.55) 0.05 (2.013) 0.089 (1.468) Operations of Discontinued Operation.. -- -- -- -- (0.545) Net Income (Loss)..................... (0.55) 0.07 (1.987) 0.089 (1.987)
7
Diluted Income (Loss) per Share: Continuing Operations................. (0.55) 0.04 (2.013) 0.077 (1.468) Operations of Discontinued Operations. -- -- -- -- (0.545) Net Income (Loss)..................... (0.55) 0.06 (1.987) 0.077 (1.987) Shares Used in Calculations (in thousands): Basic................................. 3,670 3,184 3,868 3,522 3,868 Diluted............................... 3,670 3,911 3,868 4,061 3,868 Balance Sheet Data (as of period end): Cash and Cash Equivalents................ $ 664 $ 1,727 $ 754 $ 300 $ 466 Working Capital (Deficit)................ 2,068 2,884 (4,319) 3,661 2,390 Total Assets............................. 9,133 5,863 42,300 8,424 28,534 Total Stockholders' Equity............... 5,443 3,281 16,702 5,701 16,702
Anticipated Charges in the Fourth Quarter of 1999 Our independent auditor has not yet completed the audit of our financial statements at and for the year ended December 31, 1999. Due to the asset sale to MT Acquiring Corp., the proposed settlement with Infinite Graphics Incorporated, the proposed sale of Breece Hill and re-evaluation of the recoverability of certain tangible and intangible assets during the fourth quarter of 1999, we are anticipating a charge of between $10 million to $12 million in December 1999 related to such items. See "Recent Developments." In addition, we are anticipating other operating losses, exclusive of the items above between $9 million and $11 million for the fourth quarter of 1999, approximately $5 million to $6 million of which are related to compensation paid to third parties through grants of equity instruments. Based upon September 30, 1999 year-to-date net loss of $7.4 million and upon consideration of the items above, we anticipate fiscal year 1999 net loss to be between $26 million and $30 million. RISK FACTORS You should carefully consider the following factors and other information in this prospectus before deciding to purchase the securities offered. Any of the following risks could have a material adverse effect on our business, financial condition or results of operations or on the value of the securities you purchase. We have fewer resources than most of our competitors. Our industry is characterized by rapidly evolving technology and intense competition. We know of several other competitors that have substantially greater resources and experience in research and development and marketing than we do. These companies may represent significant competition for us because they produce components that could be combined to form a system like ours. There is a risk that competitors will develop or market technologies and products that are more effective than ours or that would make our technology and products obsolete or noncompetitive. If a product developed by a competitor is more effective than our products, our business, financial condition and results of operations could be materially and adversely affected. Our success depends on our ability to sell our newly acquired products. We recently purchased three new product lines: o In September 1999, we acquired from Lavenir Technology, Inc., a California corporation, a suite of CAD/CAM software products, including the ability to design, test, verify and repair precision graphics designs. o In November 1998, we acquired from Enterprise Solutions, Inc., an Ohio corporation, a suite of software products that notify a person by telephone, pager or the Internet of critical data center events. We also obtained Enterprise Solutions' short-term consulting business. o In October 1998, we acquired from Asset Sentinel, Inc., a Minnesota corporation, a suite of software products that provide updated mapping of network, cable and telephone lines in buildings and computer centers. There is a risk that we will not be able to successfully integrate the employees we hired from Lavenir, Enterprise Solutions and Asset Sentinel into our own workforce. There is also a risk that we will not be able to market and sell these newly acquired product lines on a profitable basis for the next several years. If we are unable to integrate such employees or to market and sell these products successfully, our business, financial condition and results of operations could be materially and adversely affected. 8 We have recently sold, or are currently negotiating the sale of some of our businesses. We have recently sold, or are currently in the process of negotiating the sale of some of our businesses: o In February 1998, we licensed the software and purchased the assets relating to the system software business of Infinite Graphics Incorporated, a Minnesota corporation. We are currently negotiating the transfer to Infinite Graphics of the software operations related to the printed circuit board business. o In April 1999, we acquired all of the outstanding stock of Breece Hill Technologies, Inc. As a result of this acquisition, we obtained all of the assets and liabilities of Breece Hill, which is a supplier of digital tape storage systems used to backup, restore and archive information stored in networks on servers, PC's and workstations, and stored via on-line data storage subsystems. On February 3, 2000, we entered into a stock purchase agreement relating to the sale of Breece Hill. The sale is subject to shareholder approval. o On January 26, 2000, we sold all of the business and properties of Magnum Technologies, Inc., which provided network monitoring and analysis services, to the principals of Magnum. These businesses provided additional sales and earnings to us. Following these sales, we intend to re-focus on our software business, which is our core competency. Without revenue from these lines of business, our business will be adversely affected if we are unable to grow our proprietary products and services. See "Recent Developments." We will need additional capital to grow our business. We expect that the proceeds of our recent equity and debt offerings will be enough to fund our operations through at least June 30, 2000. We may need additional funds to continue the marketing of our products and to meet our long-term growth needs. There is a risk that we will not be able to obtain financing and, if we do, that the financing will not be available at reasonable rates and terms. To meet our needs, we may have to obtain additional funding through public or private financings, including equity and debt financings. If we do not secure additional financing, our business, financial condition and results of operations could be materially and adversely affected. For more information, see the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" in this prospectus. The products we are developing may not be successful. We are currently developing a set of software products that monitors networking, Internet and communication devices primarily for networks, Microsoft NT, mid-range computers and mainframes. These products will perform capacity tests to measure systems activity and hardware utilization and will correlate measured trends with specific events or expected benchmarks. Although preliminary tests indicate that these products will perform as intended and can be integrated with the VCC, there is a risk that they will not do so or, even if they do, that the market will not demand these products. If we are not successful in developing these products or are unable to develop them on a timely basis, our business, financial condition and results of operations could be materially and adversely affected. Our operating results may fluctuate significantly. Our future operating results may vary substantially from quarter to quarter. At our current stage of operations, the timing of the development and market acceptance of our products may materially affect our quarterly revenues and results of operations. Generally, our operating expenses are higher when we are developing and marketing a product. There is always a risk that we will not be successful in maintaining profitability and avoiding losses in any future period. For these reasons, the market price of our stock may be highly volatile. The price of our stock may also be affected by: 9 o the general state of the country's economy o the conditions in the stock market o the development of new products by us and our competitors o public announcements by us or our competitors We rely heavily on key technical personnel. We rely heavily on our technician, Norm Freedman, to further develop the VCC. We also rely heavily on Trent Wong and Desmond Dos Santos for technical development of the products of our subsidiary SinglePoint Systems, Inc. There is a risk that these employees will not stay with Global MAINTECH. If any of these individuals left Global MAINTECH, we would need to hire a comparable employee. In such event, there is a risk that we would not be able to hire someone quickly and at an affordable salary. Intellectual property protection may be difficult to obtain or ineffective. We may not be able to protect adequately our patents and proprietary rights. We protect our intellectual property rights through a combination of statutory and common law patent, copyright, trademark and trade secret laws, customer licensing agreements, employee and third-party non-disclosure agreements and other methods. Although we do not own any patents, we believe the VCC will be protected by two patents that are being reviewed by the U.S. Patent and Trademark Office and by a patent for hardware that Circle Corporation, a Japanese corporation, applied for on December 28, 1993. We license the hardware from Circle Corporation and use it in the VCC. Under our license, we can distribute the hardware worldwide, except in Japan. The initial term of this license expires on December 20, 2004. There is a risk that a third party may copy or otherwise obtain or use our products or technology without our authorization, or develop similar products or technology independently. Our business would be adversely affected if someone used or copied our products to any substantial degree. There is a risk that the protection for our intellectual property rights is not adequate or that our competitors will independently develop similar products. We require our consultants and developers to assign to us their rights in any materials they provide to or make for us. We also ask their assurance that if we use any of their materials in our products we will not violate the rights of third parties. However, we have not commissioned an independent investigation to reaffirm the basis for our belief, and there is a risk that our current or future products will infringe on their rights. We believe that developers of control systems increasingly may be subject to these claims as the number of products and competitors in the industry grows and the functionality of these products in the industry overlaps. Any claim, with or without merit, could result in expensive litigation and could have a material adverse effect on our business, financial condition and results of operations. On February 15, 2000, we and GMI were named as defendants in a patent infringement suit brought by K. Brent Johnson and I.D.G. Incorporated in federal court for the Northern District of Oklahoma. The suit alleges, among other things, that our VCC product, when monitoring a mainframe computer, infringes on a patent held by the plaintiffs. We believe that the plaintiffs' claims are without merit, but are attempting to settle the claims in order to avoid protracted and costly litigation. We do not have product liability insurance. We may be liable for product liability claims if someone claims that our products injured a person or business. We do not have product liability insurance. There is a risk that we could not obtain insurance on commercially reasonable terms, or at all, or that even if we obtained insurance it would not adequately cover a product liability claim. Our business could be adversely affected if someone brings a product liability or other legal claim against us. 10 The demand for VCC units is uncertain. Customers may not buy our products. It is difficult to project the overall size of the future market for VCC units. We believe the market for external control systems could expand because external control systems could soon be used to solve networking problems with enterprise computing. Based on recent feedback we have received from current and potential customers, we believe the demand for the VCC is significant. However, to date we have sold the VCC to only 16 customers and there is a risk that we will not have additional customers who will buy our products. The concept of an external monitor and control system for computer hardware is relatively new, and we do not yet know what the continued demand for the product will be. If customers do not buy our products, our business, financial condition and results of operations could be materially and adversely affected. USE OF PROCEEDS This prospectus relates to an aggregate of 3,074,726 shares of common stock that may be sold from time to time by the selling shareholders. Although Global MAINTECH will pay the expenses of registration of the shares, including legal and accounting fees, the company will not receive any proceeds from the sale of the shares. 11 SELLING SHAREHOLDERS The following table lists information, as of February 23, 2000, as to the maximum number of shares that each of the selling shareholders named below may sell under this prospectus.
Number of Maximum Number of shares number of shares beneficially shares to be beneficially owned before sold in the owned after the Name the offering offering offering - ---------------------------------------------------------------- ---------------- ---------------- ---------------- Industricorp & Co. FBO Twin Cities Carpenters & Joiners Pension Fund................................................. 22,863 Robert W. Clark Self-Declared Trust Robert W. Clark Trustee, under agreement dated 11/12/90..... 4,573 Isadore J. Goldstein Revocable Living Trust Isadore J. Goldstein, Trustee, dated 3/14/90................. 7,035 James N. Owens Revocable Trust James N. Owens, Trustee, dated 9/10/70....................... 14,069 David A. Lawrence............................................... 3,517 Gary S. Kohler IRA First Trust NA Trustee....................... 3,521 Gary Kohler..................................................... 3,517 John O. Hanson.................................................. 28,140 John R. Albers.................................................. 14,070 VBS General Partnership......................................... 3,517 David A. Lawrence IRA First Trustee NA Trustee.................. 3,517 Betty L. Johnson................................................ 14,070 Aaron Boxer Revocable Trust Aaron Boxer Trustee, under agreement dated 8/1/89............ 29,829 David W. Johnson and Linda M. Johnson, as Joint Tenants......... 13,718 John M. Liviakis................................................ 125,000 Liviakis Financial Communications, Inc.......................... 628,000 Earl L. Ferris.................................................. 3,517 CROW 1999 CRUT.................................................. 15,477 Johnson Family CRUT #3.......................................... 10,551 Gary L. Tooker Charitable Remainder............................. 5,628 Tooker Family Ltd. Partnership.................................. 10,552 Welstad Charitable Remainder Unitrust I dated 12/26/97.......... 14,070 George D. Marx.................................................. 1,759 Paul R. Owings & Lenore Owings, as joint tenants................ 3,517 Lenore Owings & Paul R. Owings, as joint tenants................ 3,517 Robert Terhaar & Harriet Terhaar, as joint tenants.............. 2,286 Esquire Trade & Finance Inc..................................... 136,122 Paul R. Kuehn................................................... 1,304 David B. Johnson................................................ 1,304 Eldon C. Miller................................................. 435 Stanley D. Rahm................................................. 435 Austinvest Anstalt Balzers...................................... 136,122 Nesher, Inc..................................................... 24,016 Amro International.............................................. 106,953 Hambrecht & Quist Guaranty Finance, LLC......................... 180,000
12
Number of Maximum Number of shares number of shares beneficially shares to be beneficially owned before sold in the owned after the Name the offering offering offering - ---------------------------------------------------------------- ---------------- ---------------- ---------------- Raymond James & Associates, Inc................................. 900 Intercoastal Financial Services Corp............................ 52,989 Assanzon Capital Development Corporation........................ 120,079 Garros Ltd...................................................... 74,868 Carbon Mesa, LLC................................................ 9,756 Nash, LLC....................................................... 487,805 Greenfield Capital Partners, LLC................................ 19,512 Geneva Group, Inc............................................... 20,000 RBB Bank Aktiengesellschaft..................................... 346,296 Lavenir Technology, Inc......................................... 366,000 ---------------- ---------------- ---------------- Total 3,074,726 ================ ================ ================
PLAN OF DISTRIBUTION The shares will be offered and sold by the selling shareholders for their own accounts. Global MAINTECH will not receive any proceeds from the sale of the shares under this prospectus. Global MAINTECH has agreed to pay the expenses of registration of the shares, including legal and accounting fees. The selling shareholders may offer and sell the shares from time to time in transactions on the OTC Market, in brokerage transactions at prevailing market prices or in transactions at negotiated prices. Sales may be made to or through brokers or dealers who may receive compensation in the form of discounts, concessions or commissions from the selling shareholders or the purchasers of shares for whom these brokers or dealers may act as agent or to whom they may sell as principal, or both. As of the date of this prospectus, we are not aware of any agreement, arrangement or understanding between any broker or dealer and the selling shareholders. The selling shareholders and any brokers or dealers acting in connection with the sale of the shares offered under this prospectus may be deemed to be underwriters within the meaning of Section 2(11) of the Securities Act, and any commissions they receive and any profit they realize on the resale of shares as principals may be deemed underwriting compensation under the Securities Act. BUSINESS General We were incorporated in Minnesota in 1985 under the name Computer Aided Time Share, Inc. In 1995, we changed our name to Global MAINTECH Corporation. We are a holding company with two wholly owned subsidiaries, Global MAINTECH, Inc. ("GMI") and SinglePoint Systems, Inc., and one majority owned subsidiary, Breece Hill, which we are currently proposing to sell. See "Recent Developments." Global MAINTECH, Inc. and SinglePoint are direct subsidiaries of Global MAINTECH Corporation. Breece Hill is a subsidiary of Global MAINTECH, Inc. The address of our principal executive offices is 7578 Market Place Drive, Eden Prairie, Minnesota 55344 and our phone number is (612) 944-0400. Industry Background We are engaged in the business of providing systems and network management products and services primarily to computer data centers located in the United States. Computer data centers, in general, operate a wide range of 13 computer devices that are used to perform automated tasks such as monitoring and controlling external equipment and data manipulation, storage and retrieval. In recent years, systems and network management products have become increasingly important to the efficient operation of computer data centers because these centers generally have evolved to perform increasingly complex and diverse tasks. This growing complexity and diversity is partly due to the shift with respect to computer functionality from an emphasis on centralized computer centers, many of which were based upon mainframe technology, to LANs and WANs that connect computer workstations to each other in one location or in numerous locations across a wide geographic area. Different devices, operating systems, configurations and applications are used with respect to centralized computer centers than LAN and WAN systems, which typically use only one of two operating systems (UNIX or Windows NT). The systems and network management tools perform one or more of the following eight primary functions: o event management o problem or fault management o performance management o capacity management o storage management o enterprise scheduling o change management o security management Our primary product, the Virtual Command Center, or VCC(TM), is designed to connect and control systems and network management tools that collectively perform all of these functions and this connection and control can be exercised simultaneously at one or more sites anywhere in the world. The VCC can be described as a manager of managers. Commonly referred to as computer console consolidation, the VCC provides a centralized location from which to provide systems and network management functions on an enterprise-wide basis. We believe the VCC is a platform to which we can add new products to meet other systems and network management needs not currently met by existing products. There is a vast array of products in this multi-billion dollar industry but there is a demand for new products that meet the evolving needs of this rapidly growing market. We intend to continue to provide new products, whether through our internal research and development efforts or through acquisitions, to meet these evolving needs. Complexity and diversity in enterprise data center operation is widespread and a growing trend in the industry. In December 1998, the Gartner Group estimated that 80% of all data centers will be managing multiple platform environments by 2003. This estimate is based upon the fact that most application systems have long lives and relatively few applications move from one platform type to another during the life of the application, such as Microsoft's Windows 95 application, which was designed to be used on PCs, cannot be used on Mainframe MVS and UNIX platforms. As computer users adopt new platforms and computer technology, data centers must adapt to support a mixture of platforms and operating systems. In 2003, mainframe-based applications likely will still be in production and likely will be operating alongside applications designed for high-end UNIX severs and an increasing number of new applications targeted to Windows NT servers. As a result, data centers must adapt to support existing and future applications and operating systems. Systems and network management products are usually designed to be used with one of three computer platforms, either mainframes, UNIX-based computers or Windows NT workstations. The systems and network management market size is difficult to measure precisely because the market size frequently is defined as products sold only for one platform or some other aspect of the market, rather than for products sold with respect to all platforms. For example, sales of all UNIX-based enterprise computing software in 1998 were approximately $30 billion and systems and network management software is a part of this total. We believe that total annual sales in the system and network management market was $6.8 billion at the end of 1996 and that this market has been growing at a rate of 30% annually since then. Monitoring Products and Services VCC. This product is a computer system, consisting of hardware and software, which monitors and controls 14 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 UNIX, Microsoft and Windows NT platforms. The VCC is designed to perform three primary functions: o consolidate consoles into one monitor, a "virtual console" or single point of control; o monitor and control the computers connected to the virtual console; and o automate most, if not all, of the routine processes performed by computer operators in data centers. It is an external system that monitors and controls the subject 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. VCC users are able to: o reduce staffing levels; o consolidate all data center operations and technical support functions to a single location regardless of the physical location of the data center(s); and o achieve improved levels of operational control and system availability. The hallmark 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 the VCC are able to consolidate the management of entire data centers, whether the computing devices comprising the data center are located in one location or distributed across the world, into a single workstation that provides complete inter-connectivity and control over a network. The VCC is a hardware and software solution that is easy to install and use. Benefits 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. The VCC's ability to consolidate operational computer consoles reduces the need for operational staff, technical support and software licenses. The VCC is scalable to accommodate data center growth and change and can be installed and become operational in just a few days. The majority of systems and network management products are represented by software-only products employing invasive software agents, known as active agents, which 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," one of the eight 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 subject computing 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. As a result, some of the other products offered by us employ passive agents to collect information from host devices or networks before passing that information on to the VCC. The VCC is a platform that allows customers to establish enterprise-wide operational control. In addition, we offer other products that complement the VCC, which are described below. Global Watch MVS/SNA. This product can operate on a stand-alone or fully integrated basis with the VCC to manage a customer's networked environment for IBM's mainframe-based Net View application and customers have confirmed it uses only approximately 5% of the processing capacity required by Net View. In 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, which captures highlighted messages and WTOR's (Write to Operate with Reply) at the instant the messages are produced, in real time, from all LPAR's (Logical Partitions which divide a 15 mainframe device into multiple internal devices), and displays the messages in a single, logical console alert window in the VCC. There is no need for any customization on the host computer's devices and messages can be collected from a nearly infinite number of CPUs/LPARs. Alarm Point(TM). This product can operate on a stand-alone or fully integrated basis with the VCC. It is an intelligent event notification system designed to receive status messages from event and system management tools, including the VCC, Hewlett-Packard's Open View, IBM's Tivoli TME, Computer Associates' Unicenter, and Cabletron's SPECTRUM, to alert the proper people of critical alarms. Alarm Point makes note of an appropriate "event" by making calls to all types of phones, digital and alphanumeric pagers, faxes and email. Alarm Point "knows" the notification protocol by implementing pre-determined notification policies set-up using an easy to use graphical user interface. Alarm Point's telephony skills allow it to automatically recognize when a voicemail system or answering machine picks up the call and will leave a message and/or try an alternate contact. This telephony-based product has the ability to capture and log alarms regardless of the hardware platform or operating system on which it is installed. Alarm Point is easily installed and can begin telephone notification on the first day of installation. Professional Services. We also provide systems management consulting services. Our goal is to train people in data center operations regarding the proper installation and optimal use of our systems management products, as well as those of other manufacturers. We also install the industry's leading systems management products, including our own. Tape Library Storage Products Through our acquisition of Breece Hill Technologies, Inc., effective on April 1, 1999, we supplied automated tape libraries used to backup, restore and archive information stored in networks on servers, PC's and workstations, and on-line data storage subsystems. On February 3, 2000, we entered into an agreement relating to the sale of Breece Hill to Tandberg Data ASA. The sale is subject to shareholder approval. See "Recent Developments." Sales and Marketing for VCC and Related Products We employ several different sales channels to properly fit the product. The VCC has been sold primarily through direct sales 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. In June 1999, we announced a corporate sponsorship and alliance with Hitachi Data Systems in which it would use its 200-plus sales force and 800-plus systems engineers to sell the VCC under the original equipment manufacturer name of "Gatekeeper." We believe this alliance represents a significant endorsement of the VCC product. 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. In addition, the software-only products may be downloaded from our web-site for free trial for a limited time. We are in the process of cross-selling our VCC and storage management products to take advantage of these previously separate sales channels to maximize the sales of each set of products. Competition for VCC and Related Products 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 $17 billion as of December 1998. It is believed this market will grow to almost $26 billion by 2001. 16 Major products and companies in the system and network management industry are as follows: Product Maker Base Platform -------------------- ---------------------- ---------------- Net View 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 each of the products listed above is expanding its 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 Boole & Babbage and Computer Associates products can consolidate from 7 to 16 computer consoles but their architecture 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. Also the ability of these other products to be expanded with the addition of new devices and data center sites repeats 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. Research and Development Our recent 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 and computer outsourcers can economically achieve full operational control over the dispersed devices and keep operating expertise centrally located. The GlobalWatch MVS/SNA will be re-introduced using the TCP/IP communications protocol and the ability to link management information from mainframes and UNIX workstations. This will bring the functionality of GlobalWatch to additional platforms. Patents, Trademarks and Copyrights We have one patent issued and three patents pending relating to the VCC and related products. Trademarks have been issued in connection with the names Global MAINTECH(TM), Alarm Point(TM) and Datal(TM). In June, we applied to register substantially all of our software products with the U.S. copyright office. 17 MANAGEMENT Directors and Executive Officers The directors and executive officers of Global MAINTECH are as follows: Name Age Position - ---- --- -------- Trent Wong 40 Chief Executive Officer and Director James Geiser 50 Chief Financial Officer and Secretary David H. McCaffrey 55 Director John E. Haugo 64 Director James G. Watson 56 Director William Howdon 56 Director Mr. Wong has served as Global MAINTECH's Chief Executive Officer since November 1999. He previously served as Group President of Global MAINTECH since September 1999. Mr. Wong has also served as President of SinglePoint Systems, Inc. since its acquisition by Global MAINTECH in November 1998. Mr. Wong was President and co-founder of SinglePoint's predecessor company, Enterprise Solutions, Inc., since May 1994. Before co- founding Enterprise Solutions, Mr. Wong served as western division business manager for Votek Systems and Computer Associates, producers and sellers of enterprise management software tools. Mr. Geiser has served as the Secretary of Global MAINTECH since September 1993 and Chief Financial Officer of Global MAINTECH since January 1994. Since 1991, Mr. Geiser has served as President of G&B Financial Advisory Services, a firm engaged in providing financial consulting services to corporations requiring financial restructuring. From 1989 until January 1992, Mr. Geiser served as Chief Financial Officer and consultant to International Broadcasting Corporation, an owner and operator of family entertainment attractions including the Harlem Globetrotters and Ice Capades touring shows and three regional amusement parks. From 1987 until October 1989, Mr. Geiser was Vice President and Treasurer of Washington Square Capital, Inc., an investment management company and subsidiary of Northwestern National Life Insurance Company. From 1979 until 1987, Mr. Geiser held various positions with Gelco Corporation, including the position of Assistant Treasurer of Gelco Corporation, and Vice President and Treasurer of Gelco Finance Corporation. Mr. McCaffrey served as Global MAINTECH's Chief Executive Officer from January 1995 until November 1999 and has served as a director since January 1995. Mr. McCaffrey also served as GMI's Chief Executive Officer from December 1994 until November 1999. Before joining Global MAINTECH in December 1994, Mr. McCaffrey served as President, Chief Executive Officer and Chief Financial Officer of Rimage Corporation from April 1989 to October 1994. Mr. McCaffrey also served as a director of Rimage Corporation from November 1992 until October 1994. Mr. Haugo has served as a director of Global MAINTECH since June 1997. Mr. Haugo founded and served as Chief Executive Officer of both Edusystems, Inc., an educational software business, and Serving Software, Inc., a developer of applications for the healthcare industry. Serving Software, Inc. was sold in 1994 to HBO & Company. Mr. Haugo also serves on the board of directors of St. Paul Software, Inc., Catalog Marketing Services, Inc. and Member Services International, Inc. Mr. Watson joined Breece Hill in 1995 as Vice President of Strategic Programs. In that capacity he was responsible for all materials procurement, cost reductions programs, and key strategic relationships with Breece Hill's suppliers and subcontractors. He became President and CEO of Breece Hill in September of 1998 and a director of Global MAINTECH in 1999. From 1993 to 1995, Mr. Watson served as Vice President of Marketing and Sales for Areal Technology. He served in the same position for WangDat from 1991 to 1992 and for Rodime, Inc. from 1990 to 1991. From 1987 to 1989, he held the position of Vice President of OEM sales for Seagate Technology. From 1982 to 1987, he worked as Vice President of Sales and Marketing with Quantum Corporation where he managed all sales, marketing, technical support, and service center operations. He has also held operations, sales and marketing positions at various levels with Storage Tek and Control Data. 18 Mr. Howdon became a director of Global MAINTECH in May 1999. Mr. Howdon served as the Vice-Chairman of the board of directors of Breece Hill from 1995 until April 1, 1998. Mr. Howdon serves as Managing Partner of 20/20 Financial Group, a private real estate development group. Previously he worked in the investment business with Prudential Bache and Smith Barney. Mr. Howdon previously has served on several public and private company boards of directors. Prior to February 19, 1999, the board of directors did not have any standing audit, compensation, stock option or nominating committees. On February 19, 1999, the Board of Directors established an Audit Committee and a Compensation Committee. The Audit Committee, consisting of Messrs. Haugo and Howdon, reviews the results and scope of the audit and other services provided by the Company's independent auditors, as well as the Company's accounting principles and its systems of internal controls, and reports the results of its review to the full Board of Directors and to management. The Compensation Committee, consisting of Messrs. Haugo and Howdon, makes recommendations concerning executive salaries and incentive compensation for employees and will administer the Company's 1999 Stock Option Plan if such plan is approved at the Annual Meeting. The Board of Directors as a whole administers the Company's 1989 Stock Option Plan. Global MAINTECH at present does not pay any director's fees. Global MAINTECH may reimburse its outside directors for expenses actually incurred in attending meetings of the board of directors. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The consolidated financial statements that accompany this discussion show the operating results of Global MAINTECH for the three and nine-month periods ended September 30, 1999 and 1998 and the fiscal years ended December 31, 1998 and 1997. The results include the operations of Global MAINTECH and our subsidiaries. On January 3, 2000, Global MAINTECH announced that it approved a plan to sell the subsidiary Breece Hill Technologies, Inc. See "Summary Financial Data" for financial information giving effect to the discontinued operations for the nine months ended September 30, 1999 and "Recent Developments" for a description of the sale. This prospectus contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to differences include those discussed below, as well as those discussed elsewhere in this prospectus. See " -- Forward Looking Statements." Results of Operations Fiscal Third Quarter 1999 compared to Fiscal Third Quarter 1998. Operating results by segment are as follows: Third Quarter Comparison
Amount Increase (Decrease) % of Revenue ------------------- ---------------------- ----------------------- ($000s) 1999 1998 $ % 1999 1998 ------- ------- --------- --------- --------- ---------- Revenue: Monitoring Products............... $ 1,855 $ 1,659 196 11.8% 17.6% 100.0% Tape Library Storage Products..... 8,711 -- 8,711 N/A 82.4 ------- ------- --------- --------- --------- ---------- Total................ $10,566 $ 1,659 8,907 536.9% 100.0% 100.0% Income (loss) from operations: Monitoring Products............... $(3,186) $ 89 (3,275) (3,679.8%) (30.2%) 5.4% Tape Library Storage Products..... (950) -- (950) N/A (9.0%) -- ------- ------- --------- --------- --------- ---------- Total............... $(4,136) $ 89 (4,225) (4,747.2%) (39.1%) 5.4%
Nine Months Ended September 30, 1999 compared to Nine Months Ended September 30, 1998
Amount Increase (Decrease) % of Revenue ------------------- ---------------------- ----------------------- ($000s) 1999 1998 $ % 1999 1998 ------- ------- --------- --------- --------- ---------- Revenue: Monitoring Products............... $ 7,134 $ 5,132 2,002 39.0% 27.5% 100.0% Tape Library Storage Products..... 18,761 -- 18,761 N/A 72.5% -- --------- ---------- --------- --------- --------- ---------- Total.............. $ 25,895 $ 5,132 20,763 404.6% 100.0% 100.0% Income (loss) from operations: Monitoring Products............... $ (3,759) $ 435 (4,194) (964.1%) (14.5%) 8.5% Tape Library Storage Products..... (1,614) -- (1,614) N/A (6.2%) -- --------- ---------- --------- --------- --------- ---------- Total.............. $ (5,373) $ 435 (5,808) (1,335.2%) (20.7%) 8.5%
20 Net Sales for the third quarter ended September 30, 1999 were approximately $10,566,000 compared to sales for the third quarter of 1998 of approximately $1,659,000. Sales for the nine months ended September 30, 1999 were approximately $25,895,000 compared to $5,132,000 in the same nine month period of 1998. The approximate $8,907,000 increase for the third quarter and the approximate $20,763,000 increase for the nine months ended September 30, 1999 is substantially related to our acquisition of Breece Hill in April 1999. Breece Hill contributed approximately $8,711,000 in product sales for the third quarter and $18,761,000 for the nine month period ended September 30, 1999. The remaining increases of $196,000 for the third quarter and $2,002,000 for the nine months ended September 30, 1999 are due to sales from new products and products acquired in the latter part of 1998 fiscal year. Cost of sales as a percentage of revenue increased in the third quarter of 1999 to 66% from 31% in the third quarter of 1998 and increased for the nine months ended September 30, 1999 to 63% from 34% in the nine months ended September 30, 1998. Excluding the newly acquired tape library business, Breece Hill, cost of sales increased to 38% in the third quarter of 1999 and decreased to 30% in the nine months ended September 30, 1999. Excluding one-time non-cash charges due to a $494,000 inventory valuation related to the Breece Hill acquisition, the Breece Hill cost of sales was 28% for the third quarter of 1999 and 27% for the nine month period ended September 30, 1999, which reflects the equipment and labor assembly costs of the tape library industry. The hardware component in the non-Breece Hill business segment cost of sales decreased compared to the prior three and nine month periods. However, the costs of sales in 1999 includes an increase in amortization of software development costs in 1999 of approximately $460,000 and $1,360,000 for the three and nine month periods ended September 30, 1999. This increase in amortization of development costs caused the non-Breece Hill business segment cost of sales as a percentage of revenue to increase to 38% in the third quarter of 1999 compared to 31% in the third quarter of 1998. Sales in the third quarter ended September 30, 1999 did not increase sufficiently to offset the increase in amortization of software development costs. We were expecting an increase in VCC sales which did not materialize. We attribute this to the shift in sales focus from direct sales to sales through the reseller arrangement with Hitachi Data Systems. We did not anticipate the delay in sales revenues as a result of focusing our sales force to this reseller arrangement but have recently experienced an increase in activity as a result of this change of sales focus and assume this additional activity will continue. Selling, general and administrative expenses in the third quarter of 1999 were approximately $7,356,000 compared to $838,000 in the third quarter of 1998. For the nine month period ended September 30, 1999 these expenses were approximately $13,718,000 compared to $2,440,000 in the same period in 1998. Excluding Breece Hill's selling, general and administrative expenses of approximately $3,357,000 in the third quarter of 1999 and $6,234,000 in the first nine months of 1999 which includes approximately $800,000 of purchase costs amortization for the three month period ended September 30, 1999 and $1,647,000 of purchase cost amortization for the nine month period ended September 30, 1999, these increases were approximately $3,999,000 and $7,484,000 for the three and nine month periods ended September 30, 1999, respectively. Included in this increase is a non-cash charge of $1,290,000 which reflects the issuance of 258,000 shares of common stock for a financial investment advisory program begun on August 30, 1999 and extending into the year 2000. The terms of this contract require us to reflect this cost at the start of the program. We do not expect to incur any significant cash expenditures for this program. The remaining increase in selling, general and administrative expenses of $2,709,000 for the three month period ended September 30, 1999 and $6,194,000 for the nine month period ended September 30, 1999 are primarily due to increases in salaries and advertising and secondarily to increases in travel and meals, depreciation and rent expenses. The increases are substantially staffing increases in the product areas generating increases in sales which include 10 new products from a combination of SSI and Magnum Technologies. We have increased the number of employees in these product areas including sales, support and development and increased advertising and marketing to promote these products. The increase in travel expenses is related to increased sales activity. Depreciation and rent expenses increased due to depreciation from the purchase of additional equipment and space required for additional employees. Research and development costs in the third quarter of 1999 were approximately $331,000 compared to $212,000 in the third quarter of 1998. For the nine month period ended September 30, 1999 research and development costs were approximately $1,241,000 compared to $486,000 in the same period in the prior year. The increases of $119,000 in the third quarter and $755,000 for the nine months ended September 30, 1999 are primarily due to the monitoring products business segment and are due to increased salary and consulting expenses relating to 21 additional employees and contractors in this expense category. The majority of these increases are related to new products we developed or acquired throughout 1998 and the first nine months of 1999. Non-operating expenses include interest expense, amortization of capitalized debt issuance costs, interest income and other expense. The increase in amortization is due to the addition of deferred debt costs from the issuance of warrants related to $500,000 of subordinated short-term debt issued in February 1999. Interest expense increased $324,000 in the three months ended September 30, 1999 and $609,000 in the nine months ended September 30, 1999. The increase in both periods is primarily due to interest expense attributable to Breece Hill in the amount of $217,000 in the three months ended September 30, 1999 and $443,000 in the nine months ended September 30, 1999. Breece Hill has a line of credit to finance accounts receivable and inventory and subordinated debt totaling $6.7 million. The remainder of the increase is related to an increase in debt we issued, a portion of which was issued in connection with the acquisition of Breece Hill. See "Recent Developments" regarding the sale of Breece Hill. Other expense increased as a result of an accrual of penalties on Series B Stock in the amount of $387,000. This accrual represents a penalty for a delay in the registration of the underlying common stock into which the Series B and C Stock is convertible. No demand of the penalty interest has been made and we have a general understanding that this penalty interest may be waived. We are continuing to formalize this waiver. Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31, 1997 Net sales for the year ended December 31, 1998 were approximately $6,209,000 compared to net sales of $3,003,000 in the year ended December 31, 1997. Sales of the VCC and other systems were approximately $4,246,000 in 1998 compared to approximately $2,138,000 in 1997. Maintenance fees were approximately $948,000 in 1998 on previously sold systems and consulting fees were approximately $704,000. Maintenance and consulting fees in 1997 were approximately $702,000 and $132,000, respectively. During 1998 Global MAINTECH also recorded approximately $312,000 of revenue primarily relating to the sale of computer parts compared to $30,000 from such sales in 1997. These revenue activities reflect the installation of a cumulative total of 38 VCC units with 14 customers compared to a cumulative total of 21 VCC units with 8 customers as of December 31, 1997, and the sale of system software to numerous other customers. The gross margin on sales was approximately 63% in 1998 compared to 75% in 1997. The decrease in gross margin in 1998 is primarily related to the approximate $687,000 increase in amortization of capitalized software costs. Selling, general and administrative costs for the year ended December 31, 1998 were approximately $4,414,000 compared to approximately $1,649,000 for the same period in the prior year. This $2,765,000 increase is related to a $1,187,000 increase in salary expense which reflects an increase in paid employees which grew during the year from 26 to 87. In addition, Global MAINTECH increased the allowance for doubtful accounts $300,000 during 1998. Advertising, travel and entertainment costs increased $150,000 and $245,000, respectively, in the year ended 1998 versus 1997. This reflects the increased activities in the business: marketing and travel expenses are directly related to increased selling activities. Professional and technical costs, depreciation expense, rent, and utilities costs increased approximately $94,000, $434,000, $152,000 and $119,000, respectively. These increases are all primarily related to increased business activities of Global MAINTECH. Professional and technical expenses which include legal, accounting and investor relations expenses increased due to additional business activity during 1998. Depreciation, rent and utilities expenses increased as a function of the increase in equipment purchases and space for new employees. Research and development expenses in 1998 and 1997 relate to the ongoing maintenance of existing software and are comprised of salaries, consulting fees for technical expertise, and recruiting expenses. Non-operating expenses in the year ended December 31, 1998 consisted of interest expense, interest income and amortization of deferred debt issue costs indicated as "Other." The increased interest expense is substantially due to the cost of the $2,000,000 of subordinated debt issued by Global MAINTECH on June 19, 1997. Interest income in 1998 is primarily due to lease income where Global MAINTECH has acted as lessor of its VCC systems. In 1997 interest income was primarily the result of short-term investments of excess cash. Amortization ($44,294 annually on a straight-line basis over five years) of deferred debt issue costs of $225,223 relates to the issuance of $2,000,000 of subordinated debt. 22 Liquidity and Capital Resources As of September 30, 1999, we had negative working capital of approximately $4,319,000 compared to positive working capital of approximately $2,068,000 as of December 31, 1998. The decrease in positive working capital as of September 30, 1999 is due to the acquisition of long-term assets using short-term liabilities. During the nine months ended September 30, 1999, we have incurred short-term liabilities, primarily in the form of notes payable of approximately $3.0 million related to the acquisitions of Breece Hill and Lavenir and for the investment in capitalized software costs and incurred short-term liabilities for approximately $1.8 million to complete the acquisition of the software licenses purchased from IGI. In addition, Breece Hill has post-acquisition negative working capital of approximately $644,000. Net cash used in operating activities for the nine months ended September 30, 1999 was approximately $5,100,000. During this nine month period of 1999 operating funds loss of approximately $1,229,000 were used by the net loss prior to depreciation/amortization and valuation charges for common stock issued for investor relations services. The net loss was also affected by an allocation to inventory of a portion of the purchase price of Breece Hill in the amount of $494,000 and the write-off of $83,000 of in process technology at Breece Hill at the time of acquisition. We charged the $494,000 to cost of sales as the related inventory was sold and the $83,000 was charged to research and development. Operating funds were also provided by an increase in accrued expenses and deferred revenue in the combined approximate amount of $1,415,000. Operating funds were used by increases in current assets of approximately $2,837,000, which includes an increase in accounts receivable of approximately $2,082,000 and inventory of approximately $466,000, and a decrease in accounts payable of approximately $2,449,000. Cash used by investing activities for the nine months ended September 30, 1999 was approximately $2,342,000 and included investments of $2,331,189 in capitalized computer software development costs, which represent costs incurred after technological feasibility has been established in connection with the development of enhancements to one or more particular software programs. We also invested in other assets in the amount of $191,000. We also purchased approximately $409,000 of additions to machinery and equipment during the first nine months of 1999 and acquired $607,000 of cash as a result of our acquisitions. In the first nine months of 1998, cash used in investing activities totaled $2,292,000, which included investments in software development costs of $1,905,000, purchased technology of $804,000, purchases of property and equipment of approximately $205,000 and an investment, net of receipt of payments, in a note receivable in the amount of $95,000. These investments were partially offset by the sale of sales-type leases in the amount of $680,000 and a reduction in leased equipment in the amount of $37,000. Net cash of approximately $7,532,000 was provided by financing activities in the first nine months of 1999. This is primarily the result of net proceeds from the issuance of $1,504,000 of Series C Stock at a per share price of $1,000 and approximately $2,720,000 from the issuance of shares of common stock in two private placements. In addition, proceeds in the amount of $3,307,000 were received from the issuance of both short-term and long-term debt primarily secured by long-term assets. In the first nine months of 1998, net cash of approximately $2,034,000 was provided by financing activities. Net proceeds of approximately $1,627,000 were received from the issuance of shares of common stock and approximately $482,000 from the issuance of Series B Stock. These proceeds were partially offset by a $75,000 reduction in notes payable. Presently, we believe our negative working capital can be improved from the sale of a business unit and from earnings measured before non-cash items such as expenses for depreciation and amortization and stock issued for services. Our loss before non-cash items for the nine months ended September 30, 1999 was approximately $1,229,000 in the first nine months of 1999 which represents a decline from a similar measure in the first six months of 1999. This loss in the third quarter before non-cash items has caused us to implement a restructuring plan to reduce our expenses subsequent to September 30, 1999 which resulted in the layoff of approximately 20 employees and some temporary salary reductions for the remainder of 1999. While the loss before non-cash items in the third quarter of 1999 is largely due to actual sales being less than forecasted, the loss was made worse because we were incurring operating expenses based upon a planned higher forecast than actually occurred. As a result operating expenses have been reduced accordingly. In addition to these changes in operations, we have also addressed the effects of this loss before non-cash items as it relates to 23 our ability to keep current with our debt obligations. We have a note payable in the amount $250,000 with Andersen, Weinroth & Co., L.P. which was due on September 30, 1999 and borrowing base line of credit with H&Q both of which have payments which are past due as of September 30, 1999. On October 29, 1999, we renegotiated our accounts receivable based line of credit with H&Q and H&Q verbally agreed to purchase the $250,000 note payable from Andersen, Weinroth & Co., L.P. The terms of the renegotiation with H&Q call for us to significantly reduce the notes payable outstanding with H&Q with revenue from sales and from proceeds from additional equity, debt or asset sales. If we are not in default in our debt agreements with H&Q, the prepayments can be re-borrowed according to the standard terms of the borrowing base agreement. See "Recent Developments." We have re-evaluated our assumptions predicting future growth in sales and improved earnings before non-cash items and believe the factors that created the loss in the three months ended September 30, 1999 will not significantly affect future sales. However, future sales may be affected by the sale of a business unit or other changes. Although variable costs of sales have been reduced, certain costs of sales such as amortization of capitalized software costs are not directly related to short-term reductions in sales or reductions in the rate of sales growth. As a result, total gross margins have declined. These results have reduced our liquidity and can be expected to reduce our ability to raise capital in the debt or equity markets. In addition, we have various contingencies that may require us to issue additional common stock. Depending on the outcome of these contingencies, it may be necessary for us to seek shareholder approval to authorize additional shares of common stock. Liquidity is also affected by our ability to collect our accounts receivable and our ability to realize full value for our inventory and other assets. As previously mentioned, the gross margins on our inventory have not declined and our inventory has increased over the nine months ended September 30, 1999. Furthermore, based on our renegotiations with H&Q and the current forecast we believe we have adequate lines of credit and cash flow to purchase additional inventory as necessary. Although our aged accounts receivable have improved as of September 30, 1999, there is no assurance this improvement will continue. Our debt level has increased substantially in the nine months ended September 30, 1999 and the majority of this debt matures over the next 18 months. The assets that support this debt have a longer expected life than the debt. This increase in debt has occurred in the non-Breece Hill segment of the business that has a 67% to 69% gross margin. We believe the recent reduction in operating expenses in this segment of the business will enhance our operating margin to service this debt with a higher level of profitability. Nevertheless, we can provide no assurance as to our future profitability and continued access to the capital markets or our ability to repay our debts as they become due. Year 2000 Issue State of Readiness. The amount of additional remediation work required to address year 2000 problems was not extensive. Global MAINTECH tested all of the system software included in its products and determined that it was year 2000 compliant. We did not experience service interruptions from suppliers or disruptions in such infrastructure areas as utilities, communications, transportation, banking and government. Costs. Because essentially all of Global MAINTECH's products and internal systems were created in the last few years, these products and internal systems were designed to avoid the year 2000 problem. As a result, the total cost incurred for resolving Global MAINTECH's year 2000 issues was less than $20,000, all of which was incurred before July 31, 1999. No additional costs were incurred. The total cost included the cost of replacing or upgrading non-compliant systems that were otherwise planned but perhaps accelerated due to the year 2000 issue, or which have significant improvements and benefits unrelated to year 2000 issues. Final year 2000 costs were not greater than anticipated. Risk. Global MAINTECH has not experienced any material disruption as a result of year 2000 problems in its products and the third-party systems it uses for its internal functions. Critical third-party providers, such as those providers supplying electricity, water or telephone service, did not experience difficulties resulting in disruption of service to Global MAINTECH. To date, Global MAINTECH has managed its total year 2000 transition without any material effect on Global MAINTECH's results of operations or financial condition. 24 Forward Looking Statements This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect" and similar words are intended to identify forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements because of new information or future events. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this prospectus might not transpire. The forward-looking statements are qualified in their entirety by the risk factors listed in this prospectus beginning on page 8. Our forward-looking statements are subject to risks, uncertainties and assumptions, including: o our ability to continue to operate profitably in the future; o our failure to meet future additional capital requirements; o our loss of key personnel; o our failure to respond to evolving industry standards and technological changes; o our inability to compete in the industry in which we operate; o our failure to successfully integrate the operations of newly acquired businesses; o lack of market acceptance of our products, including products under development; o our failure to secure adequate protection for our intellectual property rights; and o our exposure to product liability claims. 25 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding the beneficial ownership of common stock and preferred stock, as of February 23, 2000, by (1) each person known to Global MAINTECH to be the beneficial owner of 5% or more of any class of Global MAINTECH's voting securities, (2) each of Global MAINTECH's directors, (3) the executive officers named in the Summary Compensation Table below and (4) the directors and executive officers of Global MAINTECH as a group. The address of each of the individuals named below is 7578 Market Place Drive, Eden Prairie, Minnesota 55344. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, and includes generally the voting and investment power of the securities. Shares of common stock or preferred stock subject to options or warrants 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 or warrants, 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 Preferred Stock Beneficially Owned Beneficially Owned --------------------------- --------------------------------------------------------- Number of Percentage Number of Percentage Shares of of Shares of Shares of of Shares Number of Percentage Series A Series A Series B of Series B Name and Address (1) Shares of Shares Stock Stock Stock Stock - ------------------------ ------------ ------------ ------------- ------------ ----------- ------------ Trent Wong.............. -- -- -- -- -- -- David H. McCaffrey (2).. 564,000 9.7% -- -- -- -- John E. Haugo (3)....... 31,000 * -- -- -- -- Donald Brattain......... -- -- 2,133 16.0% -- -- Donald Fraser........... -- -- 5,333 40.0% -- -- James Lehr.............. -- -- 2,133 16.0% -- -- Donald Hagen............ -- -- 1,067 8.0% -- -- Henry Mlekoday.......... -- -- -- -- -- -- Douglas Swanson......... -- -- 1,333 10.0% -- -- Aaron Boxer Rev Trust u/a dtd 8/1/89...... -- -- -- -- 3,446 5.1% WCN/GAN Partners, Ltd..................... 409,026 7.1% -- -- -- -- John M. Liviakis........ 753,000 13.5% -- -- -- -- Industricorp & Co. FBO 1561000091.......... -- -- -- -- 5,000 7.4% John O. Hanson.......... -- -- -- -- 6,150 9.2% Crow 1999 CRUT.......... -- -- -- -- 3,385 5.0% Esquire Trade & Finance Inc................. -- -- -- -- -- -- Austinvest Anstalt Balzers............. -- -- -- -- -- -- Assanzon Capital Development Corporation......... -- -- -- -- -- -- Garros Ltd.............. -- -- -- -- -- -- Nash, LLC............... -- -- -- -- -- -- All officers and directors 669,000 11.4% -- -- -- -- as a group (3 persons)
[Table continued on next page] 26
Preferred Stock Beneficially Owned ------------------------------------------------------------------------------------------- Number of Percentage of Number of Percentage of Number of Percentage of Shares of Shares of Shares of Shares of Shares of Shares of Name and Address (1) Series D Stock Series D Stock Series E Stock Series E Stock Series F Stock Series F Stock - ------------------------------------- -------------- -------------- -------------- -------------- -------------- ----------- Trent Wong........................... -- -- -- -- -- -- David H. McCaffrey (2)............... -- -- -- -- -- -- John E. Haugo (3).................... -- -- -- -- -- -- Donald Brattain...................... -- -- -- -- -- -- Donald Fraser........................ -- -- -- -- -- -- James Lehr........................... -- -- -- -- -- -- Donald Hagen......................... -- -- -- -- -- -- Henry Mlekoday....................... -- -- -- -- -- -- Douglas Swanson...................... -- -- -- -- -- -- Aaron Boxer Rev Trust u/a dtd 8/1/89. -- -- -- -- -- -- WCN/GAN Partners, Ltd................ -- -- -- -- -- -- John M. and Renee A. Liviakis........ -- -- -- -- -- -- Industricorp & Co. FBO 1561000091.... -- -- -- -- -- -- John O. Hanson....................... -- -- -- -- -- -- Crow 1999 CRUT....................... -- -- -- -- -- -- Esquire Trade & Finance Inc.......... 575 21.1% -- -- -- -- Austinvest Anstalt Balzers........... 575 21.1% -- -- -- -- Assanzon Capital Development Corporation.......................... 500 18.3% -- -- -- -- Garros Ltd........................... 350 12.8% -- -- -- -- Nash, LLC............................ -- -- 2,500 94.3% -- -- RBB Bank Aktiengesellschaft.......... -- -- -- -- 2,000 100% All officers and directors as a group (3 persons) (4)....... -- -- -- -- -- --
- ----------------- * Less than 1%. (1) Unless otherwise indicated, the address of each of the above is c/o 7578 Market place Drive, Eden Prairie, Minnesota 55344. (2) Includes 254,000 shares of common stock issuable to Mr. McCaffrey upon the exercise of outstanding options. (3) Includes 15,000 shares of common stock issuable to Mr. Haugo upon the exercise of outstanding options. (4) Includes 295,000 shares of common stock issuable to all officers and directors as a group upon the exercise of outstanding options. 27 EXECUTIVE COMPENSATION Summary Compensation Table The following table provides the cash compensation awarded to or earned by the chief executive officer and any employee who earned in excess of $100,000 during the year ended December 31, 1999. No other executive officer of Global MAINTECH earned salary and bonus in excess of $100,000 during the year ended December 31, 1999.
Long Term Compensation ---------------------------- Annual Compensation Awards Payouts ------------------------------------------ ------------ ------------- Securities Underlying LTIP Name and Principal Position Year Salary Bonus Options Payouts - ------------------------------------ ------------ ------------ ------------ ------------ ------------- Trent Wong (1) Chief Executive Officer 1999 $ 21,500 $ -- 117,000 -- David H. McCaffrey (2) 1999 103,500 -- -- -- 1998 90,000 8,000 36,000 -- 1997 97,000 -- 50,000 --
- ---------- (1) Mr. Wong has served as Chief Executive Officer since November 8, 1999. (2) Mr. McCaffrey served as Chief Executive Officer from January 4, 1995 to November 8, 1999. Stock-Based Compensation The following table provides information concerning individual grants of stock options made to the persons named in the "Summary Compensation Table" above. No stock appreciation rights were granted or exercised for the year ended December 31, 1999. Option Grants in Last Fiscal Year
(Individual Grants) Number of % of Total Securities Options Underlying Granted to Exercise of Options Employees in Base Price Expiration Name Granted Fiscal Year ($/Share) Date - ----------------------------------------- -------------- --------------- ----------- ------------- Trent Wong (1) 117,600 13.1% $ 6.25 07/28/04 David H. McCaffrey -- -- -- --
- ---------------- (1) The right to purchase 117,600 shares will vest on May 31, 2000. 28 The following table provides information concerning stock option exercise and the value of unexercised options at December 31, 1999 for the named executive officers. Aggregated Option Exercises in 1999 and Year End Option Values
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Shares Options at FY-end Options at FY-end Acquired on Value --------------------------- --------------------------- Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ------------------------- ------------ ------------ ----------- ------------- ------------ ------------- Trent Wong -- -- -- 284,000 $ 0 $ 781,000(1) David H. McCaffrey -- -- 254,000 0 $ 1,651,160 $ 0(2)
- --------------- (1) Mr. Wong believes his stock options have no value, based on the low trading volume of the common stock and the restrictive trading rules applicable to insiders. Notwithstanding the foregoing, for reporting purposes only, Mr. Wong's unexercised in-the-money options have a value of $781,000 calculated based on the difference between the fair market value of $9.00 of the 284,000 shares of common stock underlying in-the-money options at year end and the exercise price of the options at February 23, 2000 (284,000 shares at $6.25). (2) Mr. McCaffrey believes his stock options have no value, based on the low trading volume of the common stock and the restrictive trading rules applicable to insiders. Notwithstanding the foregoing, for reporting purposes only, Mr. McCaffrey's unexercised in-the-money options have a value of $1,651,160, calculated based on the difference between the fair market value of $9.00 of the 254,000 shares of common stock underlying in-the-money options at year end and the exercise price of the options at February 23, 2000 (168,000 shares at $0.75, 50,000 shares at $5.00 and 36,000 shares at $7.1875). 29 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Global MAINTECH's common stock trades on the Over-the-Counter Bulletin Board under the symbol "GLBM." Before November 12, 1996, Global MAINTECH's common stock traded on the Nasdaq Small Cap Market under the symbol "GBMT." Global MAINTECH's common stock has been listed on the Frankfurt Stock Exchange since September 7, 1999. Global MAINTECH effected a one-for-five reverse stock split of its common stock and its Series B preferred stock on September 2, 1999. All prices below are shown as if such split had occurred prior to the periods presented. As of February 23, 2000, Global MAINTECH had approximately 3,137 shareholders of record of its common stock. The following are the high and low bid quotations for Global MAINTECH's common stock as reported on the OTC Market during the periods indicated. These quotations represent prices quoted between dealers, without retail mark-up, mark-down or commissions, and may not necessarily represent actual transactions. 1998 High Low - ---- ---------- --------- First Quarter....................................... $ 13.75 $ 9.40 Second Quarter...................................... 13.75 9.70 Third Quarter....................................... 11.70 5.65 Fourth Quarter...................................... 8.45 5.30 1999 First Quarter....................................... $ 12.19 $ 7.19 Second Quarter...................................... 9.84 5.94 Third Quarter....................................... 12.25 6.09 Fourth Quarter...................................... 8.16 5.13 2000 First Quarter (through February 23, 2000)........... $ 10.37 $ 7.06 DIVIDEND POLICY Global MAINTECH has not paid cash dividends on its common stock and does not anticipate paying cash dividends in the next two fiscal years. Global MAINTECH currently is accruing dividends on its Series B, Series D, Series E and Series F preferred stock at the annual rate of 8% per year, payable at the election of Global MAINTECH in either cash or common stock, but no dividends are payable until conversion into common stock. DESCRIPTION OF CAPITAL STOCK Our authorized capital stock currently consists of 10,711,724 shares. As of February 23, 2000, 887,980 of these shares are designated as Series A convertible preferred stock, 123,077 shares are designated as Series B convertible preferred stock, 1,675 shares are designated as Series C convertible preferred stock, 2,775 shares are designated as Series D convertible preferred stock, 2,650 shares are designated as Series E convertible preferred stock, and 2,000 shares are designated as Series F convertible preferred stock. The Series A stock, the Series B stock, the Series C stock, the Series D stock, the Series E stock and the Series F stock are sometimes referred to together as preferred stock. As of February 23, 2000, there were 5,921,431 shares of common stock outstanding, which were held of record by approximately 3,137 shareholders, 13,860 shares of Series A stock outstanding, which were held of record by approximately 6 shareholders, 255,114 shares of Series B stock outstanding, which were held of record by 25 shareholders, no shares of Series C stock outstanding, 2,725 shares of Series D stock outstanding, which were held of record by 7 shareholders, 2,650 shares of Series E stock outstanding, which were held of record by 3 shareholders and 2,000 shares of Series F stock outstanding, which were held of record by 1 shareholder. In February 2000, our Board approved an amendment to our Articles of Incorporation that would increase our authorized capital stock to 18,500,000 shares, subject to approval by the shareholders at the Special Meeting to be held on April 5, 2000. If the amendment is approved, we will be authorized to issue an additional 30 7,788,276 shares from time to time at the discretion of the Board. Unless otherwise designated by the Board, all of such shares will be common stock. Common Stock The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders. There is no cumulative voting for the election of directors so that the holders of more than 50% of the aggregate voting power of the outstanding common stock and preferred stock can elect all directors. See "-- Preferred Stock." Subject to preferences that may be applicable to any outstanding preferred stock, holders of common stock are entitled to receive ratably the dividends declared by the board of directors of Global MAINTECH out of funds legally available for dividends and in liquidation proceedings. Holders of common stock have no preemptive or subscription rights and there are no redemption rights associated with these shares. Preferred Stock The holders of Series A stock and Series B stock are entitled to vote on all matters submitted to a vote of shareholders the number of votes for each share held of record equal to the number of shares of common stock into which each share of preferred stock is then convertible. The holders of Series D stock, Series E stock and Series F stock have no voting rights except in the event Global MAINTECH desires to issue shares of a class or series of preferred stock which could adversely affect the rights of such holders, or as may otherwise be required by law. There is no cumulative voting for the election of directors so that the holders of more than 50% of the aggregate voting power of the outstanding common stock and preferred stock can elect all directors. Holders of Series A stock are entitled to receive ratably the dividends declared by the board of directors of Global MAINTECH, and holders of Series B stock, Series D stock, Series E stock and Series F stock are entitled to receive dividends at an annual rate of 8% per share, out of funds legally available for dividends and in liquidation proceedings. Dividends on shares of Series B stock, Series D stock, Series E stock and Series F stock are cumulative and are only payable upon conversion of the corresponding series of preferred stock. Holders of preferred stock have no preemptive or subscription rights and there are no redemption rights with respect to those shares. Under Minnesota law and Global MAINTECH's articles of incorporation, the board of directors is authorized, without further shareholder action, to issue preferred stock in one or more classes or series and to fix the voting rights, liquidation preferences, dividend rights, repurchase rights, conversion rights, redemption rights and terms, including sinking fund provisions, and other rights and preferences, of the preferred stock. Accordingly, although it has no current intention of doing so, the board of directors of Global MAINTECH may, with the approval of the holders of a majority of the voting power of the then outstanding preferred stock, issue shares of a class or series of preferred stock with voting and conversion rights which could adversely affect the voting power and the dividend and other rights of the holders of common stock. Warrants and Options As of February 23, 2000, Global MAINTECH had outstanding options to purchase 1,683,466 shares of common stock that had been issued to employees, directors and consultants to the company under the 1989 Stock Option Plan, with a weighted average exercise price of $7.48 per share. These options expire between November 20, 2000 and September 29, 2004. As of February 23, 2000, Global MAINTECH also had outstanding warrants to purchase a total of 1,937,828 shares of common stock with a weighted average exercise price of $10.91 per share. These third-party warrants are all currently exercisable and expire on dates ranging from December 31, 2000 to October 31, 2004. All agreements embodying these outstanding warrants and options provide for antidilution adjustments if there are changes in the corporate structure of Global MAINTECH, such as mergers, consolidations, reorganizations, recapitalizations, stock dividends, or stock splits. Anti-Takeover Provisions of the Minnesota Business Corporation Act The provisions of Minnesota law described below could have an anti-takeover effect. These provisions are intended to provide management flexibility to enhance the likelihood of continuity and stability in the composition of the board of directors and in the policies formulated by the board of directors and to discourage an unsolicited takeover of Global MAINTECH if the board of directors determines that a takeover is not in the best interests of the 31 company and its shareholders. However, these provisions could have the effect of discouraging attempts to acquire Global MAINTECH, which could deprive the company's shareholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices. Section 302A.671 of the Minnesota Business Corporation Act (the "MBCA") provides that, unless the acquisition of over 20%, 33 1/3% or 50% of voting control of Global MAINTECH by an existing shareholder or other person is approved by a majority of the disinterested shareholders of the company, the shares acquired above the new percentage level of voting control will not be entitled to voting rights. Global MAINTECH is required to hold a special shareholders' meeting to vote on an acquisition within 55 days after the delivery to the company by the acquiror of an information statement including a description of the acquiror and any plans of the acquiror to liquidate or dissolve the company and copies of definitive financing agreements for any financing of the acquisition not to be provided by funds of the acquiror. If any acquiror does not submit an information statement to Global MAINTECH within ten days after acquiring shares representing a new threshold percentage of voting control of Global MAINTECH, or if the disinterested shareholders vote not to approve the acquisition, Global MAINTECH may redeem the shares so acquired by the acquiror at their market value. Section 302A.671 generally does not apply to a cash offer to purchase all shares of voting stock of the issuing corporation if the offer has been approved by a majority vote of disinterested board members of the issuing corporation. Section 302A.673 of the MBCA restricts various transactions between Global MAINTECH and a shareholder who becomes the beneficial holder of 10% or more of Global MAINTECH's outstanding voting stock (an "interested shareholder") unless a majority of the disinterested directors of Global MAINTECH have approved, before the date on which the shareholder acquired a 10% interest, either the business combination transaction suggested by the shareholder or the acquisition of shares that made the shareholder an interested shareholder. If prior approval is not obtained, the statute prohibits mergers, sales of substantial assets, loans, substantial issuances of stock and various other transactions involving Global MAINTECH and the interested shareholder or its affiliates for four years following the date on which the interested shareholder became an interested shareholder. Transfer Agent and Registrar The transfer agent and registrar for the common stock is Norwest Bank, Minnesota, N.A. Indemnification of Directors and Officers Global MAINTECH's second amended and restated articles of incorporation and the statutes of the State of Minnesota require the company to indemnify any director, officer, employee or agent who was or is a party to any threatened, pending or completed action, suit or proceedings, whether civil, criminal, administrative or investigative, against liabilities and expenses incurred in connection with the action, suit or proceeding, except where the person was not acting in good faith or did not reasonably believe that the conduct was in the best interests of the company. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or other persons controlling Global MAINTECH according to the foregoing provisions, the company has been informed that in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. CERTAIN TRANSACTIONS On December 16, 1996, based on the advice of Global MAINTECH's financial advisor, David McCaffrey exercised stock options to purchase 168,000 shares of common stock and Jim Geiser exercised stock options to purchase 48,000 shares of common stock. Messrs. McCaffrey and Geiser paid their respective exercise prices totaling $126,000 and $59,000 in the form of personal promissory notes payable to Global MAINTECH. Each of these promissory notes had an interest rate of 5.75% per year and was scheduled to be repaid no later than the termination date of the option to which the note related. Mr. McCaffrey agreed to pay his personal promissory note in full on or before February 28, 2000. Mr. Geiser repaid his personal promissory note in full on November 15, 1999. David McCaffrey is a director of Global MAINTECH and served as Chief Executive Officer until November 1999. Jim Geiser is Global MAINTECH's chief financial officer and secretary. 32 Management of Global MAINTECH believes that the terms of the transactions described above were no less favorable to Global MAINTECH than would have been obtained from an unaffiliated third party. Any future material transactions and loans with officers, directors or 5% beneficial shareholders of common stock, or affiliates of such persons, will be on terms no less favorable to Global MAINTECH than could be obtained from unaffiliated third parties and will be approved by a majority of the outside members of Global MAINTECH's board of directors who do not have an interest in the transactions. Global MAINTECH has agreed with the Minnesota Department of Commerce that so long as the shares described in this prospectus are registered in the State of Minnesota, or one year from the date of this prospectus, whichever is longer, Global MAINTECH will not make loans to its officers, directors, employees or principal shareholders, except for loans made in the ordinary course of business, such as travel advances, expense account advances, relocation advances or reasonable salary advances. RECENT DEVELOPMENTS Note Payable to Andersen, Weinroth & Co. On August 6, 1999, we rescheduled the principal payment of $250,000 of a $500,000 note payable to Andersen, Weinroth & Co. which was due on July 31, 1999. The due date of the payment was extended to November 30, 1999 and the payment was made in full by that date. Re-Negotiation of Payment Provision Regarding Lavenir Acquisition On September 28, 1999, through our wholly owned subsidiary Global MAINTECH, Inc., we purchased substantially all the assets of Lavenir Technology, Inc., a California corporation, pursuant to an Agreement and Plan of Reorganization by and among the us, our subsidiary, and Lavenir. In addition to purchasing substantially all of the assets of Lavenir (including rights under and to Lavenir's computer software products and the trademarks and related copyrights), we assumed certain liabilities of Lavenir, including, Lavenir's ongoing leases, debt and contract obligations. The primary assets we acquired were a suite of CAD/CAM software products, including the ability to design, test, verify and repair precision graphics designs. This software is sold independently or with Raster Photoplotters, sophisticated hardware products used to build master printed circuit boards. The total purchase price of $5,300,000 was payable as follows: 266,000 shares of our common stock was paid to Lavenir 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 our common stock. A maximum of 700,000 additional shares of common stock are issuable as of April 30, 2000 sufficient to cause the value of the shares and debt previously issued and the original $400,000 liability to total $5,300,000 as of April 30, 2000. The holders of the common stock we issued in connection with this acquisition were granted customary registration rights. 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' conduct 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's execution until its maturity date of December 30, 2001. Proposed Settlement Agreement with Infinite Graphics Incorporated We are currently negotiating the transfer of certain assets and the termination of various software licenses under a proposed settlement agreement between Global MAINTECH and Infinite Graphics Incorporated ("Infinite Graphics"). We acquired the assets and licenses under a February 27, 1998 License and Asset Purchase Agreement with Infinite Graphics. 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 our business and Infinite Graphics' business. The transfer and termination would be made in exchange for Infinite Graphics' 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 Infinite Graphics' release of our payment obligations. 33 Proposed Sale of Breece Hill On January 3, 2000, we announced that our board of directors approved a plan to sell our subsidiary Breece Hill Technologies, Inc. ("BHT"), which we acquired in April 1999, to Tandberg Data ASA of Oslo, Norway ("Tandberg"). On February 3, 2000, we entered into a stock purchase agreement with Tandberg, GMI, Hambrecht & Quist Guaranty Finance LLC, Greyrock Capital and Cruttenden Roth, Incorporated. The transaction will require approval by both Global MAINTECH's and Tandberg's shareholders. Under the terms of the stock purchase agreement and related transactions: o we would sell all of the common stock of BHT to Tandberg in exchange for $3.4 million in cash, less transaction costs and holdbacks; o Tandberg will assume or repay approximately $6.1 million in liabilities of BHT; o we and GMI will be released from our obligations with respect to approximately $5.7 million of debt to be prepaid by Tandberg at the closing; o holders of BHT Series B preferred stock will receive up to $1 million in cash in the aggregate; o former holders of BHT Series A preferred stock at the time of the merger between BHT and GMI, which we refer to as the former BH Series A holders, will receive up to approximately $1.5 million in cash in the aggregate; o former holders of BHT common stock at the time of the merger between BHT and GMI, which we refer to as the former BH Common holders, will receive warrants to purchase up to 5,091,160 ordinary shares of Tandberg at a price of NOK 30, and up to 518,225 shares of our common stock in the aggregate and warrants to purchase up to 200,000 shares of our common stock in the aggregate; and o the former BH Series A holders and the former BH Common holders will release any claims they may have against us, GMC, BHT or Tandberg, except for certain claims against us and GMI related to our obligation to issue options under the merger agreement between BHT and GMI. Anticipated Charges in the Fourth Quarter of 1999 Due to the asset sale to MT Acquiring Corp., the proposed settlement with Infinite Graphics Incorporated, the proposed sale of Breece Hill and re- evaluation of the recoverability of certain tangible and intangible assets during the fourth quarter of 1999, we are anticipating a charge of between $10 million to $12 million in December 1999 related to these items. In addition, we are anticipating other operating losses, exclusive of the items above, between $9 million and $11 million for the fourth quarter of 1999, approximately $5 million to $6 million of which are related to compensation paid to third parties through grants of equity instruments. Based upon the September 30, 1999 year-to- date net loss of $7.4 million and upon consideration of the items above, we anticipate the fiscal year 1999 net loss to be between $26 million and $30 million. LEGAL PROCEEDINGS On February 15, 2000, we and GMI were named as defendants in a patent infringement suit brought by K. Brent Johnson and I.D.G. Incorporated in federal court for the Northern District of Oklahoma. The suit alleges, among other things, that our VCC product, when monitoring a mainframe computer, infringes on a patent held by the plaintiffs. We believe that the plaintiffs' claims are without merit, but are attempting to settle the claims in order to avoid protracted and costly litigation. Other than the patent infringement claim, there are no material legal proceedings pending against U.S. DESCRIPTION OF PROPERTY Global MAINTECH's headquarters is located at 7578 Market Place Drive, Eden Prairie, MN 55344. Global MAINTECH leases 10,500 square feet under a lease that expires on March 31, 2000. Global MAINTECH also leases four small office spaces for sales and technical development services, one of which is in Ohio and the others are in California. Breece Hill leases 53,590 square feet of office space located at 6287 Arapahoe Avenue, Boulder, Colorado 80303, which lease began on July 31, 1996 and terminates on July 31, 2001. 34 EXPERTS The financial statements of Global MAINTECH Corporation as of December 31, 1998 and 1997, and for each of the years in the two-year period ended December 31, 1998, have been included in this prospectus and in the registration statement in reliance upon the report of KPMG LLP, independent certified public accountants, appearing elsewhere in this prospectus, and upon the authority of KPMG as experts in accounting and auditing. LEGAL MATTERS The validity of the shares offered under this prospectus has been passed upon for Global MAINTECH by Dorsey & Whitney LLP, Minneapolis, Minnesota. WHERE YOU CAN FIND MORE INFORMATION Global MAINTECH has filed with the Securities and Exchange Commission a registration statement on Form SB-2 under the Securities Act for the common stock offered under this prospectus. Global MAINTECH is subject to the informational requirements of the Exchange Act, and files reports, proxy statements and other information with the Commission. These reports, proxy statements and other information filed by Global MAINTECH can be inspected and copied at the public reference facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also maintains a Web site that contains reports, proxy statements, information statements and other information concerning Global MAINTECH at the site located at http://www.sec.gov. This prospectus does not contain all the information in the registration statement and its exhibits which Global MAINTECH has filed with the Commission under the Securities Act and to which reference is made. 35 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Report................................................ F-2 Consolidated Balance Sheets as of December 31, 1998 and 1997................ F-3 Consolidated Statements of Operations for the Years ended December 31, 1998 and 1997............................................... F-5 Consolidated Statements of Stockholders' Equity for the Years ended December 31, 1998 and 1997......................................... F-6 Consolidated Statements of Cash Flows for the Years ended December 31, 1998 and 1997............................................... F-7 Notes to Consolidated Financial Statements.................................. F-8 Consolidated Balance Sheet as of September 30, 1999 (Unaudited).............F-22 Consolidated Statements of Operations for the Nine Months ended September 30, 1999 and 1998 (Unaudited) ..................................F-24 Consolidated Statements of Cash Flows for the Nine Months ended September 30, 1999 and 1998 (Unaudited) ..................................F-25 Notes to Unaudited Consolidated Financial Statements........................F-26 F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Global MAINTECH Corporation: We have audited the accompanying consolidated balance sheets of Global MAINTECH Corporation and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Global MAINTECH Corporation and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG LLP Minneapolis, Minnesota March 29, 1999, except as to Note 12 which is as of September 2, 1999 F-2 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
December 31, December 31, 1998 1997 --------------- --------------- CURRENT ASSETS Cash and cash equivalents $ 664,066 $ 1,726,889 Accounts receivable, less allowance for doubtful accounts of $300,000 and $15,000, respectively 2,283,578 576,573 Employee receivables 147,466 26,111 Inventories 861,418 797,435 Prepaid expenses and other 80,094 77,308 Notes receivable -- 75,000 Current portion of investment in sales-type leases 20,776 286,997 --------------- --------------- Total current assets 4,057,398 3,566,313 Property and equipment, net 1,042,432 308,347 Leased equipment, net 124,658 209,033 Software development costs, net 2,273,834 955,835 Purchased technology and other intangibles, net 1,419,008 60,000 Net investment in sales-type leases, net of current portion 22,410 492,918 Other assets, net 193,191 271,003 --------------- --------------- TOTAL ASSETS $ 9,132,931 $ 5,863,449 =============== ===============
The accompanying notes are an integral part of these consolidated statements. F-3 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31, 1998 1997 ----------------- ------------------- CURRENT LIABILITIES Accounts payable $ 867,120 $ 396,159 Current portion of notes payable 395,680 -- Convertible subordinated debentures 200,000 100,000 Accrued liabilities, compensation and payroll taxes 267,581 123,605 Other 31,049 10,588 Deferred revenue 228,231 52,443 ----------------- ------------------- Total current liabilities 1,989,661 682,795 Subordinated notes payable, less current portion 1,700,000 1,900,000 ----------------- ------------------- Total liabilities 3,689,661 2,582,795 STOCKHOLDERS' EQUITY Voting, convertible preferred stock - Series A, convertible into one common stock share for each five preferred shares, no par value; 887,980 shares authorized; 129,176 shares in 1998 and 244,113 shares in 1997 issued and outstanding; total liquidation preference of outstanding shares - $242,200 60,584 114,489 Voting, convertible preferred stock - Series B, convertible on or before September 23, 2001 based on price of common stock; conversion price not to exceed $12.50 per share or be less than $3.75; dividend of 8% payable in cash or common stock of Company; no par value; 123,077 shares authorized; 67,192 shares in 1998 and none in 1997 issued and outstanding; total liquidation preference of outstanding shares - $2,183,769 2,183,769 -- Common stock, no par value; 9,699,327 shares authorized; 3,681,879 shares in 1998 and 3,416,972 shares in 1997 issued and outstanding -- -- Additional paid-in-capital 7,362,796 5,295,829 Notes receivable-officers (294,500) (294,500) Accumulated deficit (3,869,379) (1,835,164) ----------------- ------------------- Total stockholders' equity 5,443,270 3,280,654 ----------------- ------------------- $ 9,132,931 $ 5,863,449 ================= ===================
The accompanying notes are an integral part of these consolidated statements. F-4 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, ------------------------------ 1998 1997 ------------- ------------- Net sales: Systems $ 4,245,684 $ 2,138,323 Maintenance, consulting and other 1,963,625 864,184 ------------- ------------- Total net sales 6,209,309 3,002,507 Cost of sales: Systems 1,127,361 417,225 Maintenance, consulting and other 1,195,941 344,808 ------------- ------------- Total cost of sales 2,323,302 762,033 ------------- ------------- Gross profit 3,886,007 2,240,474 Operating expenses: Selling, general and administrative 4,414,140 1,649,394 Research and development 1,291,253 319,859 ------------- ------------- Income (loss) from operations (1,819,386) 271,221 Other income (expense): Interest expense (286,272) (183,004) Interest income 146,786 92,406 Other (44,294) (22,147) ------------- ------------- Total other expense, net (183,780) (112,745) ------------- ------------- Income (loss) from continuing operations before income taxes (2,003,166) 158,476 Provision for income taxes -- -- ------------- ------------- Income (loss) from continuing operations (2,003,166) 158,476 Gain from discontinued operations -- 70,000 ------------- ------------- Net income (loss) $ (2,003,166) $ 228,476 ============= ============= Accrual of cumulative dividends on Series B convertible preferred stock (31,049) -- ------------- ------------- Net income (loss) attributable to common stockholders (2,034,215) 228,476 ============= ============= Basic income (loss) per common share: Continuing operations $ (0.55) $ 0.050 Discontinued operations -- 0.022 ------------- ------------- Net income (loss) $ (0.55) $ 0.072 ============= ============= Diluted income (loss) per common share: Continuing operations $ (0.55) $ 0.040 Discontinued operations -- 0.018 ------------- ------------- Net income (loss) $ (0.55) $ 0.058 ============= ============= Shares used in calculations: Basic 3,670,342 3,183,609 Diluted 3,670,342 3,911,083
The accompanying notes are an integral part of these consolidated statements. F-5 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
Preferred Stock A Preferred Stock B Common Stock Additional ------------------- --------------------- ------------------------ paid-in Shares Amount Shares Amount Shares Amount capital ------- ---------- --------- ---------- ----------- ----------- ------------ Balance at December 31, 1996 700,667 $ 28,601 -- $ -- 2,652,107 $ -- $2,243,438 Net income -- -- -- -- -- -- -- Common stock issued -- -- -- -- 550,560 -- 2,779,600 Stock issue costs -- -- -- -- -- -- (302,278) Common stock options and warrants exercised -- -- -- -- 122,994 -- 360,957 Exercise officer stock options -- -- -- -- -- -- -- Converted preferred shares Series A (456,554) (214,112) -- -- 91,311 -- 214,112 - ---------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 244,113 $ 114,489 -- $ -- 3,416,972 $ -- $ 5,295,829 Net loss -- -- -- -- -- -- -- Accrual of cumulative dividends on Series B convertible preferred stock -- -- -- -- -- -- -- Common stock issued -- -- -- -- 218,400 -- 1,800,350 Values of stock options issued in acquisition -- -- -- -- -- -- 524,000 Stock issue costs -- -- -- -- -- -- (346,922) Common stock options and warrants exercised -- -- -- -- 23,520 -- 35,634 Preferred shares Series B -- -- 67,192 2,183,769 -- -- -- Converted preferred shares Series A (114,937) (53,905) -- -- 22,987 -- 53,905 - ---------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 129,176 $ 60,584 67,192 $2,183,769 3,681,879 $ -- $ 7,362,796
Notes Accumu- receivable- lated officers deficit Total ---------- ----------- ----------- Balance at December 31, 1996 (324,500) (2,063,640) 183,899 Net income -- 228,476 228,476 Common stock issued -- -- 2,779,600 Stock issue costs -- -- (302,278) Common stock options and warrants exercised -- -- 360,957 Exercise officer stock options 30,000 -- 30,000 Converted preferred shares Series A -- -- -- - ------------------------------------------------------------------- Balance at December 31, 1997 $ (294,500) (1,835,164) 3,280,654 Net loss -- (2,003,166) (2,003,166) Accrual of cumulative dividends on Series B convertible preferred stock -- (31,049) (31,049) Common stock issued -- -- 1,800,350 Values of stock options issued in acquisition -- -- 524,000 Stock issue costs -- -- (346,922) Common stock options and warrants exercised -- -- 35,634 Preferred shares Series B -- -- 2,183,769 Converted preferred shares Series A -- -- -- - ------------------------------------------------------------------- Balance at December 31, 1998 $ (294,500) $(3,869,379) $ 5,443,270
The accompanying notes are an integral part of these consolidated statements F-6 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ----------------------------- 1998 1997 --------------- ------------ Cash flows from operating activities: Net income (loss) $ (2,003,166) $ 228,476 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 1,610,981 433,981 Allowance for doubtful accounts 300,000 -- Changes in operating assets and liabilities: Accounts receivable (1,532,221) (124,974) Employee receivables (121,355) (4,592) Inventories (63,983) (579,492) Prepaid expense and other (2,786) (50,602) Accounts payable 337,397 155 Accrued liabilities 112,500 2,253 Deferred revenue 79,859 (207,304) --------------- ------------ Cash used by operating activities (1,282,774) (302,099) --------------- ------------ Cash flows from investing activities: Sale of investment in sales-type leases 736,729 (779,915) Purchase of property and equipment (1,076,176) (361,869) Reduction in leased equipment -- (162,548) Investment in software development costs (2,052,188) (781,516) Investment in other assets (9,460) (108,900) Purchase of companies, net of cash acquired (1,276,786) -- Payments received on (investment in) notes receivable 75,000 (75,000) --------------- ------------ Cash used by investing activities (3,602,881) (2,269,748) --------------- ------------ Cash flows from financing activities: Disbursements for deferred debt costs -- (212,470) Net proceeds from issuance of common stock 1,489,063 2,768,279 Net proceeds from issuance of preferred stock 2,183,769 -- Proceeds (payments) short term notes payable 250,000 (319,963) Payments received on officers note receivable -- 30,000 Proceeds (payments) long term notes payable (100,000) 2,000,000 --------------- ------------ Cash provided by financing activities 3,822,832 4,265,846 --------------- ------------ Net increase (decrease) in cash (1,062,823) 1,693,999 Cash and cash equivalents at beginning of period 1,726,889 32,890 --------------- ------------ Cash and cash equivalents at end of period $ 664,066 $ 1,726,889 =============== ============ Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 200,554 $ 200,584 Income taxes $ 9,999 $ 9,999
The accompanying notes are an integral part of these consolidated statements. F-7 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS: Global MAINTECH, Inc., the Company's principal operating subsidiary, produces and assembles a computer software and hardware product that it sells as a console consolidation and console management solution to the systems and network management marketplace primarily in the United States. The product is called the Virtual Command Center ("VCC"). The VCC is a tool designed to do three functions: the first is to consolidate consoles (computer terminals with access to the internal operation of a computer) into one monitor, a "virtual console" or single point of control; the second is to monitor and control the computers connected to the virtual console; and, the third is to automate most, if not all, of the routine processes performed by computer operators in data centers. The VCC can be operated from a remote location and accepts multiple different computer platforms and operating systems. It is an external system that monitors and controls the subject mainframe and other data center computers from a workstation quality RISC computer, which is housed separately from the computers it controls. VCC users are able to reduce staffing levels, consolidate all data center operations and technical support functions to a single location regardless of the physical location of the data center(s) and achieve improved levels of operational control and system availability. In an effort to enhance its revenue base, the Company purchased three new product lines during 1998. On February 28, 1998, the Company licensed certain software and purchased certain assets relating to the system software business of Infinite Graphics Incorporated, a Minnesota corporation ("IGI"). The Company is using such software and assets to design, assemble and market computer-aided design and manufacturing software systems that operate on a variety of mid-range and personal computer platforms. On October 1, 1998, the Company purchased the software of Asset Sentinel, Inc., a Minnesota corporation ("ASI"). As a result of this acquisition, the Company obtained a network and electrical line mapping suite of programs that operate on personal computer platforms. Effective November 1, 1998, the Company purchased substantially all of the assets of Enterprise Solutions, Inc., an Ohio corporation ("ESI"). As a result of this acquisition, the Company obtained software products that notify the proper person(s) by telephone, pager or the internet of critical data center events-event notification software and a consulting business that focuses on solving systems management problems in data centers. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Global MAINTECH Corporation and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. NEW ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company has not assessed the impact of this Statement. 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. F-8 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INVENTORY: Inventory is stated on a first in, first out (FIFO) basis at the lower of cost or market. PROPERTY AND EQUIPMENT: Property and equipment is recorded at cost and is comprised primarily of computer and office equipment. Depreciation is provided for principally using the double declining balance method, based on the estimated 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 latter of shipment or final acceptance. Deferred revenue is recorded when the Company receives customer payments before shipment or acceptance or before maintenance revenues are earned. The Company sells maintenance agreements which require minor updates of software to be delivered to the customers free of charge. New versions of the Company's software representing a major upgrade are not a part of the maintenance agreements. The Company expenses the costs of minor updates to its software as incurred. 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. F-9 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The carrying value of a software development asset is regularly reviewed by the Company and a loss is recognized when the unamortized costs are not recoverable 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 are amortized over their estimated economic lives of 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. OTHER ASSETS: Other assets is comprised of patents and capitalized debt issuance costs. Patents are stated at cost and are amortized over three years or over the useful life using the straight-line method. Capitalized debt issuance costs are stated at cost and are amortized over the term of the related debt agreement. 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 and Disclosure of 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. INCOME (LOSS) PER SHARE: Basic and diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during the period. During 1998, dilutive shares were excluded from the net loss per share computation as their effect is antidilutive. F-10 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The weighted average shares and total dilutive shares used in the calculation of basic and diluted income (loss) per share are as follows: Years Ended December 31, ------------------------------------ 1998 1997 --------------- ------------------ Basic Income (Loss) Per Share Weighted average shares 3,670,342 3,183,609 Diluted Income (Loss) Per Share Weighted average shares 3,670,342 3,183,609 Stock options -- 553,034 Warrants -- 125,617 Conversion of preferred stock -- 48,823 --------------- ------------------ Total dilutive shares 3,670,342 3,911,083 =============== ================== Antidilutive stock options excluded 1,066,400 16,600 Antidilutive warrants excluded 571,800 120,000 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 INSTRUMENTS: All financial instruments are carried at amounts that approximate estimated fair values. RECLASSIFICATIONS: Certain amounts previously reported in 1997 have been reclassified to conform to the 1998 presentation. USE OF ESTIMATES: The preparation of financial statements in accordance with generally accepted accounting principles require 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. F-11 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. RECOVERY FROM DISCONTINUED OPERATION The Company's Board of Directors made the decision to discontinue that portion of the operations which brokered and sold parts for IBM mainframe computers in 1995. Effective December 31, 1995 these operations were sold to Norcom Resources, Inc. ("Norcom"). A portion of the sale included a $70,000 note receivable from Norcom which the Company treated as uncollectible. However, in March 1997 the Company collected the full amount of such note receivable and recorded a recovery related to the discontinued operation. NOTE 3. INVENTORIES Inventories consists of the following: December 31, -------------------------------------- 1998 1997 ----------------- ----------------- Raw materials $ 568,167 $ 526,379 Completed systems 293,251 271,056 ----------------- ----------------- Total inventories $ 861,418 $ 797,435 ================= ================= NOTE 4. NET INVESTMENT IN SALES-TYPE LEASES The Company began leasing equipment as lessor under sales-type leases in 1997. The components of net investment in sales-type leases as of December 31, 1998 and 1997, are as follows: 1998 1997 ----------------- ------------------ Minimum lease payments receivable $ 45,336 $ 892,323 Less: Unearned revenue (2,150) (112,408) ----------------- ------------------ 43,186 779,915 Less: Current portion (20,776) (286,997) ----------------- ------------------ Investment in sales-type lease, net of current portion $ 22,410 $ 492,918 Future minimum lease payments to be received under sales-type leases are $23,654 and $21,682 in 1999 and 2000, respectively. F-12 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5. CAPITAL ASSETS Certain of the Company's capital assets are comprised of the following: December 31, ------------------------- 1998 1997 ----------- ----------- Property and equipment Computer and officer equipment $ 1,642,691 $ 400,192 Accumulated depreciation (600,259) (91,845) ----------- ----------- Property and equipment, net $ 1,042,432 $ 308,347 Leased equipment Leased equipment $ 235,922 $ 269,688 Accumulated depreciation (111,264) (60,655) ----------- ----------- Leased equipment, net $ 124,658 $ 209,033 Software development costs Software development costs $ 3,307,422 $ 1,255,235 Accumulated amortization (1,033,588) (299,400) ----------- ----------- Software development costs, net $ 2,273,834 $ 955,835 Purchased technology and other intangibles Software, licenses and customer lists $ 1,630,739 $ 75,000 Accumulated amortization (211,731) (15,000) ----------- ----------- Purchased technology costs, net $ 1,419,008 $ 60,000 Other assets Patents $ 107,386 $ 101,680 Deferred debt issue costs 225,224 221,470 Accumulated amortization (139,419) (52,147) ----------- ----------- Other assets, net $ 193,191 $ 271,003 NOTE 6. ACQUISITIONS On February 27, 1998, the Company acquired certain assets, liabilities and perpetual software licenses of a division of Infinite Graphics, Inc., ("IGI") a computer-aided design and manufacturing software business. The consideration paid for IGI included $700,000 in cash and an amount up to $3,300,000 in contingent consideration based on certain operating results of IGI over a period of 15 months from the date of acquisition. Net identifiable liabilities of $78,446 were assumed consisting of $50,000 in fixed assets and $128,446 in current liabilities. The acquisition was accounted for as a purchase and the net liabilities and results of operations have been included in F-13 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the Company's consolidated financial statements from the acquisition date. The contingent consideration, if paid, will be allocated to the intangible assets and amortized over the remaining useful lives of those assets. As of December 31, 1998, the Company has not paid any contingent consideration, and if paid, this amount will be included as an increase to purchased technology and amortized over the remaining useful life of the asset. The Company has recorded $778,446 as purchased technology and customer lists and will amortize these amounts straight line over the estimated useful life of three to five years. On October 1, 1998, the Company acquired the rights to Asset Sentinel, Inc.'s ("ASI") technology, which is a network mapping software suite of products. Total consideration for the assets was $425,000, which included conversion of a note owed to the Company by ASI of $279,320 plus a note payable due six months from closing of $145,680. In addition, the Company has agreed to pay contingent consideration in the amount of $2,200,000, based on certain sales milestones of the ASI products for 18 months after acquisition, payable in cash or Company Common Stock, to be determined by the Company. The Company did not acquire any tangible assets or assume any liabilities, and therefore, the entire purchase price has been recorded as purchased technology and is being amortized over its estimated economic life of 5 years. The acquisition was recorded as a purchase and the resulting asset and results from operations of ASI have been included in the Company's financial statements from the acquisition date. ASI is a start-up company and prior to the acquisition ASI had essentially no revenues. As of December 31, 1998, the Company has not paid any contingent consideration, and if paid, this amount will be included as an increase to purchased technology and amortized over the remaining useful life of the asset. On November 1, 1998, the Company acquired the rights and liabilities of Enterprise Solutions, Inc. ("ESI"). Total consideration paid for the acquisition was $200,000 plus contingent consideration of options to purchase up to 340,000 shares of common stock exercisable at the fair market value at the date of grant ($6.25). This contingent consideration will be adjusted based on the earnings of ESI for a period of 18 months following the closing and become exercisable at that date through 30 months following the acquisition. The maximum amount of adjustment to the contingent shares is 260,000 shares. The fair value of 80,000 shares is included in the purchase price of ESI. The fair value of the minimum shares was calculated using the Black Scholes option pricing methodology with a volatility of 112%, dividend of 0, risk free interest rate of 4.5% and a five-year life is $524,000. In the event ESI does not meet certain earn-out calculations reaching $5,000,000, the Company, at its option, will either pay ESI the difference or return the purchased assets and assumed liabilities, as of the date the earn-out calculation is made, to ESI. Net identifiable assets of $269,173 were assumed consisting of accounts receivable of $474,784, fixed assets of $116,324 and current liabilities of $321,935. The acquisition was accounted for as a purchase and the net assets and results of operations have been included in the Company's consolidated financial statements from the acquisition date. The Company has recorded an intangible asset consisting of purchased technology and customer lists of $397,031 and will amortize these amounts straight line over the economic useful life of 5 years. The fair value of the contingent additional options, if granted, will be allocated to purchased technology and amortized over the remaining useful lives of those assets. F-14 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma information represents the results of operations as if the acquisitions had taken place at the beginning of the periods presented.
Unaudited ------------------------------------------------------------------ 1998 1997 ------------------------------- -------------------------------- As reported Pro-forma As reported Pro-forma --------------- ------------- ---------------- ------------- Revenue $ 6,209,309 $ 7,466,162 $ 3,002,507 $ 6,303,050 Net income (loss) (2,003,166) (1,799,035) 228,476 1,165,806 Net income (loss) attributable to common stockholders (2,034,215) (1,830,084) 228,476 1,165,806 Basic income (loss) per share (0.55) (0.50) 0.05 0.37
NOTE 7. NOTES PAYABLE Notes payable at December 31, 1998 and 1997 are comprised of the following:
1998 1997 ----------------------------- -------------------------------- Interest Interest Amount Rate Amount Rate ------------- ------------ -------------- ------------- Notes payable to Bank Windsor 250,000 due June 1, 1999 $ 9.5% $ -- -- Acquisition note payable to Asset Sentinel, Inc. 145,680 -- -- -- ------------- -------------- Total notes payable $ 395,680 $ -- Subordinated notes payable to 1,900,000 Mezzanine Capital Partners and Marquette Bancshares, Inc due in installments of various amounts as described below through June 30, 2002 $ 14.00% $ 2,000,000 14.00% ------------- -------------- Total subordinated notes payable 1,900,000 2,000,000 Less current portion (200,000) (100,000) ------------- -------------- $ 1,700,000 $ 1,900,000 ============= ==============
On June 19, 1997 the Company issued subordinated notes payable in the form of two $1,000,000 notes payable to Mezzanine Capital Partners, Inc. and Marquette Bancshares, Inc., respectively. The interest rate of 14% is fixed for the term of the notes. Aggregate installments of $200,000, $300,000, $300,000, and $1,100,000 are due for the years 1999 through 2002, respectively. The notes are subject to a 5% prepayment penalty through June 30, 1998 and a 4% prepayment penalty from July 1, 1998 through June 30, 1999 and may be prepaid without penalty thereafter. The Company incurred costs related to the issuance of this debt in the amount of $221,470 which includes the estimated fair value of warrants to purchase a total of 106,000 shares of common stock at $9.00 per share that were issued in connection with the issuance of notes payable. These costs are being amortized on a straight-line basis over the five year term of such debt. F-15 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company has a revolving line of credit at Bank Windsor in the amount of $250,000 secured by accounts receivable. Borrowings under this revolver carry a floating rate of interest at prime plus 2%. At year-end this rate was 9.5%. In connection with an Asset Purchase Agreement dated October 1, 1998, the Company purchased the technology assets of Asset Sentinel, Inc. in the amount of $425,000 payable over 6 months. As of December 31, 1998, the unpaid balance was $145,680. The unpaid balance is interest free. In February 1999, the Company issued a $500,000 secured subordinated note payable to certain principals of Anderson, Weinroth & Co. The note was issued pursuant to a Loan and Security Agreement dated February 23, 1999 at a fixed interest rate of 10%, is due on July 31, 1999 and may be prepaid without penalty. The security interest granted to these note holders is subordinate to the notes payable to Mezzanine Capital Partners, Inc. and Marquette Bancshares, Inc. The Company incurred legal costs related to the issuance of this debt and issued warrants, which expire on February 23, 2004, to purchase 80,000 shares of common stock at $5.40 per share. The Company may call a one-third portion of the warrants if the common stock price exceeds $15.00 per share for twenty consecutive trading days. On March 9, 1999 the Company issued a $100,000 convertible note payable to an accredited investor, convertible into common stock of the Company at $6.25 per share at a 6% per annum rate of interest. The convertible note payable is subordinate to current and future debt issued by the Company and is due on September 9, 1999. NOTE 8. STOCKHOLDERS' EQUITY COMMON STOCK WARRANTS: The Company issued warrants in 1998 in conjunction with common stock issued pursuant to a private placement of 80,000 shares of common stock in February 1998. These warrants are exercisable at $9.50 per share and expire on July 21, 2003. The Company also issued warrants pursuant to a subsequent private placement of common stock in August 1998, which are exercisable at $13.00 and expire on July 16, 2003. Additional warrants to purchase shares of common stock were issued pursuant to a private placement of Series B Cumulative Convertible Preferred Stock ("Series B Stock"). The number of warrants issued is equal to the number of shares of common stock issued at the time the Series B Stock is converted to common stock. The warrants are exercisable at $16.25 or may be called by the Company in the event the common stock price trades above $21.875 for a period of 20 consecutive trading days and the Company's Common Stock is traded on Nasdaq. The Company issued warrants in 1997 in conjunction with common stock issued pursuant to the Private Placement Memorandum dated November 25, 1996. These warrants are exercisable at $3.75 per share and expire on February 28, 2002. During 1997 the Company also issued warrants pursuant to a subsequent private placement of common stock in June 1997, which are exercisable at $7.00 and expire on June 6, 2002. An additional 106,000 warrants were issued in 1997, which are exercisable at a per share price of $9.00 and expire in the year 2002. These warrants were issued in connection with the $2,000,000 of subordinated debt issued in June 1997 (Note 7). The total warrants outstanding as of December 31, 1998 was 708,396. Such warrants are exercisable at a weighted average price of $12.95 per share and expire in 2000 through 2004. F-16 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COMMON STOCK OPTIONS: The Company's stock option plan ("Plan"), provides for granting to the Company's employees, directors and consultants, qualified incentive and nonqualified options to purchase common shares of stock. The Plan was amended during 1995 to increase the number of aggregate options that can be issued to 2,000,000 shares of common stock. Qualified incentive options must be granted with exercise prices equal to the fair market value of the stock at the date of grant. Nonqualified options must be granted with exercise prices equal to at least 85% of the fair market value of the stock at the date of grant. 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 stock-based compensation plans. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, Accounting and Disclosure of Stock-Based Compensation, the Company's net income would have been reduced by approximately $30,000 and $18,000 in 1998 and 1997, respectively. The Company made this calculation using the Black-Scholes option pricing model with the following assumptions: volatility of 113%, risk-free interest rate of 4.5%, and an expected life of 5 years. This pro-forma effect does not include the compensation cost of stock options currently issued but which do not vest until future years nor does it include the compensation cost of stock options issued prior to 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro-forma net income amounts presented above. Information with respect to stock options under the plan is summarized as follows:
Incentive Stock Options Nonqualified Options ---------------------------- ---------------------------- Weighted Weighted average average exercise exercise Shares price Shares price ------------- ------------ ------------ ------------- Total outstanding at December 31, 1996 523,000 $ 2.45 16,600 $ 29.35 Granted 286,400 7.55 -- -- Canceled (15,000) 5.00 -- -- Exercised (91,000) 2.00 -- -- ------------- ------------ ------------ ------------- Total outstanding at December 31, 1997 703,400 $ 3.95 16,600 $ 29.35 Granted 708,600 7.55 -- -- Canceled (67,400) 9.60 (10,000) 28.15 Exercised (15,400) 1.80 -- -- ------------- ------------ ------------ ------------- Total outstanding at December 31, 1998 1,329,200 $ 5.55 6,600 $ 31.25 ============= ============ ============ =============
Options for 662,800 shares of common stock were exercisable at a weighted average exercise price of $3.70 as of December 31, 1998. F-17 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COMMON STOCK ISSUED: In 1998 the Company issued a total of 218,400 shares of common stock. These shares were issued pursuant to two separate private placement issues: one ending July 8, 1998; and one ending August 11, 1998. In addition, 22,987 and 91,311 shares of common stock were issued to holders of preferred stock series A and a one-for-five exchange conversion in accordance with terms of the preferred stock in 1998 and 1997, respectively. The new issues of common stock were issued pursuant to an exemption from registration under Rule 506 of Regulation D of the Securities Act of 1933, as amended. In 1997 the Company issued a total of approximately 550,560 shares of common stock. These shares were issued pursuant to two separate private placement issues: one ending February 1997; and one ending July 1997. Specifically, the Company issued 330,560 and 130,700 shares of common stock in 1997 and 1996, respectively at $3.75 per share pursuant to the private placement memorandum dated November 1996. During 1997 the Company also issued 220,000 shares of common stock at $7.00 per share pursuant to a private placement dated June 1997. In addition, 91,000 shares of common stock were issued due to the exercise of qualified stock options by certain non- officer employees or former employees of the Company and 31,994 shares of common stock were issued to converting warrantholders. Stock issue costs were $302,277 in 1997. PREFERRED STOCK ISSUED: From late August 1998 until December 31, 1998, the Company offered up to 123,077 units for sale in a private placement of securities of which 67,192 units were sold. Each unit consisted of one share of Series B Preferred Stock and one Warrant to purchase shares of Common Stock. The purchase price per unit was $32.50. Each share of Series B Preferred Stock entitles the holder thereof to receive an annual dividend equal to $2.60. Until February 15, 1999, each share of Series B Preferred Stock is convertible into that number of shares of Common Stock equal to the per unit purchase price divided by $16.25, subject to certain adjustments. Thereafter, each share of Series B Preferred 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. All outstanding shares of Series B Preferred Stock will be automatically converted into Common Stock on September 23, 2001 if the Company has registered such common shares under the Securities Act and the Common Stock is traded on the Nasdaq. Each Warrant expires in five years, and is callable by the Company and entitles its holder 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 will equal 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. The Warrants are callable by the Company provided the Common Stock has not traded below $21.875 for 20 consecutive trading days prior to the call exercise date, the underlying shares are registered under the Securities Act and the Common Stock is traded on the Nasdaq. In connection with the offering of the Series B Preferred Stock and Warrants described above, the Company agreed to use its best efforts to register the shares of Common Stock underlying the Series B Preferred Stock and the Warrants and to pay a penalty if such registration was not effective by February 28, 1999. The registration statement for such Common Stock was not effective by February 28, 1999, and as of the date of this report is still not effective. As a result, the Company is paying a penalty to the investors in the offering equal to 1% of the purchase price of the F-18 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 has been declared effective. The Company issued 67,192 of such units for total gross proceeds of $2,183,747. The Company paid Miller, Johnson & Kuehn $126,687 in placement agent commissions and $23,302 for accountable expenses, including legal fees, incurred in connection with the offering. NOTE 9. INCOME TAXES At December 31, 1998, the Company had a net operating loss carryforward of approximately $7.0 million. Approximately $3.6 million of the net operating loss carryforward will be subject to an annual limitation as defined by Section 382 of the Internal Revenue Code of approximately $200,000. Current and future equity transactions could further limit the net operating losses available in any one year. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 1998 and 1997 are shown as follows:
Years Ended December 31, --------------------------------------- 1998 1997 ----------------- ------------------ Deferred tax assets: Allowance for doubtful accounts $ 127,000 $ 5,000 Purchased technology 58,000 -- Net operating loss carryforward 2,911,000 1,360,000 ----------------- ------------------ Subtotal 3,096,000 1,365,000 Less valuation allowance for deferred tax asset (2,032,000) (1,212,000) ----------------- ------------------ 1,064,000 153,000 Deferred tax liabilities: Depreciation (153,000) (153,000) Capitalized software (911,000) -- ----------------- ------------------ Net deferred tax assets $ -- $ -- ================= ==================
F-19 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The provisions for income taxes consists of the following for the years ended December 31, 1998 and 1997. Years Ended December 31, ------------------------------- 1998 1997 ------------ -------------- Current Federal $ -- $ -- State -- -- ------------ -------------- Total -- -- Deferred -- -- ------------ -------------- Total $ -- $ -- ============ ============== The income tax expense (benefit) 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, --------------------------------- 1998 1997 --------------- --------------- Expense (benefit) at statutory rate $ (681,076) $ 77,000 State income tax expense (benefit), net of federal (102,216) 13,000 Change in valuation allowance 820,000 (94,000) Other (36,708) 4,000 --------------- --------------- Actual tax expense (benefit) $ -- $ -- =============== =============== NOTE 10. OPERATING LEASES COMPANY AS LESSOR: The Company leases equipment, primarily VCC units, under noncancellable operating leases expiring in various years. The cost of equipment subject to such leases is recorded as leased equipment. The operating lease payment stream related to leases initiated in 1996 was assigned to a third party, on a non-recourse basis, for a lump sum payment to the Company in 1996. The present value of the cash received was recorded as deferred revenue and is being recognized into revenue over the term of the underlying leases. These underlying leases, after being extended, terminated in 1998. Deferred revenue recorded by the Company related to these leases as of December 31, 1997 was approximately $20,000, respectively. Future minimum lease payments to be received for operating leases in which the payment stream has not been assigned to a third party are $15,192 and $11,224 for 1999 and 2000, respectively. COMPANY AS LESSEE: F-20 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company has operating leases for certain development related IBM computers, office equipment and its office premises. The rental payments under these leases are charged to expense as incurred. All the leases provide that the Company pay taxes, maintenance, insurance, and other operating expenses applicable to the leases. Lease expense in 1998 and 1997 was approximately $94,000 and $112,000, respectively. The future minimum lease payments are approximately $94,000 and $94,000 for the years 1999 and 2000, respectively. NOTE 11. SUBSEQUENT EVENTS -- ACQUISITION OF BREECE HILL & ISSUANCE OF SERIES C PREFERRED STOCK ACQUISITION OF BREECE HILL TECHNOLOGIES, INC. On March 5, 1999, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with GMI, BHT Acquisition, Inc. (a new subsidiary of GMI created solely for purposes of the merger and referred to in this discussion as "Merger Subsidiary") and Breece Hill Technologies, Inc. ("BHT"). Under the terms of the Merger Agreement, shortly after approval of the merger by the stockholders of BHT, and the satisfaction or waiver of the terms and conditions contained in the Merger Agreement (which is expected to occur in April 1999), the Merger Subsidiary will merge with and into BHT, BHT, as the surviving corporation (the "Surviving Corporation"), will become a subsidiary of GMI and the Board of Directors of the Surviving Corporation will be comprised of the directors of Merger Subsidiary and the officers of the Surviving Corporation will be the officers of BHT. In exchange for all of the outstanding shares of BHT common and preferred stock, the Company will deliver one or more warrants to purchase 900,000 shares of GMC Common Stock (subject to adjustment) and may also be required to deliver, one year after the Closing Date, GMC Common Stock and cash under the Earn Out Provisions of the Merger Agreement. In connection with the merger, the Company and Global MAINTECH, Inc. also will guarantee up to $3,800,000 of outstanding debt of BHT. For additional details concerning the merger, please refer to the Merger Agreement attached as Exhibit 2.2 to the Company's Annual Report on Form 10KSB for the year ended December 31, 1998. F-21 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ISSUANCE OF SERIES C PREFERRED STOCK On March 25, 1999, the Company issued 1,600 shares of its Series C Convertible Preferred Stock (the "Series C Preferred Stock) to certain accredited investors in a private offering. In connection with such offering, the Company also issued warrants to the investors to purchase up to 20,000 shares of Common Stock. Settondown Capital International Ltd., the placement agent used in connection with the offering, received 75 shares of Series C Preferred 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. The holders of Series C Preferred 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 holders of Series C Preferred Stock are entitled to receive dividends at an annual rate of 8% of the stated value ($1,000) of the Series C Preferred Stock, subject to the prior declaration or payment of any dividend to which the holders of the Company's Series A Preferred Stock and the Series B Preferred Stock are entitled. Dividends on shares of the Series C Preferred Stock are cumulative and are payable only upon conversion of the Series C Preferred Stock. NOTE 12. SUBSEQUENT EVENT -- 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 this stock split, certain conversion prices in regards to preferred stock were also adjusted. The effect of these stock splits and related conversion price changes has been retroactively reflected in the accompanying consolidated financial statements and notes thereto. F-22 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited) ASSETS September 30, 1999 ---------------------- CURRENT ASSETS Cash and cash equivalents $ 754,128 Accounts receivable, less allowance for doubtful accounts of $760,000 8,247,561 Other receivables 241,119 Inventories 4,794,313 Prepaid expenses and other 570,495 Current portion deferred debt issue costs 75,790 Total current assets 14,683,406 Property and equipment, net 1,647,452 Leased equipment, net 132,026 Software development costs, net 3,397,610 Purchased technology and other intangibles, net 21,989,322 Other assets, net 449,874 ---------------------- TOTAL ASSETS $ 42,299,690 ====================== The accompanying notes are an integral part of these consolidated statements. F-23 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 1999 -------------------- CURRENT LIABILITIES Accounts payable $ 6,068,545 Current portion of notes payable 7,152,730 Accrued liabilities, compensation and payroll taxes 4,828,444 Other 291,878 Deferred revenue 660,880 -------------------- Total current liabilities 19,002,477 -------------------- Subordinated notes payable, less current portion 5,595,118 Minority interest 1,000,000 -------------------- Total liabilities 25,597,595 STOCKHOLDERS' EQUITY Voting, convertible preferred stock - Series A, convertible into one common stock share for each five preferred shares, no par value; 887,980 authorized; 129,176 shares issued and outstanding; total liquidation preference of outstanding shares - $242,200 $ 60,584 Voting, convertible preferred stock - Series B, convertible on or before September 23, 2001, based on price of common stock; conversion price not to exceed $12.50 per share or be less than $3.75; dividend of payable in cash or common stock of Company; no par value; 123,077 8% shares authorized; 51,792 shares issued and outstanding; total liquidation preference of outstanding shares - $1,683,269 1,683,269 Non-voting, convertible preferred stock - Series C, convertible on or before March 31, 2002, based on price of common stock; conversion price not to exceed $12.50 per share; dividend of 8% payable in cash or common stock of Company; no par value; 1,675 shares authorized; 1,675 shares issued and outstanding; total liquidation preference of outstanding shares - $1,675,000 1,504,000 Common stock, no par value; 9,698,992 shares authorized; 4,821,187 shares issued and outstanding -- Additional paid-in-capital 25,305,133 Notes receivable-officers (294,500) Accumulated deficit (11,556,391) -------------------- Total stockholders' equity 16,702,095 -------------------- $ 42,299,690 ====================
The accompanying notes are an integral part of these consolidated statements. F-24 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Nine Months Ended September 30, --------------------------------- 1999 1998 ---------------- --------------- Net sales Systems $ 22,673,592 $ 4,325,499 Maintenance, consulting and other 3,221,771 806,369 ---------------- --------------- Total net sales 25,895,363 5,131,868 Cost of sales Systems 14,417,590 1,117,380 Maintenance, consulting and other 1,892,435 652,564 ---------------- --------------- Total cost of sales 16,310,025 1,769,944 ---------------- --------------- Gross profit 9,585,338 3,361,924 Operating expenses Selling, general and administrative 13,717,752 2,440,027 Research and development 1,240,593 485,984 ---------------- --------------- Income (loss) from operations (5,373,007) 435,913 Other income (expense): Interest expense (824,160) (215,257) Interest income 8,811 124,395 Amortization of deferred debt costs (904,214) (33,220) Other expenses (451,200) -- ---------------- --------------- Total other income (expense), net (2,170,763) (124,082) ---------------- --------------- Income (loss) before cumulative effect of change in accounting principle (7,543,770) 311,831 Cumulative effect of change to straight-line depreciation 99,607 -- ---------------- --------------- Net income (loss) $ (7,444,163) $ 311,831 ---------------- --------------- Accrual of cumulative dividends on convertible preferred stock (242,849) -- ---------------- --------------- Net income (loss) attributable to common stockholders $ (7,687,012) $ 311,831 ================ =============== Basic income (loss) per common share: Net income (loss) before cumulative effect of change in accounting principle $ (2.013) $ 0.089 Cumulative effect of change in accounting principle 0.026 -- ---------------- --------------- Net income (loss) $ (1.987) $ 0.089 ================ =============== Diluted income (loss) per common share: Net income (loss) before cumulative effect of change in accounting principle $ (2.013) $ 0.077 Cumulative effect of change in accounting principle 0.026 -- ---------------- --------------- Net income (loss) $ (1.987) $ 0.077 ================ =============== Shares used in calculations: Basic 3,868,421 3,521,922 Diluted 3,868,421 4,060,546 The accompanying notes are an integral part of these consolidated statements. F-25 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ---------------------------------------- 1999 1998 -------------------- ----------------- Cash flows from operating activities: Net income (loss) $ (7,444,163) $ 311,831 Adjustments to reconcile net income (loss) to net cash used in operating activities: Stock issued for services 1,290,000 -- Depreciation and amortization 4,925,203 990,238 Changes in operating assets and liabilities: Accounts receivable (2,082,106) (1,831,170) Other receivables (77,004) (173,613) Inventories (466,301) (599,837) Prepaid expenses and other (211,508) (81,643) Accounts payable (2,448,954) 98,386 Accrued liabilities 1,184,698 146,925 Deferred revenue 230,268 (30,516) -------------------- ----------------- Cash used by operating activities (5,099,868) (1,169,399) -------------------- ----------------- Cash flows from investing activities: Cash received from sales-type leases 22,410 679,634 Purchase of property and equipment (408,747) (204,770) Reduction (increase) in leased equipment (40,686) 37,156 Investment in software development costs (2,331,189) (1,904,808) Cash acquired in acquisitions 606,998 -- Investment in other assets (190,523) (803,826) Investment in note receivable -- (170,000) Payments received on notes receivable -- 75,000 -------------------- ----------------- Cash used by investing activities (2,341,737) (2,291,614) -------------------- ----------------- Cash flows from financing activities: Net proceeds from issuance of preferred stock 1,504,000 481,988 Net proceeds from issuance of common stock 2,720,488 1,627,007 Net proceeds of short-term notes payable 2,807,179 -- Net proceeds/payments of long-term notes payable 500,000 (75,000) -------------------- ----------------- Cash provided by financing activities 7,531,667 2,033,995 -------------------- ----------------- Net increase (decrease) in cash 90,062 (1,427,018) Cash and cash equivalents at beginning of period 664,066 1,726,889 -------------------- ----------------- Cash and cash equivalents at end of period $ 754,128 $ 299,871 ==================== =================
The accompanying notes are an integral part of these consolidated statements. F-26 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS General The consolidated financial statements include the accounts of all subsidiaries in which a controlling interest is held. These subsidiaries include Global MAINTECH, Inc. ("GMI"), Breece Hill Technologies, Inc. ("BHT"), and Singlepoint Systems, Inc. ("SSI"). The Company is primarily engaged in the business of providing systems and network management products and tape library storage devices to computer data centers, primarily in the United States. The Company has expanded through internal development and acquisitions. SSI was created as a subsidiary in connection with the Company's acquisition of substantially all of the assets of Enterprise Solutions, Inc. in November 1998. The Company acquired BHT in April 1999. The network monitoring products were developed during 1998 and were made available for sale in January 1999. In addition, in February 1998 the Company licensed certain software and purchased certain assets relating to the system software business of Infinite Graphics Incorporated, a Minnesota corporation ("IGI"), and in September 1999 the Company purchased the substantially all of the assets and liabilities of Lavenir Technology, Inc ("Lavenir"). The Company uses the IGI and Lavenir software and assets to design, assemble and market computer-aided design and manufacturing software systems that operate on a variety of mid-range and personal computer platforms. However, due to payment default which is in dispute, the IGI license agreement may terminate on December 12, 1999 and the assets purchased from IGI will revert to IGI as of the same date. The Company was incorporated under the laws of the State of Minnesota in 1985 under the name Computer Aided Time Share, Inc. In 1995, the Company changed its name to Global MAINTECH Corporation. Basis of Presentation The interim consolidated financial statements are unaudited, but in the opinion of management, reflect all adjustments necessary for a fair presentation of results for such periods. All such adjustments are of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998. Income (Loss) Per Share Basic and diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during the period. During 1999, dilutive shares were excluded from the net loss per share computation as their effect was antidilutive. F-27 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The weighted average shares and total dilutive shares used in the calculation of basic and diluted income (loss) per share are as follows: Nine Months Ended ------------------------------------ September 30, September 30, 1999 1998 ------------------ ----------------- Basic Income (Loss) Per Share Weighted average shares 3,868,421 3,521,922 Diluted Income (Loss) Per Share Weighted average shares 3,868,421 3,521,922 Stock options and warrants -- 511,722 Conversion of preferred stock -- 26,902 ------------------ ----------------- Total dilutive shares 3,868,421 4,060,546 ================== ================= 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 carrying value of a software development asset is regularly reviewed by the Company and a loss is recognized when the unamortized costs are not recoverable 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 other intangibles based on the fair value of such items at the date of purchase. These assets are amortized over their estimated economic lives using the straight-line method. Recorded amounts 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. The Company has allocated the excess of purchase price over net tangible assets to purchased technology, assembled workforce, distribution agreements, OEM agreements and trade names. The amortization periods for these categories vary from 2 to 7 years and average approximately 5 years. For a substantial portion of these assets the Company employed an independent valuation firm to determine the allocation of excess purchase price and the appropriate amortization periods. Purchased technology and other intangibles at September 30, 1999 includes $14,752,117 of gross intangible assets as a result of the acquisition of BHT, $3,300,000 of gross assets as a result of payment of contingent consideration related to the acquisition of IGI and $4,985,000 of gross intangible assets as a result of the Lavenir acquisition (each discussed under "Acquisitions"). F-28 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Reverse Stock Split The Company effected a reverse stock split of 1 share of the Company's Common Stock for each 5 shares of the Company's Common Stock, on September 2, 1999. The conversion of Preferred Stock into Common Stock was also adjusted, and in some cases, the Preferred Stock itself according to its terms. As a result, the aggregate number of authorized shares of the Company was reduced from 50,000,000 to 10,711,724 shares. Excluding the Preferred Stock, the aggregate number of authorized shares is now 9,698,992. The effect of the stock split on share and per share amounts has been retroactively reflected in the accompanying consolidated financial statements and notes thereto. The reverse stock split does not adversely affect the rights or preferences of the holders of outstanding shares of any class or series of the Company's capital stock. Common Stock Issuance In March 1999, the Company began a private placement of common stock at a purchase price of $5.625 per share. 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 with an exercise price of $5.625 per share. On June 28, 1999, the Company began a second private placement of common stock at a purchase price of $5.00 per share. As of September 30, 1999 a total of 129,430 shares were sold for total gross proceeds of $647,150. 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 will issue to the agent a warrant to purchase up to 10% of the number of shares of the common stock sold in the offering, which warrant will have an exercise price of $5.00 per share. The securities issued pursuant to these offerings were exempt from registration under Rule 506 of Regulation D of the Securities Act of 1933, as amended. In August 1999, the Company entered into two arrangements to receive investor relations consulting services in return for the issuance of an aggregate of 258,000 shares of common stock. The Company recorded an expense of $1,290,000 for the value of shares issued for the consulting services received. On May 7, 1999, the Company issued convertible notes payable to two accredited investors in the aggregate principal amount of $167,372. The notes were convertible into common stock at $6.25 per share. The notes were to become due on November 7, 1999; however, on September 9, 1999, the notes were converted, in accordance with their terms, into 26,554 shares of common stock. The shares of common stock issued upon conversion of the notes were exempt from registration under Section 3(a)(9) of the Securities Act. On August 6 and again on September 30, 1999, the Company rescheduled the principal payment of $250,000 of a $500,000 note payable to Andersen, Weinroth, which originally was due on July 31, 1999. This payment is now due on November 30, 1999. In connection with these reschedulings, the Company issued warrants to purchase a total of 30,000 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. The fair value of these warrants is being amortized over the new debt payment term. F-29 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Change in Depreciation Method Effective January 1, 1999, the Company adopted the straight-line method of depreciation for its property and equipment. 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 cumulative effect of this accounting change was to decrease the net loss by $99,607 ($0.026 per share) in the nine months ended September 30, 1999. Reclassifications Certain amounts previously reported in 1998 have been reclassified to conform to the 1999 presentation. Acquisitions On September 28, 1999, the Company, through its wholly owned subsidiary Global MAINTECH, Inc. ("GMI"), purchased substantially all the assets of Lavenir Technology, Inc., a California corporation ("Lavenir"), pursuant to an Agreement and Plan of Reorganization (the "Purchase Agreement") by and among the Company, GMI and Lavenir. Immediately prior to the acquisition, Lavenir was engaged in the business of developing and selling software and Raster Photoplotters for the printed circuit board industry. In addition to purchasing substantially all of the assets of Lavenir (including rights under and to Lavenir's computer software products and the trademarks and copyrights related thereto), the Company assumed certain liabilities of Lavenir, including, Lavenir's ongoing leases, debt and contract obligations. The primary assets acquired by the Company were a suite of CAD/CAM software products, including the ability to design, test, verify and repair precision graphics designs. This software is sold independently or with Raster Photoplotters, sophisticated hardware products used to build master printed circuit boards. The transaction was treated as an asset purchase for accounting purposes. The total purchase price of $5,300,000 is payable as follows: 266,000 shares of the Company's common stock was paid to Lavenir at closing and $400,000 in the form of a payable due on January 31, 2000. A maximum of 700,000 additional shares of common stock are issuable as of April 30, 2000 sufficient to cause the value of the shares previously issued and the $400,000 liability to total $5,300,000 as of April 30, 2000. The holders of common stock issued by the Company in connection with the acquisition were granted customary registration rights. The Company received net assets fair valued at approximately $315,000 as a result of the Lavenir acquisition and allocated the remaining purchase price of $4,985,000 to purchased technology with useful lives of three to five years. On April 14, 1999, the Company acquired all of the issued and outstanding common stock and Series A Convertible Preferred Stock (the "Outstanding Shares") of Breece Hill Technologies, Inc. ("BHT") in connection with the merger of BHT Acquisition, Inc., a subsidiary of GMI, with and into BHT. BHT was the surviving corporation and is now a subsidiary of GMI. The Company recorded this acquisition using the purchase method of accounting. 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 F-30 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS shares of the Company's common stock and the right to receive an earn out payment based in part on the sales of BHT over the twelve months following the acquisition. This earn out 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 BHT 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 BHT in the amount of $1,000,000. The Preferred Stock has a monthly dividend of $10,000 payable in cash or common stock of Global MAINTECH Corporation and is convertible at the option of the holder into common stock of Global MAINTECH Corporation. The Company has recorded this Preferred Stock as a minority interest in BHT. BHT is a supplier of automated tape libraries used to backup, restore and archive information stored in networks on servers, PCs and workstations, and stored via on-line data storage subsystems. The Company engaged an independent valuation firm to determine the fair value of the assets purchased. The total valuation in excess of the book value acquired was $14,752,117 and is comprised of the fair value of warrants issued using a Black-Scholes valuation model in the amount of $7,630,544, and liabilities assumed in excess of assets in the amount of $7,121,573. The $7,630,544 valuation includes the warrants to purchase 900,000 shares of common stock and warrants issued to Maven Securities, Inc., as fees for acting as placement agent. The Company assigned $494,000 of the $14,752,117 valuation to inventory which was expensed as a cost of sale in the fiscal quarter ended June 30, 1999 and assigned $83,381 to in process research and development which was expensed in the fiscal quarter ended June 30, 1999. The remaining portion of this valuation of $14,174,736 was assigned to purchased technology in the following components: Amount Amortization period (000's) (years) ------------- ------------------- Technology $ 4,632 7 Assembled workforce 1,575 3 Distribution Agreements 5,374 7 IBM OEM Agreement 1,668 2 Trade Name 926 7 ------------- Total $ 14,175 The Company recorded amortization expenses of approximately $1,650,000 through September 30, 1999 related to the above intangible assets. The unaudited pro forma combined historical results, as if BHT and Lavenir had been acquired as of January 1, 1998, are estimated to be: Nine months Nine months ended ended September 30, (000's, except per share data) September 30, 1999 1998 - ------------------------------ -------------------- ------------------ Revenue $ 31,700 $ 31,170 Net loss (6,078) (2,674) Net loss per common share (1.726) (0.691) The pro forma results include amortization of the intangibles related to both acquisitions. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of each of the fiscal periods presented, nor are they necessarily indicative of future consolidated results. F-31 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS In June 1999 the Company settled the amount of contingent consideration related to certain software assets purchased from Infinite Graphics, Inc., pursuant to an acquisition agreement dated February 1998. In addition to the initial cash paid in 1998 of $700,000, the contract provided for additional contingent consideration based on certain operating results in the amount of $3,300,000. As operating results met the criteria related to the contingent consideration, the full contingent amount was fulfilled. The Company paid this amount by an assignment of accounts receivable in the amount of $1,435,481, and by the recognition of an accrued liability in the amount of $1,864,519 which is now recorded in current liabilities. The additional consideration was recorded as additional purchased technology and other intangibles. Contingencies On October 29, 1999, the Company rescheduled the borrowing base line of credit to bring it into compliance with the terms of its credit facility with H&Q and made arrangements to make the final payment of $250,000 of a $500,000 note payable to Andersen, Weinroth which was due on September 30, 1999. This payment is now scheduled to be made on or before November 30, 1999. Pursuant to the terms of the purchase agreement relating to the Company's acquisition of Enterprise Solutions, Inc. ("ESI"), the Company may be required to return the purchased assets and assumed liabilities of ESI to the former shareholders of ESI on a prospective basis if the Company does not meet certain working capital conditions set forth in the purchase agreement. On September 29, 1999, ESI notified the Company that its subsidiary, Global MAINTECH, Inc. was in default of one of those conditions. This default notice has since been waived by ESI. The Company received notice from Infinite Graphics Incorporated, dated November 12, 1999, regarding (1) the termination of the license agreement for the IGI CAD/CAM software it licensed from IGI pursuant to the License and Asset Purchase Agreement between the Company and IGI dated February 27, 1998 (the "IGI Agreement") and (2) the transfer back to IGI of the related assets the Company purchased from IGI pursuant to the IGI Agreement (the "Transferred Assets"). IGI's right to terminate the license agreement and to reclaim the Transferred Assets arose due to the Company's inability to pay the earn-out payment due to IGI pursuant to the Purchase Agreement. The amount of this payment was approximately $1,864,000 and was due in June 1999. The termination of the license and the reversion of the assets, according to the claim is to be effective as of December 12, 1999. IGI claims that the Company still must pay IGI all or a portion of the earn out payment. The Company intends to dispute this claim vigorously. Subsequent Events NOTE PAYABLE TO ANDERSEN, WEINROTH & CO. On August 6, 1999, the Company rescheduled the principal payment of $250,000 of a $500,000 note payable to Andersen, Weinroth & Co. which was due on July 31, 1999. The due date of the payment was extended to November 30, 1999 and the payment was made in full by such date. RE-NEGOTIATION OF PAYMENT PROVISION REGARDING LAVENIR ACQUISITION In November 1999, a $400,000 note payable due January 31, 2000, relating to the September 1999 Agreement with Lavenir Technology, Inc. was negotiated to a $100,000 note payable due January 31, 2000 in return for 100,000 shares of the Company's common stock. F-32 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 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' conduct 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's execution until its maturity date of December 30, 2001. PROPOSED SETTLEMENT AGREEMENT WITH INFINITE GRAPHICS INCORPORATED The Company is currently negotiating the transfer of certain assets and the termination of various software licenses under a proposed settlement agreement with GMI and Infinite Graphics Incorporated ("Infinite Graphics"). The Company acquired the assets and licenses under a February 27, 1998 License and Asset Purchase Agreement with Infinite Graphics. 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 Infinite Graphics' business. The transfer and termination would be made in exchange for Infinite Graphics' assumption of all contracts and liabilities related to the assets and for mutual release of all claims arising from the License and Asset Purchase Agreement, including Infinite Graphics' release of the Company's payment obligations. PROPOSED SALE OF BREECE HILL On December 27, 1999, the Company signed a letter of intent with regard to the proposed sale of its subsidiary Breece Hill Technologies, Inc., which the Company acquired in April 1999, to Tandberg Data ASA ("Tandberg") of Oslo, Norway. On February 3, 2000, the Company entered into a stock purchase agreement with Tandberg, GMI, Hambrecht & Quist Guaranty Finance LLC, Greyrock Capital and Cruttenden Roth Incorporated. The transaction will require approval by both the Company's and Tandberg's shareholders. Under the terms of the stock purchase agreement and related transactions: o the Company would sell all of the common stock of BHT to Tandberg in exchange for $3.4 million cash, less transaction costs and holdbacks; o Tandberg will assume or repay approximately $6.1 million in liabilities of BHT; o the Company and GMI will be released from our obligations with respect to approximately $5.7 million of debt to be prepaid by Tandberg at the closing; o holders of BHT Series B preferred stock will receive up to $1 million in cash in the aggregate; F-33 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS o former holders of BHT Series A preferred stock at the time of the merger between BHT and GMI ("the former BH Series A holders") will receive up to approximately $1.5 million in cash in the aggregate; o former holders of BHT common stock at the time of the merger between BHT and GMI ("the former BH Common holders") will receive warrants to purchase up to 5,091,160 ordinary shares of Tandberg at a price of NOK 30, and up to 518,225 shares of the Company's common stock in the aggregate and warrants to purchase up to 200,000 shares of the Company's common stock in the aggregate; and o the former BH Series A holders and the former BH Common holders will release any claims they may have against the Company, GMC, BHT or Tandberg, except for certain claims against the Company and GMI related to the Company's obligation to issue options under the merger agreement between BHT and GMI. ISSUANCE OF SERIES D 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 convertible promissory notes issued by Global MAINTECH, (3) 1,600 shares to the holders of Global MAINTECH'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 as compensation for placement agent services. In addition, in connection with the Series D Stock offering (1) 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. 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 Global MAINTECH. 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. ISSUANCE OF SERIES E PREFERRED STOCK On December 30, 1999, the Company issued 2,650 shares of Series E Convertible Preferred Stock ("Series E Stock") and warrants to purchase 51,000 shares of common stock in a private placement for consideration totaling $2,650,000. Each share of Series E 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 $5.125. The holders of Series E Stock are also entitled to receive dividends at the annual rate of 8% of the per share purchase price. The dividends are payable upon conversion of the Series E Stock, in either cash or shares of common stock, at the option of Global MAINTECH. 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 F-34 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS purchase common stock at $5.125 per share at any time before the fifth anniversary of the date of issuance of the warrant. ISSUANCE OF SERIES F PREFERRED STOCK On February 23, 2000, the Company issued 2,000 shares of Series F Convertible Preferred Stock ("Series F Stock") and warrants to purchase 50,000 shares of common stock in a private placement for consideration totaling $2,000,000. Each share of Series F 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 $6.75. The holders of Series F Stock are also entitled to receive dividends at the annual rate of 8% of the per share purchase price. The dividends are payable upon conversion of the Series F Stock, in either cash or shares of common stock, at the option of Global MAINTECH. 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 $11.00 per share at any time before the fifth anniversary of the date of issuance of the warrant. LEGAL PROCEEDING On February 15, 2000, the Company and GMI were named as defendants in a patent infringement suit brought by R. Breat Johnson and I.D.G. Incorporated in the federal court for the Northern District of Oklahoma. The suit alleges, among other things, that the Company's VCC product, when monitoring a mainframe computer, infringes on a patent held by the plaintiffs. The Company believes that the plaintiffs' claims are without merit, but is attempting to settle the claims in order to avoid protracted and costly litigation. F-35 ================================================================================ 3,074,726 Shares Global MAINTECH Corporation Common Stock -------------- PROSPECTUS -------------- ____________ , 2000 ================================================================================ PART II. INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers Article Seven of Global MAINTECH's articles of incorporation provides that a director shall not be liable to Global MAINTECH or its stockholders for monetary damages for a breach of fiduciary duty as a director, except for liability (1) for any breach of the director's duty of loyalty to Global MAINTECH or its shareholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Sections 302A.559 or 80A.23 of the Minnesota Statutes, (4) for any transaction from which the director derived an improper personal benefit, or (5) for any act or omission occurring prior to the date when such Article Seven became effective. Global MAINTECH's bylaws provide that the officers and directors of Global MAINTECH and others shall be indemnified to substantially the same extent permitted by Minnesota law. Section 302A.521 of the Minnesota Business Corporation Act provides that a corporation shall indemnify any person who was or is made or is threatened to be made a party to any proceeding, by reason of the former or present official capacity (as defined) of such person, against judgments, penalties, fines, settlements and reasonable expenses, including attorneys' fees and disbursements, incurred by such person in connection with the proceeding if statutory standards are met. "Proceeding" means a threatened, pending or complete civil, criminal, administrative, arbitration or investigative proceeding, including one by or in the right of the corporation. Section 302A.521 contains detailed terms regarding such right of indemnification and reference is made thereto for a complete statement of such indemnification rights. Global MAINTECH maintains a standard policy of officers' and directors' insurance. Item 25. Other Expenses of Issuance and Distribution SEC Registration Fee...................................... $ 7,610 Accounting Fees and Expenses.............................. 15,000 Legal Fees and Expenses................................... 25,000 Blue Sky Fees and Expenses................................ 6,000 Printing and Engraving Expenses........................... 5,000 Miscellaneous............................................. 0 --------- Total............................................ $ 58,610 ========= All fees and expenses other than the SEC registration fee are estimated. The expenses listed above will be paid by Global MAINTECH. II-1 Item 26. Recent Sales of Unregistered Securities. November 1996 Offering. Global MAINTECH issued a Private Placement Memorandum dated November 25, 1996 (the "November 1996 Memorandum"), offering for purchase up to 483,000 shares of Global MAINTECH's common stock at $3.75 per share, as adjusted for the reverse stock split. As of December 31, 1996, 130,700 shares were issued pursuant to the November 1996 Memorandum. During January and February 1997, Global MAINTECH issued an additional 330,560 shares in connection with this offering. Maven Securities, Inc. acted as the placement agent. Global MAINTECH paid the placement agent a 10% commission and a 3% fee for expenses and issued to the placement agent a warrant to purchase up to 10% of the number of shares of common stock issued in connection with such offering at an exercise price of $3.75 per share. All share numbers and price per share numbers are adjusted for the reverse stock split. The shares of common stock issued pursuant to the November 1996 Memorandum were exempt from registration under Rule 506 of Regulation D of the Securities Act. June 1997 Offering. On June 6, 1997, Global MAINTECH offered for purchase up to 220,000 shares of Global MAINTECH's common stock at $7.00 per share, as adjusted for the reverse stock split. All 220,000 shares were sold pursuant to this offering in July 1997. Global MAINTECH did not use a placement agent with respect to such offering. All share numbers and price per share numbers are adjusted for the reverse stock split. The shares of common stock issued in connection with this offering were exempt from registration under Rule 506 of Regulation D of the Securities Act. June 1997 Note. On June 19, 1997, Global MAINTECH issued a promissory note in the amount of $1,000,000 to each of two accredited investors in exchange for a secured subordinated loan in the total amount of $2,000,000. Global MAINTECH also issued warrants to purchase 106,000 shares of Global MAINTECH's common stock at a purchase price of $9.00 per share, as adjusted for the reverse stock split, to one of these accredited investors as a condition of the investor making this loan. All share numbers and price per share numbers are adjusted for the reverse stock split. February 1998 Offering. During the second quarter of 1998, Global MAINTECH 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 such sale and was paid a 10% commission and a 3% fee for expenses. As additional compensation, Global MAINTECH issued to the placement agent a warrant to purchase 8,530 shares of common stock (equal to 10% of the number of shares of common stock issued in connection with the offering) 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, Global MAINTECH began a private placement of 333,400 units, each consisting of one share of common stock (subject to possible adjustment as described below) and one Warrant to purchase a fraction of a share of common stock (determined as described below), at a price of $11.00 per unit. Each Warrant entitles the holder thereof to purchase .05334 shares of common stock at $13.00 per share for each $5 such investor 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 Global MAINTECH's common stock for all trading days in December 1998 (the "Average Price") 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 Price; provided, however, that the Average 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. Global MAINTECH 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, Global MAINTECH 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 II-2 Convertible Preferred Stock ("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 $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; provided, however, that such 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 in common stock on September 23, 2001 if Global MAINTECH has registered the such common shares under the Securities Act and the common stock is traded on Nasdaq. 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 in each unit 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 Global MAINTECH provided the common stock has not traded below $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. Global MAINTECH 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 such 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 ("MJK") 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 Global MAINTECH. 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 Global MAINTECH 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 Global MAINTECH 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. Global MAINTECH issued 67,192 of such units for total gross proceeds of $2,183,747. Commissions paid on this amount totaled $126,687 to MJK 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 Systems, Inc. Global MAINTECH, through its wholly owned subsidiary SinglePoint Systems, Inc. ("SSI"), purchased substantially all of the assets of Enterprise Solutions, Inc., an Ohio corporation ("Enterprise Solutions"), pursuant to an Asset Purchase Agreement effective as of November 1, 1998 (the "Purchase Agreement") by and among the Company, GMI, SSI and Enterprise Solutions. In addition to purchasing substantially all of the assets of Enterprise Solutions (including rights under and to Enterprise Solutions' computer software products, the related trademarks and copyrights, Enterprise Solutions' ongoing leases, contracts and certain office equipment), the Company assumed certain liabilities of Enterprise Solutions. The primary assets acquired by the Company were a suite of software products, including AlarmPoint and PhonePoint, which provide intelligent software linked to telephones, pagers and the Internet for notification of critical events. This software is linked to other systems management tools and delivers timely and critical information to the proper person(s) for problem resolution. The acquired software will be offered by the Company to customers as an additional component of the Company's base VCC unit. The Company also obtained Enterprise Solutions' short-term consulting business, which assists companies to optimize their existing systems management II-3 and network management tools. The Company expects that this consulting business will generate sales of newly acquired software and of VCC units. 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 (the "Shareholder Options"); and options to purchase a maximum of 16,000 shares of Common Stock were issued to the employees of Enterprise Solutions (the "Employee Options"). All such 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 ("Adjusted Earnings"). In the event the Adjusted Earnings are less than certain 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 Earn-out Amount (as defined below) over the Option Value (as defined below). "Earn-out Amount" means the greater of (a) 18 times the sum of the Adjusted Earnings for the first, second, third and tenth through eighteenth months following the acquisition or (b) 16 times the sum of the Adjusted 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 Earn Out Period. Notwithstanding the foregoing, in the event the Earn-out 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 Earn-out period. In the event such 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, Global MAINTECH 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, Global MAINTECH issued a promissory note in the amount of $500,000 and Warrants to purchase up to 80,000 shares of Common Stock, as adjusted for the reverse stock split. The promissory note bears interest at an annual rate of 10% payable on April 30, 1999, and upon repayment of the balance due under the note on its maturity date of July 31, 1999. To secure payment under the promissory note, Global MAINTECH granted the investors in the offering a security interest on both its current assets and its noncurrent assets. 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" and "piggyback" registration rights under certain 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 Global MAINTECH upon the occurrence of certain conditions set forth in the Warrants. Warrants with respect to the remaining 53,240 shares are noncallable. The note and warrants were exempt from registration under Section 4(2)of the Securities Act of 1933. 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 265,000 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 of 1933. March 1999 Note. On March 9, 1999, Global MAINTECH issued a $100,000 convertible note payable to an accredited investor, convertible into Common stock at $6.25 per share, as adjusted for the reverse stock split, at a 6% II-4 per annum rate of interest. The convertible note payable is subordinate to current and future debt issued by Global MAINTECH and is due on September 9, 1999. The note was exempt from registration under Section 4(2) of the Securities Act of 1933. March 1999 Series C Stock. On March 25, 1999, Global MAINTECH issued 1,600 shares of its Series C Convertible Preferred Stock (the "Series C Stock") to certain accredited investors in a private offering. In connection with such offering, Global MAINTECH also issued warrants to the investors to purchase up to 20,000 shares of Common Stock, as adjusted for the reverse stock split. Settondown Capital International Ltd., the placement agent used in connection with the offering, 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 those 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 (the "Outstanding Shares") of Breece Hill Technologies, Inc. ("BHT") in connection with the merger of BHT Acquisition, Inc., a subsidiary of GMI, with and into BHT. BHT was the surviving corporation and is now a subsidiary of GMI. 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 Company's common stock and the right to receive an earn out payment based in part on the sales of BHT over the twelve months following the acquisition. This earn out 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 BHT 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 BHT in the amount of $1 million. The preferred stock has a monthly dividend of $10,000 payable in cash or common stock of Global MAINTECH Corporation and is convertible at the option of the holder into common stock of Global MAINTECH Corporation. The Company has recorded this Preferred Stock as a minority interest in BHT. BHT is a supplier of automated tape libraries used to backup, restore and archive information stored in networks on servers, PCs and workstations, and stored via on-line data storage subsystems. The Company is currently negotiating the sale of BHT. 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, Global MAINTECH issued convertible notes payable to two accredited investors in the aggregate principal amount of $167,372. 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 Global MAINTECH. The notes were due on November 7, 1999; however, on 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 of 1933. 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. 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 of 1933. August 1999 Note Payable. On August 6 and again on September 30, 1999, the Company rescheduled the principal payment of $250,000 of a $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 the Company by such date. In connection with these reschedulings, the Company issued warrants to purchase a total of 30,000 shares of II-5 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, Global MAINTECH 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 Global MAINTECH. An additional 20,000 shares of common stock were issued to The Geneva Group, Inc. to perform public relations work for Global MAINTECH in Europe. The agreement was amended as of November 17, 1999 to extend the term through April 1, 2001. Global MAINTECH 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 of 1933. Unregistered Issuance in Connection with Asset Purchase from Lavenir Technology, Inc. On September 28, 1999, the Company, through its wholly owned subsidiary Global MAINTECH, Inc. ("GMI"), purchased substantially all the assets of Lavenir Technology, Inc., a California corporation ("Lavenir"), pursuant to an Agreement and Plan of Reorganization (the "Purchase Agreement") by and among the Company, GMI and Lavenir. In addition to purchasing substantially all of the assets of Lavenir (including rights under and to Lavenir's computer software products and the trademarks and copyrights related thereto), the Company assumed certain liabilities of Lavenir, including, Lavenir's ongoing leases, debt and contract obligations. The primary assets acquired by the Company were a suite of CAD/CAM software products, including the ability to design, test, verify and repair precision graphics designs, This software is sold independently or with Raster Photoplotters, sophisticated hardware products used to build master printed circuit boards. The total purchase price of $5,300,000 was payable as follows: 266,000 shares of the Company's common stock was paid to Lavenir 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. A maximum of 700,000 additional shares of common stock are issuable as of April 30, 2000 sufficient to cause the value of the shares and debt previously issued and the original $400,000 liability to total $5,300,000 as of April 30, 2000. The holders of common stock issued by the Company in connection with the acquisition were granted customary registration rights. All securities issued in connection with this transaction were issued under 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," Global MAINTECH 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, we 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 convertible promissory notes issued by Global MAINTECH, (3) 1,600 shares to the holders of Global MAINTECH'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 as compensation for placement agent services. In addition, in connection with the Series D Stock offering (1) 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. We 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. 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 II-6 Stock, in either cash or shares of common stock, at the option of the Global MAINTECH. 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. Global MAINTECH 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 such registration is not effective by the 30th 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 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 Section 4(2) and Regulation D of the Securities Act of 1933. December 30, 1999 Series E Stock. On December 30, 1999, Global MAINTECH issued 2,650 shares of its Series E Convertible Preferred Stock (the "Series E Stock") to certain accredited investors in a private offering. In connection with such offering, Global MAINTECH also issued warrants to the investors to purchase 51,000 shares of Common Stock. The holders of Series E Stock are not entitled to vote except in the event Global MAINTECH 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 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 Global MAINTECH'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. 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. All outstanding shares of Series E Stock will be automatically converted into Common stock on December 30, 2001. Each warrant is a five-year callable warrant to purchase Common Stock at $5.125 per share. Global MAINTECH 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 such 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 such purchase price for every 30-day period thereafter until the registration statement 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 shares issued were exempt from registration pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933. February 17, 2000 Series F Stock. On February 17, 2000, Global MAINTECH issued 2,000 shares of its Series F Convertible Preferred Stock (the "Series F Stock") to certain accredited investors in a private offering. In connection with such offering, Global MAINTECH also issued warrants to the investors to purchase 50,000 shares of Common Stock. The holders of Series F Stock are not entitled to vote except in the event Global MAINTECH 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 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 Global MAINTECH'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 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. All outstanding shares of Series F Stock will be automatically converted into Common stock on February 17, 2002. Each warrant is a five-year callable warrant to purchase Common Stock at $11.00 per share. Global MAINTECH 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 filed by the 45th 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 E Stock for the first 30-day period following such 45-day period and 3% of such purchase price for every II-7 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 of 1933. Item 27. List of Exhibits Exhibit Number Description ------- ----------- 2.1 Agreement and Plan of Merger dated December 6, 1994, as amended, among Global MAINTECH Corporation (the "Company"), Mirror Consolidation Company, and MAINTECH Resources, Inc. (incorporated by reference to the Company's Form 8-K filed with the Commission on January 19, 1995 (File No. 0-14692)). 2.2 Agreement and Plan of Merger dated March 5, 1999, among the Company, Global MAINTECH, Inc. ("GMI"), Breece Hill Acquisition, Inc., and Breece Hill Technologies, Inc. (incorporated by reference to the Company's Form 10-KSB for the year ended December 31, 1998 (File No. 0-14692)). 2.3 Agreement and Plan of Reorganization dated as of July 1, 1999 by and among GMI, the Company and Lavenir Technology, Inc. (incorporated by reference to the Company's Form 8-K filed with the Commission on October 12, 1999 (File No. 0-14692)). 3.1 Bylaws of the Company, as amended (incorporated by reference to the Company's Form S-1 (File No. 33-34894)). 3.2 Third Restated Articles of Incorporation of the Company, including amendment to effect a reverse split in the capital stock of the Company, filed on November 10, 1999 (filed herewith). 3.3 Certificate of Designation of Series D Convertible Preferred Stock, as corrected, filed on December 8, 1999 (filed herewith). 3.4 Certificate of Designation of Series E Convertible Preferred Stock, filed on December 29, 1999 (filed herewith). 4.1 Form of 11% Convertible Subordinated Debenture due July 1, 1996 (incorporated by reference to the Company's Form 10-K for the year ended March 31, 1991 (File No. 0-14692)). 4.2 Form of Registration Agreement between the Company and holders of the Company's 11% Convertible Subordinated Debentures Due July 1, 1996 (incorporated by reference to the Company's Form 10-K for the year ended March 31, 1991 (File No. 0-14692)). 4.3 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)). 4.4 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)). 4.5 Form of Promissory Note, dated June 19, 1997, issued to each of Marquette Bancshares, Inc. and Mezzanine Capital Partners, Inc. (incorporated by reference to the Company's Form SB-2, as amended (File No. 333-33477)). 4.6 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 Commission on February 17, 1999 (File No. 333-72513)). II-8 4.7 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 Commission on February 17, 1999 (File No. 333-72513)). 4.8 Form of Series C Convertible Preferred Stock Purchase Agreement, dated March 24, 1999, which sets forth the rights of the holders of Series C Convertible Preferred Stock and the Warrants issued in connection therewith (incorporated by reference to the Company's Form 10-KSB for the year ended December 31, 1998 (File No. 0-14692)). 4.9 Form of Certificate of the Company's Series C Convertible Preferred Stock (incorporated by reference to the Company's Form 10-KSB for the year ended December 31, 1998 (File No. 0-14692)). 4.10 Form of Series D Convertible Preferred Stock Purchase Agreement, including Registration Rights Agreement and Common Stock Purchase Warrant attached as exhibits thereto (filed herewith). 4.11 Form of Certificate of the Company's Series D Convertible Preferred Stock (filed herewith). 4.12 Form of Securities Purchase Agreement for Series E Convertible Preferred Stock, including Registration Rights Agreement and Common Stock Purchase Warrant attached as exhibits thereto (filed herewith). 4.13 Form of Certificate of the Company's Series E Convertible Preferred Stock. (filed herewith). 4.14 Form of Certificate of Designation of Series F Convertible Preferred Stock of the Company (filed herewith). 4.15 Securities Purchase Agreement, dated as of February 17, 2000, between the Company and the Buyer named therein (to be filed by amendment). 4.16 Form of certificate for shares of Series F Preferred Stock (filed herewith). 5 Opinion of Dorsey & Whitney LLP (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 Form 10-K for the year ended March 31, 1992 (File No. 0-14692)). 10.3 Mirror Technologies, Incorporated 401(k) Plan effective April 1, 1992 (incorporated by reference to the Company's Form 10-K for the year ended March 31, 1992 (File No. 0-14692)). 10.4 Exclusive Distributor and Licensing Agreement between Yutaka Takagi and Circle Corporation and MAINTECH Resources, Inc. and the Company, Inc. dated December 20, 1994 (incorporated by reference to the Company's Form 10-KSB for the year ended December 31, 1994 (File No. 0-14692)). 10.5 Amendment No. 3, dated May 15, 1995, to the Company's 1989 Stock Option Plan (incorporated by reference to the Company's Form 10-KSB for the year ended December 31, 1995 (File No. 0-14692)). 10.6 License and Asset Purchase Agreement between Infinite Graphics Incorporated and the Company Corporation dated February 27, 1998 (incorporated by reference to the Company's Form 10-KSB for the year ended December 31, 1997 (File No. 0-14692)). II-9 10.7 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 Form 8-K filed with the Commission on December 23, 1998 (File No. 0-14692)). 10.8 Office Lease between the Company and Compass Marketing, Inc., sublessor, and Glenborough Realty Trust Incorporated, lessor, dated March 3, 1998 (incorporated by reference to the Company's Form 10- KSB for the year ended December 31, 1997 (File No. 0-14692)). 21 Subsidiaries of the Company (filed herewith). 23.1 Consent of KPMG LLP (filed herewith). 23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5). Item 28. Undertakings The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (a) To include any prospectus required by section 10(a)(3) of the Securities Act; (b) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information appearing in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price in the "Calculation of Registration Fee" table in the effective registration statement; (c) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change in the information in the registration statement; Provided, however, that paragraphs (1)(a) and (1)(b) do not apply if the registration statement is on Form S-3 or Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to section 13 or section 15(d) of the Exchange Act that are incorporated by reference in the registration statement. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. If a claim for indemnification against liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in II-10 connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. SIGNATURES In accordance with the requirements of the Securities Act, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and has duly caused the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis, State of Minnesota, on March 3, 2000. Global MAINTECH Corporation By /s/ Trent Wong ------------------------------------- Trent Wong Chief Executive Officer POWER OF ATTORNEY Each person whose signature to this registration statement appears below hereby constitutes and appoints Trent Wong and James Geiser, and each of them, as his or her true and lawful attorney-in-fact and agent, with full power of substitution, to sign on his behalf individually and in the capacity stated below and to perform any acts necessary to be done in order to file all amendments and post-effective amendments to this registration statement, and any and all instruments or documents filed as part of or in connection with this registration statement or the amendments thereto, and each of the undersigned does hereby ratify and confirm that said attorney-in-fact and agent, or his substitutes, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act, this Registration Statement on Form SB-2 has been signed by the following persons in the capacities indicated on March 3, 2000. NAME TITLE - ---- ----- /s/ Trent Wong Chief Executive Officer (Principal - ----------------------------- Executive Officer) and Director Trent Wong /s/ James Geiser Chief Financial Officer and Secretary - ----------------------------- (Principal Financial and Accounting Officer) James Geiser * Director - ----------------------------- David H. McCaffrey Director - ----------------------------- John Haugo * Director - ----------------------------- James G. Watson Director - ----------------------------- William Howdon *By: /s/ James Geiser ------------------------ Attorney-in-fact II-11 Exhibit Index Number Description - ------ ----------- 3.2 Third Restated Articles of Incorporation of the Company, including amendment to effect a reverse split in the capital stock of the Company, filed on November 10, 1999. 3.3 Certificate of Designation of Series D Convertible Preferred Stock, as corrected, filed on December 8, 1999. 3.4 Certificate of Designation of Series E Convertible Preferred Stock, filed on December 29, 1999. 4.10 Form of Series D Convertible Preferred Stock Purchase Agreement, including Registration Rights Agreement and Common Stock Purchase Warrant attached as exhibits thereto. 4.11 Form of Certificate of the Company's Series D Convertible Preferred Stock. 4.12 Form of Securities Purchase Agreement for Series E Convertible Preferred Stock, including Registration Rights Agreement and Common Stock Purchase Warrant attached as exhibits thereto. 4.13 Form of Certificate of the Company's Series E Convertible Preferred Stock. 4.14 Form of Certificate of Designation of Series F Convertible Preferred Stock of the Company. 4.16 Form of certificate for shares of Series F Preferred Stock. 5 Opinion of Dorsey & Whitney LLP. 21 Subsidiaries of the Company. 23.1 Consent of KPMG LLP. 23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5). EX-3.2 2 THIRD RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.2 THIRD RESTATED ARTICLES OF INCORPORATION 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 -1- 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 -2- 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 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 -3- 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. (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. -4- (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 (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, -5- 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. 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 -6- 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 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 -7- 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 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 -8- 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 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 61/st/ 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. -9- 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. 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 -10- 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 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 -11- 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 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. -12- (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. (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 -13- 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 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: -14- (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 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. -15- (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 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, -16- 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 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 -17- 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 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. -18- (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 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 -19- (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 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 -20- 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 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- EX-3.3 3 SERIES D CERTIFICATE OF DESIGNATION EXHIBIT 3.3 SERIES D CERTIFICATE OF DESIGNATION Corrected CERTIFICATE OF DESIGNATION of SERIES D CONVERTIBLE PREFERRED STOCK of GLOBAL MAINTECH CORPORATION (Adopted Ppursuant to Section 302A.401 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). 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. 2 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 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. 3 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. 4 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 5 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 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 6 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 "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 7 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. 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. 8 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. 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 9 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 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 10 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 fiveten Trading Days of the Notice of 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 it 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 resoect. The holders of the Series D Preferred Stock will retain their rights to convert up 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. 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. 11 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. 12 IN WITNESS WHEREOF, I have subscribed my name this 3rd day of December, 1999. GLOBAL MAINTECH CORPORATION By: /s/ James Geiser ------------------------------------- Name: James Geiser Title: Secretary 13 EX-3.4 4 SERIES E CERTIFICATE OF DESIGNATION EXHIBIT 3.4 SERIES E CERTIFICATE OF DESIGNATION CERTIFICATE OF DESIGNATION of SERIES E CONVERTIBLE PREFERRED STOCK of GLOBAL MAINTECH CORPORATION (Adopted pursuant to Section 302A.401 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) -1- 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). 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 -2- 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: 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 -3- 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. 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: -4- 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 Greater than 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 Common Stock to the holder. Furthermore, in addition to -5- 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 -6- 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 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. -7- 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. 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. -8- 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 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 -9- 4. cancel or modify the rights of the holders of the Series E 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 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 -10- 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, 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. -11- 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 numbers of the certificates representing such shares. Within five Trading Days of the Notice of 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 holders of the Series D Preferred Stock will retain their rights to convert up 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; -12- (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. 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 -13- 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 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 29/th/ day of December, 1999. GLOBAL MAINTECH CORPORATION By: /s/ James Geiser ------------------ Name: James Geiser Title: Secretary -14- EX-4.10 5 SERIES D FORM OF SPA EXHIBIT 4.10 SERIES D FORM OF SPA SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT among the Investors listed on Schedule A and Global Maintech Corporation January 19, 2000 SCHEDULES: - --------- A: List of Investors 4.3: Options and Warrants 4.14: Litigation 4.25: Private Placements EXHIBITS: - -------- A: Certificate of Designation B: Escrow Agreement C: Registration Rights Agreement D: Common Stock Purchase Warrant E: Opinion of Counsel F: Instruction Letter to Transfer Agent, including forms of Notice of Conversion, Exercise and Effectiveness of Registration Statement SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT ------------------------------------------------------- THIS SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of January 19, 2000 (the "Agreement"), among the entities listed on Schedule A attached hereto (collectively referred to as the "Investors") and GLOBAL MAINTECH CORPORATION, a corporation organized and existing under the laws of the State of Minnesota (NASD OTC Electronic Bulletin Board symbol "GLBM", the "Company"). WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to certain of the Investors (the "New Investors"), and the New Investors shall purchase up to (a) 700 shares of Preferred Stock (as defined below), and (b) 21,000 shares of the Common Stock (the "New Investor Shares"); and WHEREAS, the Company shall issue to certain of the Investors (the "Note Investors"), an aggregate of 300 shares of Preferred Stock and 9,000 shares of Common Stock (the "Note Investor Shares") upon conversion of convertible promissory notes issued by the Company to the Note Investors in an aggregate principal amount of $300,000 (the "Notes"); and WHEREAS, the Company shall issue to certain of the Investors (the "Prior Investors"), an aggregate of 1,600 shares of Preferred Stock in exchange of all shares of Series C Convertible Preferred Stock (the "Series C Preferred Stock") issued to such Prior Investors on or about March 24, 1999, warrants to purchase up to 20,000 Warrant Shares in exchange of all warrants issued to such Prior Investors on or about March 24, 1999 (the "Exchange Warrants"); and WHEREAS, the Company shall issue for adequate consideration certain shares of Common Stock as payment in full for all penalties and fees accrued due to the Company's failure to file a registration statement in regard to the shares of Common Stock into which the Series C Preferred Stock were convertible (the "Prior Investor Shares" and collectively with the New Investor Shares and Note Investor Shares, the "New Common Shares") to the Prior Investors; and WHEREAS, such investments will be made in reliance upon the provisions of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United States Securities Act of 1933, as amended, and the regulations promulgated thereunder (the "Securities Act"), and/or upon such other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the investments in the Preferred Stock and the Common Stock to be made hereunder. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I --------- Certain Definitions ------------------- Section 1.1 "Additional Shares" shall have that meaning set forth in ----------------- Section 2.5 below. Section 1.2 "Bid Price" shall mean the closing bid price (as reported by --------- Bloomberg L.P.) of the Common Stock on the Principal Market. Section 1.3 "Business Day" means any day except Saturday, Sunday and any ------------ day which shall be a Federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government actions to close. Section 1.4 "Capital Shares" shall mean the Common Stock and any shares -------------- of any other class of common stock whether now or hereafter authorized, having the right to participate in the distribution of earnings and assets of the Company. Section 1.5 "Capital Shares Equivalents" shall mean any securities, -------------------------- rights, or obligations that are convertible into or exchangeable for, or giving any right to subscribe for, any Capital Shares of the Company or any warrants, options or other rights to subscribe for or purchase Capital Shares or any such convertible or exchangeable securities. Section 1.6 "Certificate of Designation" shall mean the Company's -------------------------- Certificate of Designation setting forth all of the rights, privileges and preferences of the Preferred Stock, as annexed hereto as Exhibit A and made a part hereof. Section 1.7 "Closing" shall mean the closing of a purchase and sale of ------- the Preferred Stock, the New Common Shares and the Warrants pursuant to Article II below. Section 1.8 "Closing Date" shall mean the Subscription Date. ------------ Section 1.9 "Common Stock" shall mean the Company's common stock, no par ------------ value per share. Section 1.10 "Damages" shall mean any loss, claim, damage, liability, ------- costs and expenses which shall include, but not be limited to, reasonable attorney's fees, disbursements, costs and expenses of expert witnesses and investigation. Section 1.11 "Effective Date" shall mean the date on which the SEC first -------------- declares effective a Registration Statement registering the resale of (a) 200% of the Underlying Shares (as of the date the Registration Statement is filed) and 100% of (b)(i) the Warrant Shares issued to the Investors and (ii) the New Common Shares issued to the Investors, as set forth in Section 2.7 below. -2- Section 1.12 "Escrow Agent" shall mean the law firm of Parker Chapin ------------ Flattau & Klimpl, LLP, pursuant to the terms of the Escrow Agreement attached as Exhibit B. Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of ------------ 1934, as amended, and the rules and regulations promulgated thereunder. Section 1.14 "Legend" shall have the meaning set forth in Article VIII ------ below. Section 1.15 "Material Adverse Effect" shall mean any effect on the ----------------------- business, operations, properties, Bid Price, trading volume of the Common Stock, prospects or financial condition of the Company that is material and adverse to the Company and its subsidiaries and affiliates, taken as a whole, and/or any condition, circumstance, or situation that would prohibit or otherwise in any material respect interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement, the Registration Rights Agreement, the Escrow Agreement, the Certificate of Designation or the Warrants in any material respect. Section 1.16 "NASD" shall mean the National Association of Securities ---- Dealers, Inc. Section 1.17 "Outstanding" when used with reference to shares of Common ----------- Stock, Preferred Stock, or Capital Shares (collectively the "Shares"), shall mean, at any date as of which the number of such Shares is to be determined, all issued and outstanding Shares, and shall include all such Shares issuable in respect of outstanding scrip or any certificates representing fractional interests in such Shares; provided, however, that Outstanding shall not mean -------- ------- any such Shares then directly or indirectly owned or held by or for the account of the Company. Section 1.18 "Person" shall mean an individual, a corporation, a ------ partnership, an association, a limited liability company, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. Section 1.19 "Preferred Stock" shall mean the Company's Series D --------------- Preferred Stock with the rights, privileges and preferences, as set forth in the Certificate of Designation. Section 1.20 "Prime Rate" shall mean the rate of interest per annum ---------- publicly announced from time to time by the principal New York City office of the Chase Manhattan bank, or its successor, as its prime rate (which rate shall change when and as such prime rate changes). Section 1.21 "Principal Market" shall mean the NASD OTC Electronic ---------------- Bulletin Board, the Nasdaq National Market, the Nasdaq Small Cap Market, the American Stock Exchange, or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock. Section 1.22 "Purchase Price" shall mean $1,000,000 (with $300,000 -------------- allocated to the exchange of the Notes). -3- Section 1.23 "Registrable Securities" shall mean the New Common Shares, ---------------------- Underlying Shares, the Additional Shares and the Warrant Shares (i) in respect of which the Registration Statement (covering these securities) has not been declared effective by the SEC, (ii) which have not been otherwise transferred to holders who may trade such shares without restriction under the Securities Act, or (iii) the sales of which, in the opinion of counsel to the Company, are subject to any time, volume or manner of sale limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities Act. Section 1.24 "Registration Rights Agreement" shall mean the agreement ----------------------------- regarding the filing of the Registration Statement for the resale of the Registrable Securities, entered into between the Company and the Investors on the Subscription Date annexed hereto as Exhibit C. Section 1.25 "Registration Statement" shall mean a registration statement ---------------------- on Form SB-2 or such other appropriate registration statement, for the registration of the resale by the Investors of the Registrable Securities under the Securities Act. Section 1.26 "Regulation D" shall have the meaning set forth in the ------------ recitals of this Agreement. Section 1.27 "SEC" shall mean the Securities and Exchange Commission. --- Section 1.28 "Section 4(2)" shall have the meaning set forth in the ------------ recitals of this Agreement. Section 1.29 "Securities" shall mean the New Common Shares, Underlying ---------- Shares, the Additional Shares and the Warrant Shares. Section 1.30 "Securities Act" shall have the meaning set forth in the -------------- recitals of this Agreement. Section 1.31 "SEC Documents" shall mean the Company's latest Form 10-KSB ------------- (and all amendments thereto) as of the time in question, all Form 10-QSBs and Form 8-Ks filed thereafter, and the Proxy Statement for its latest fiscal year as of the time in question until such time as the Company no longer has an obligation to maintain the effectiveness of a Registration Statement as set forth in the Registration Rights Agreement. Section 1.32 "Subscription Date" shall mean the date on which this ----------------- Agreement and all Exhibits and attachments hereto are executed and delivered by the parties hereto and all of the conditions relating to the issuance of the Preferred Stock, the New Common Shares and the Warrants shall have been fulfilled. Section 1.33 "Trading Day" shall mean any day during which the Principal ----------- Market shall be open for business. -4- Section 1.34 "Underlying Shares" shall mean all shares of Common Stock or ----------------- other securities issued or issuable pursuant to conversion of the Preferred Stock. Section 1.35 "Warrants" shall mean the Exchange Warrants substantially in -------- the form of the Common Stock Purchase Warrant annexed hereto as Exhibit D. Section 1.36 "Warrant Shares" shall mean all shares of Common Stock or -------------- other securities issued or issuable pursuant to the exercise of the Warrants. ARTICLE II ---------- Purchase and Sale of the Preferred Stock, the New Common Shares and the Warrants - -------------------------------------------------------------------------------- Section 2.1 Closing. On the Closing Date, the Company will (a)(i) sell ------- and the New Investors will buy shares of Preferred Stock, (ii) issue shares of Preferred Stock to the Prior Investors in exchange of the Series C Preferred Stock, and (iii) issue shares of Preferred Stock to the Note Investors upon conversion of the Notes, pursuant to the terms and conditions of this Agreement (including the satisfaction or waiver in writing of the conditions set forth in Section 2.6 below) up to an aggregate of 2,600 shares of Preferred Stock based on U.S.$1,000 per share, and (b) issue New Common Shares to the Investors on a pro rata basis as set forth on Schedule A hereto and (c) issue Warrants to purchase that number of Warrant Shares as set forth in Section 2.4 below, for the Purchase Price and in exchange of the Series C Preferred Stock and the related warrants and upon conversion of the Notes. Section 2.2 Form of Payment. The Investors shall pay the Purchase Price --------------- by delivering good funds in United States Dollars by wire transfer to the Escrow Agent, exchanging the Series C Preferred Stock for shares of Preferred Stock, Exchange Warrants and New Common Shares and converting their Notes into shares of Preferred Stock and New Common Shares, against delivery of the Series C Preferred Stock and related warrants. The parties have entered into an Escrow Agreement annexed hereto as Exhibit B. Section 2.3 [Intentionally Omitted] Section 2.4 New Common Shares and Warrants. The Company will issue to ------------------------------ the Investors (pro rata in proportion to the number of shares of Preferred Stock purchased (or received for the exchange of the Series C Stock)) on the Closing Date 30,000 New Common Shares per $1,000,000 funded to the Company pursuant to the terms hereunder (pro rata amongst the Investors based upon each Investor's portion of the Purchase Price or portion of the exchanged Series C Stock). All of the New Common Shares shall be delivered by the Company to the Escrow Agent, and delivered to the Investors pursuant to the terms of this Agreement and the Escrow Agreement. All of the New Common Shares shall be registered for resale pursuant to the Registration Rights Agreement. Furthermore, the Company will issue to the Prior Investors (pro rata in proportion to the number of shares of Preferred Stock received for the exchange of the Series C Stock) on the Closing Date Exchange Warrants to purchase 20,000 shares of Common Stock. -5- Section 2.5 Additional Shares. In the event that a "blackout period" ----------------- occurs which is defined as any period in which the effectiveness of the Registration Statement is suspended for a reason other than a suspension of the Registration Statement arising in the event the Company possesses material non- public information, and the Bid Price on the Trading Day immediately preceding such "blackout period" (the "Old Bid Price") is greater than the Bid Price on the first Trading Day following such "blackout period" (the "New Bid Price"), the Company shall issue to the Investors the number of additional shares of Common Stock equal to the difference between (y) the product of (i) the number of Securities held by the Investors during such "blackout period" that are or were not otherwise freely tradable and (ii) the Old Bid Price, divided by the New Bid Price and (z) the number of Securities held by the Investors during such "blackout period" that were not otherwise freely tradable during such Blackout Period (the "Blackout Shares"). Section 2.6 Liquidated Damages. In addition to any other provisions for ------------------ liquidated damages in this Agreement or any Exhibit annexed hereto, in the event that the Company does not deliver unlegended, freely tradable Common Stock in connection with the sale of such Common Stock by the Investor(s) as set forth in Article VIII below within six (6) Business Days of surrender by the Investor(s) of the Common Stock certificate in accordance with the terms and conditions set forth in Article VIII below (such date of receipt is referred to as the "Receipt Date"), the Company shall pay to the Investor(s), in immediately available funds, upon demand, as liquidated damages for such failure and not as a penalty, for every day after the Receipt Date for the first ten days (the "Ten-Day Period"), one percent of the product of (i) the number of shares of Common Stock undelivered and (ii) the Bid Price on the Receipt Date, and two percent of the product of (i) the number of shares of Common Stock undelivered and (ii) the Bid Price on the Receipt Date, for every day after the Ten-Day Period that the unlegended shares of Common Stock are not delivered. The parties hereto acknowledge and agree that the sums payable pursuant to the Registration Rights Agreement and as set forth above, and the obligation to issue Registrable Securities under Section 2.5 above, shall constitute liquidated damages and not penalties. The parties further acknowledge that the amount of loss or damages likely to be incurred in the event of a failure to deliver unlegended, freely tradable shares of Common Stock cannot be precisely estimated, and the parties are sophisticated business parties and have been represented by sophisticated and able legal and financial counsel and negotiated this Agreement at arm's length. Notwithstanding the above, in the event that the Company does not deliver unlegended Common Stock in connection with the sale of such Common Stock by the Investor(s) as set forth in Article VIII below within six (6) Business Days of the Receipt Date, the Company shall also pay to the Investor(s), in immediately available funds, interest (at the then current Prime Rate), based upon the product of (i) the number of undelivered unlegended freely tradable shares, and (ii) the Bid Price of the Common Stock on the Receipt Date, undelivered for every day thereafter that the unlegended shares of Common Stock are not delivered. Any and all payments required pursuant to this paragraph shall be payable only in cash, and any payment hereunder shall not relieve the Company of its delivery obligations under this Section. Section 2.7 Conditions to Closing. --------------------- -6- (a) Conditions to the Company's Obligation to Sell. Each of the Investors understands that the Company's obligation to sell the Preferred Stock, the New Common Shares and the Warrants is subject to the satisfaction (or written waiver) on the Closing Date, of each of the following conditions: (i) delivery by each Investor of a copy of this Agreement and each Exhibit annexed hereto to which it is a party (substantially in the form annexed hereto), in each case executed by a duly authorized signatory of such Investor; (ii) delivery into escrow by the Investors of clear funds for the Purchase Price (as more fully set forth in the Escrow Agreement attached hereto as Exhibit B), the original Series C Preferred Stock certificates and related warrants for exchange and the original Notes for conversion into shares of Preferred Stock; and (iii) all representations and warranties of the Investors contained herein shall remain true and correct in all material respects as of the Closing Date. Notwithstanding the foregoing, the Company may close on the cash Purchase Price whether or not the Notes, the original Series C Preferred Stock and the related warrants have been delivered to the Escrow Agent. (b) Conditions to Investors' Obligation to Purchase. The Company ----------------------------------------------- understands that the Investors' obligation to purchase the Preferred Stock, the New Common Shares and the Warrants is subject to the satisfaction (or written waiver) on the Closing Date, of each of the following conditions: (i) delivery by the Company of a copy of this Agreement and each Exhibit annexed hereto to which it is a party (substantially in the form annexed hereto), in each case executed by a duly authorized officer of the Company; (ii) all representations and warranties of the Company contained herein shall remain true and correct in all material respects as of the Closing Date; (iii) the Company shall have obtained all permits and qualifications required by any state for the offer and sale of the Preferred Stock, the New Common Shares and the Warrants, or shall have the availability of exemptions therefrom; (iv) the sale and issuance of the Preferred Stock and the New Common Shares, and the proposed issuance of the Additional Shares, the -7- Underlying Shares, the Warrants and the Warrant Shares shall be legally permitted by all laws and regulations to which the Investors and the Company are subject, and all duly executed Exhibits hereto for the sale of the Securities; (v) delivery of the original Preferred Stock, the New Common Shares and the Warrants as described herein; (vi) receipt by the Investors of an opinion of counsel of the Company as set forth in Exhibit E attached hereto; (vii) receipt by the Investors of executed instructions to the Transfer Agent as set forth in Exhibit F annexed hereto; (viii) written proof that the Certificate of Designation has been filed with the Secretary of State of the State of Minnesota, and remains in full force and effect as of the Closing Date; (ix) the Company shall not be in default of any material covenant representation, and/or warranty contained in this Agreement or any Exhibit annexed hereto; and (x) payment of all fees by the Company as set forth in Section 12.7 below and the Escrow Agreement. ARTICLE III ----------- Representations and Warranties of the Investors ----------------------------------------------- Each of the Investors severally (as to itself) and not jointly represents and warrants to the Company that: Section 3.1 Intent. Without limiting its ability to resell the ------ Securities pursuant to an effective registration statement or an exemption from registration, each of the Investors is entering into this Agreement for its own account and has no present arrangement (whether or not legally binding) at any time to sell the Securities to or through any person or entity; provided, -------- however, that by making the representations herein, the Investors do not agree - ------- to hold the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with federal and state securities laws applicable to such disposition. Section 3.2 Sophisticated Investors. Each of the Investors is a ----------------------- sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as defined in Rule 501 of Regulation D), and each of the Investors has such experience in business and financial matters that it is capable of evaluating the merits and risks of an investment in the -8- Preferred Stock and the Securities. Each of the Investors acknowledges that an investment in the Common Stock is speculative and involves a high degree of risk and can afford the complete loss of their investment. Section 3.3 Authority. This Agreement has been duly authorized and --------- validly executed and delivered by each of the Investors and assuming the due execution and delivery hereof and acceptance thereof by the Company, will constitute the legal, valid and binding obligations of the Investors, enforceable against each of them in accordance with its terms, subject to applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. The decision to invest and the execution and delivery of this Agreement by the Investors, the performance by the Investors of their obligations hereunder and the consummation by the Investors of the transactions contemplated hereby have been duly authorized and requires no other proceedings on the part of the Investors. The undersigned signatory has all right, power and authority to execute and deliver this Agreement on behalf of each Investor. Section 3.4 Not an Affiliate. None of the Investors is an officer, ---------------- director or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of the Company. Section 3.5 Organization and Standing. Each of the Investors is duly ------------------------- organized, validly existing, and in good standing under the laws of the countries and/or states of their incorporation or organization and has all requisite power and authority to purchase the Securities. Section 3.6 [Intentionally Omitted] Section 3.7 Disclosure; Access to Information. Each of the Investors has --------------------------------- received all documents, records, books and other information pertaining to Investor's investment in the Company that have been requested by Investors, including the opportunity to ask questions of, and receive answers from, the Company. The Company is subject to the periodic reporting requirements of the Exchange Act, and each of the Investors has reviewed or received copies of any such reports that have been requested by it. Each of the Investors represents that it has reviewed the Company's Form 10-KSB for the year ended December 31, 1998, Form 10-QSB's, and Form 8-K's filed for the twelve months prior to the Subscription Date and is aware that the Company is in negotiations to sell its Breece Hill Technologies, Inc. subsidiary ("BHT") and possibly other assets. Section 3.8 Manner of Sale. At no time were any of the Investors -------------- presented with or solicited by or through any leaflet, public promotional meeting, television advertisement or any other form of general solicitation or advertising in connection with the offer and sale of the Preferred Stock and the Securities. Section 3.9 Registration or Exemption Requirements. Each of the -------------------------------------- Investors acknowledge and understand that the limited private offering and sale of the Preferred Stock and the Securities pursuant to this Agreement has not been reviewed or approved by the SEC or by any state securities commission, authority or agency, and is not registered under the Securities -9- Act or under the securities or "blue sky" laws, rules or regulations of any state. Each of the Investors acknowledges, understands and agrees that the Preferred Stock and the Securities are being offered and sold hereunder pursuant to (i) a private placement exemption to the registration provisions of the Securities Act pursuant to Section 4(2) of such Securities Act and Regulation D promulgated under such Securities Act, and (ii) a similar exemption from the registration provisions of applicable state securities laws. Section 3.10 No Legal, Tax or Investment Advice. Each of the Investors ---------------------------------- understands that nothing in this Agreement or any other materials presented to the Investors in connection with the purchase and sale of the Preferred Stock, the New Common Shares and the Warrants constitutes legal, tax or investment advice. The Investors have relied on, and have consulted with, such legal, tax and investment advisors as they, in their sole discretion, have deemed necessary or appropriate in connection with their purchase of the Preferred Stock, the New Common Shares and the Warrants. Section 3.11 No Violation. Each of the Investors agrees that it will not ------------ enter into any position in the Common Stock that in any manner would violate any provision of the Exchange Act. Each of the Investors further agrees that as of the Closing Date it does not maintain a short position in the Common Stock, and does not have any current intention of entering into any short position in connection with the Common Stock. Section 3.12 Registered Broker-Dealer. None of the Investors is a ------------------------ registered broker-dealer or an affiliate of a registered broker-dealer. ARTICLE IV ---------- Representations and Warranties of the Company --------------------------------------------- The Company represents and warrants to the Investors that: Section 4.1 Organization of the Company. The Company is a corporation --------------------------- duly incorporated and existing in good standing under the laws of the State of Minnesota and has all requisite corporate authority to own its properties and to carry on its business as now being conducted except as described in the SEC Documents. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, other than those (individually or in the aggregate) in which the failure so to qualify would not reasonably be expected to have a Material Adverse Effect. The Company is not in violation of any material terms of its Articles of Incorporation (as defined below) or Bylaws (as defined below). Section 4.2 Authority. (i) The Company has the requisite corporate power --------- and authority to enter into and perform its obligations under this Agreement, and all Exhibits annexed hereto, and to issue the Preferred Stock, the New Common Shares, the Warrants, the Underlying Shares, the Additional Shares, and the Warrant Shares, (ii) the execution, issuance and delivery -10- of this Agreement, and all Exhibits annexed hereto, by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action and no further consent or authorization of the Company or its Board of Directors is necessary, and (iii) this Agreement, and all Exhibits annexed hereto, have been duly executed and delivered by the Company and constitute valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. Upon their issuance and delivery pursuant to this Agreement, the Preferred Stock, the New Common Shares, the Warrants and the Securities issuable will be validly issued, fully paid and nonassessable and will be free of any liens or encumbrances other than those created hereunder or by the actions of the Investors; provided, however, that the aforementioned securities are subject to -------- ------- restrictions on transfer under state and/or federal securities laws. The issuance and sale of the Preferred Stock, the New Common Shares, the Warrants and the Securities hereunder will not give rise to any preemptive right or right of first refusal or right of participation on behalf of any Person. Section 4.3 Capitalization. As of September 30, 1999, the authorized -------------- capital stock of the Company consists of 10,711,724 shares, no par value, of which 887,980 shares are designated as Series A Convertible Preferred Stock (the "Series A Stock"), 123,077 shares are designated as Series B Convertible Preferred Stock (the "Series B Stock"), and 1,675 shares are designated as Series C Convertible Preferred Stock (the "Series C Stock") and 9,698,992 shares are divisible into such other classes and series as the Board of Directors may from time to time designate. As of September 30, 1999, there were 4,821,187 shares of Common Stock issued and outstanding; 129,176 shares of Series A Stock issued and outstanding; 51,792 shares of Series B Stock issued and outstanding; and 1,675 shares of Series C Stock issued and outstanding. All of the outstanding shares of the Company's capital stock have been duly and validly authorized and issued and are fully paid and nonassessable. No shares of Common Stock are entitled to preemptive or similar rights. Except as specifically disclosed in the SEC Documents and Schedule 4.3 hereto, there are no outstanding options, warrants, rights to subscribe to, calls or commitments of any character whatsoever relating to, or, except as a result of the purchase and sale of the Preferred Stock, the New Common Shares and the Warrants, securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings, or arrangements by which the Company or any subsidiary is or may become bound to issue additional shares of Common Stock or securities or rights convertible or exchangeable into shares of Common Stock. Except as specifically disclosed on Schedule 4.3, to the knowledge of the Company, no Person or group of Persons beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the Exchange Act) or has the right to acquire by agreement with or by obligation binding upon the Company beneficial ownership of in excess of five percent of the Common Stock. Section 4.4 Common Stock. The Company has registered its Common Stock ------------ pursuant to Section 12(g) of the Exchange Act and is in full compliance with all reporting requirements of -11- the Exchange Act, and such Common Stock is currently listed or quoted on the NASD OTC Electronic Bulletin Board. Section 4.5 SEC Documents. The Company has delivered or made available ------------- to the Investors true and complete copies of the SEC Documents filed by the Company with the SEC during the twelve (12) months immediately preceding the Subscription Date (including, without limitation, proxy information and solicitation materials). The Company has not provided to any of the Investors any information that, according to applicable law, rule or regulation, should have been disclosed publicly prior to the date hereof by the Company, but which has not been so disclosed. The SEC Documents comply in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and rules and regulations of the SEC promulgated thereunder and none of the SEC Documents contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Section 4.6 Valid Issuances. When issued and paid for in accordance --------------- with the terms hereof, the Preferred Stock, the New Common Shares, the Underlying Shares, the Warrants, the Warrant Shares and the Additional Shares, will be duly and validly issued, fully paid, and nonassessable. Neither the issuance of the Preferred Stock, the New Common Shares, the Underlying Shares, the Warrants, the Warrant Shares or the Additional Shares, nor the Company's performance of its obligations under this Agreement, and all Exhibits annexed hereto, will (i) result in the creation or imposition by the Company of any liens, charges, claims or other encumbrances upon the Warrants, the Preferred Stock, the New Common Shares, the Warrant Shares, the Additional Shares, or the Underlying Shares, issued or issuable hereunder, or any of the assets of the Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive or other rights to subscribe to or acquire any Capital Shares or other securities of the Company. Section 4.7 No General Solicitation or Advertising in Regard to this -------------------------------------------------------- Transaction. Neither the Company nor any of its affiliates nor any distributor - ----------- or any person acting on its or their behalf (i) has conducted or will conduct any general solicitation (as that term is used in Rule 502(c) of Regulation D) or general advertising in connection with the offer and sale of the Preferred Stock, the New Common Shares, the Additional Shares, the Underlying Shares, the Warrants, or the Warrant Shares, or (ii) has made any offers or sales of any security or solicited 12 any offers to buy any security under any circumstances that would require registration of the Preferred Stock, the New Common Shares, the Additional Shares, the Underlying Shares, the Warrants, or the Warrant Shares under the Securities Act. Section 4.8 Corporate Documents. The Company has furnished or made ------------------- available to each of the Investors true and correct copies of the Company's articles of incorporation, as amended and in effect on the date hereof (the "Articles of Incorporation"), and the Company's by-laws, as amended and in effect on the date hereof (the "By-Laws"). Section 4.9 No Conflicts. The execution, delivery and performance of ------------ this Agreement (including all Exhibits annexed hereto) by the Company and the consummation by the Company of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Preferred Stock, the New Common Shares, the Underlying Shares, the Warrants, the Warrant Shares and the Additional Shares, do not and will not (i) result in a violation of the Company's Articles of Incorporation or By-Laws or (ii) conflict with, or constitute a material default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, patent, patent license, indenture, instrument or any "lock-up" or similar provision of any underwriting or similar agreement to which the Company is a party, or (iii) result in a violation of any federal, state or local law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to the Company or by which any property or asset of the Company is bound or affected, nor is the Company otherwise in violation of, in conflict with, or in default under, any of the foregoing except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The business of the Company is not being conducted in violation of any law, ordinance or regulation of any governmental entity, except for possible violations that either singly or in the aggregate would not reasonably be expected to have a Material Adverse Effect. Except for the filing of a Form D within 15 days after the Closing Date (which the Company agrees it will file), the Company is not required under federal, state or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or issue and sell the Preferred Stock, the New Common Shares or the Warrants, in accordance with the terms hereof; provided, that, for purposes of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of the Investors herein. Section 4.10 No Material Adverse Change. Since September 30, 1999, no -------------------------- Material Adverse Effect has occurred or exists with respect to the Company, except as disclosed in the SEC Documents, or as publicly announced. Section 4.11 No Undisclosed Liabilities. The Company has no liabilities -------------------------- or obligations, known or unknown, absolute or otherwise, which are not disclosed in the SEC Documents or otherwise publicly announced, other than those set forth in the Company's financial statements or as incurred in the ordinary course of the Company's businesses since September 30, 1999, and -13- which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Section 4.12 No Undisclosed Events or Circumstances. Since September 30, -------------------------------------- 1999, no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, prospects, operations or financial condition, that, 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 in the SEC Documents. Section 4.13 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 offers or sales of any security or solicited any offers to buy any security, other than pursuant to this Agreement, under circumstances that would require registration of the Common Stock under the Securities Act, or cause the offering of the Preferred Stock, the New Common Shares and the Warrants pursuant to this Agreement to be integrated with future offerings by the Company for purposes of the Securities Act, the Nasdaq Stock Market, Inc. marketplace rules, or any applicable stockholder approval provisions, except as set forth in the SEC Documents. Section 4.14 Litigation and Other Proceedings. Except as may be set forth -------------------------------- in the SEC Documents and Schedule 4.14 annexed hereto, there are no lawsuits or proceedings pending or to the knowledge of the Company threatened, against the Company, nor has the Company received any written or oral notice of any such action, suit, proceeding or investigation, which would reasonably be expected to have a Material Adverse Effect. Except as set forth in the SEC Documents, no judgment, order, writ, injunction or decree or award has been issued by or, so far as is known by the Company, requested of any court, arbitrator or governmental agency which would be reasonably expected to result in a Material Adverse Effect. Section 4.15 Accuracy of Reports and Information. The Company is in ----------------------------------- compliance, to the extent applicable, with all reporting obligations under either Section 12(b), 12(g) or 15(d) of the Exchange Act. The Company has registered its Common Stock pursuant to Section 12 of the Exchange Act and the Common Stock is listed and trades on the NASD OTC Electronic Bulletin Board. The Company has complied in all material respects and to the extent applicable with all reporting obligations, under either Section 13(a) or 15(d) of the Exchange Act for a period of at least twelve (12) months immediately preceding the offer and sale of the Preferred Stock, the New Common Shares and the Warrants. Section 4.16 Acknowledgment of Dilution. The Company is aware and -------------------------- acknowledges that issuance of Common Stock upon the conversion of the Preferred Stock, the New Common Shares and/or exercise of the Warrants, may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligation to issue the Additional Shares in accordance with the terms herein, the Underlying Shares in accordance with the Certificate of Designation, and the Warrant Shares in accordance with the Warrants is unconditional and absolute regardless of the effect of any such dilution. -14- Section 4.17 Employee Relations. The Company is not involved in any ------------------ labor dispute, nor, to the knowledge of the Company, is any such dispute threatened which could reasonably be expected to have a Material Adverse Effect. None of the Company's employees is a member of a union and the Company believes that its relations with its employees are good. Section 4.18 Environmental Laws. The Company is (i) in compliance with ------------------ any and all foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants and which the Company know is applicable to them ("Environmental Laws"), (ii) has received all material permits, licenses or other approvals required under applicable Environmental Laws to conduct its business, and (iii) is in compliance with all terms and conditions of any such permit, license or approval. Section 4.19 Insurance. The Company is insured by insurers of recognized --------- financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company is engaged. The Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires, or obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operation, of the Company. Section 4.20 Board Approval. The board of directors of the Company has -------------- concluded, in its good faith business judgment, that the issuances of the securities of the Company in connection with this Agreement are in the best interests of the Company. Section 4.21 Integration. Except in connection with the Company's ----------- proposed sale of Breece Hill Technologies, Inc. and the sale of $3,000,000 of Series E Preferred Stock on terms acceptable to the Investors, the Company shall not and shall use its best efforts to ensure that no affiliate shall sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security of the Company that would be integrated with the offer or sale of the Preferred Stock, the New Common Shares and the Warrants in a manner that would require the registration under the Securities Act of the issue, offer or sale of the Preferred Stock, New Common Shares and Warrants to the Investors. The Preferred Stock, the New Common Shares and the Warrants are being offered and sold pursuant to the terms hereunder, are not being offered and sold as part of a previously commenced private placement of securities. Section 4.22 Patents and Trademarks. The Company has, or has rights to ---------------------- use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses, trade secrets and other intellectual property rights which are necessary for use in connection with its business or which the failure to so have would have a Material Adverse Effect (collectively, the "Intellectual Property Rights"). To the best knowledge of the Company, none of the Intellectual Property Rights infringe on any rights of any other Person, and the Company either owns or has duly licensed or otherwise acquired all necessary rights with respect to the Intellectual Property Rights. The Company has not received any notice from any -15- third party of any claim of infringement by the Company of any of the Intellectual Property Rights, and has no reason to believe there is any basis for any such claim. To the best knowledge of the Company, there is no existing infringement by another Person on any of the Intellectual Property Rights. Section 4.23 Use of Proceeds. The net proceeds from this offering will --------------- be used for working capital purposes, and not for the repayment of any judgment. Section 4.24 Subsidiaries. Except as disclosed in the SEC Documents, the ------------ Company does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, association or other business entity. Section 4.25 No Private Placements. Except as set forth on Schedule 4.25 --------------------- annexed hereto, the Company has not conducted a private placement of its Common Stock or of any debt or equity instrument convertible into Common Stock within one year prior to the Closing Date. Except as set forth on Schedule 4.25 annexed hereto and as disclosed in the SEC Documents, there are no outstanding securities issued by the Company that are entitled to registration rights under the Securities Act. Except as set forth on Schedule 4.25 there are no outstanding securities issued by the Company that are directly or indirectly convertible into, exercisable into, or exchangeable for, shares of Common Stock, that have anti-dilution or similar rights that would be affected by the issuance of the Preferred Stock, the New Common Shares, the Underlying Shares, the Additional Shares, the Warrants, or the Warrant Shares. Section 4.26 No Brokers. Except for its arrangement with a placement ---------- agent, the Company has taken no action which would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments by the Company or any Investor relating to this Agreement or the transactions contemplated hereby. Section 4.27 Permits; Compliance. The Company and each of its ------------------- subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the "Company Permits"), and there is no action pending or, to the knowledge of the Company, threatened regarding the suspension or cancellation of any of the Company Permits except for such Company Permits, the failure of which to possess, or the cancellation, or suspension of which, would not, individually or in the aggregate, have a Material Adverse Effect. To the Company's knowledge, neither the Company nor any of its subsidiaries is in material conflict with, or in material default or material violation of, any of the Company Permits. Since January 1, 1999 neither the Company nor any of its subsidiaries has received any notification with respect to possible material conflicts, material defaults or material violations of applicable laws. Section 4.28 Taxes. All federal, state, city and other tax returns, ----- reports and declarations required to be filed by or on behalf of the Company have been filed and such returns are complete and accurate and disclose all taxes (whether based upon income, operations, -16- purchases, sales, payroll, licenses, compensation, business, capital, properties or assets or otherwise) required to be paid in the periods covered thereby. ARTICLE V --------- Covenants of the Investors -------------------------- Section 5.1 4.99% Limitation. The number of shares of Common Stock ---------------- which may be acquired by any of the Investors pursuant to the terms of this Agreement shall not exceed the number of such shares which, when aggregated with all other shares of Common Stock then owned by any of the Investors, would result in any of the Investors owning more than 4.99% of the then issued and outstanding Common Stock at any one time. The preceding paragraph shall not interfere with any Investor's right to convert 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 Investor 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 provision contained in the Certificate of Designation. ARTICLE VI ---------- Covenants of the Company ------------------------ Section 6.1 Registration Rights. The Company shall cause the Registration ------------------- Rights Agreement to remain in full force and effect so long as any Registrable Securities remain outstanding and the Company shall comply in all material respects with the terms thereof. Section 6.2 Reservation of Common Stock. As of the date hereof, the --------------------------- Company has authorized and reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, shares of Common Stock for the purpose of enabling the Company to satisfy any obligation to issue the New Common Shares, Additional Shares, Underlying Shares and Warrant Shares; such amount of shares of Common Stock to be reserved shall be calculated based upon the Purchase Price therefor under the terms of this Agreement, the Certificate of Designation, and Warrants. The number of shares so reserved shall be increased or decreased to reflect potential increases or decreases in the Common Stock that the Company may thereafter be so obligated to issue by reason of adjustments to the Preferred Stock, the New Common Shares and the Warrants. Section 6.3 Listing of Common Stock. If the Principal Market requires ----------------------- the Company to file a listing application or an additional shares listing application for the Common Stock listed on such Principal Market (the date the Company becomes subject to such requirement is hereinafter referred to as the "Requirement Date"), the Company shall (a) not later than the fifth Business Day following the Requirement Date prepare and file with the Principal Market (as well as any other national securities exchange, market or trading facility on which the Common Stock is then listed) an additional shares listing application covering at least the sum of (i) two times -17- the number of Underlying Shares as would be issuable upon a conversion in full of (and as payment of dividends in respect of) the shares of Preferred Stock, assuming such conversion occurred on the Closing Date, and (ii)(x) the New Common Shares and (y) the Warrant Shares issuable upon exercise in full of the Warrants, (b) take all steps necessary to cause such shares to be approved for listing on the Principal Market (as well as on any other national securities exchange, market or trading facility on which the Common Stock is then listed) as soon as possible thereafter, and (c) provide to the Investors evidence of such listing, and the Company shall maintain the listing of its Common Stock on such exchange or market for so long as the Registrable Securities, the Preferred Stock, the New Common Shares and/or the Warrants are owned by the Investors. In addition, if at any time the number of (i) shares of Common Stock issuable on conversion of all then outstanding shares of Preferred Stock, on account of accrued and unpaid dividends thereon, (ii) shares of Common Stock issuable upon exercise in full of the Warrants and the number of New Common Shares issued on the Closing Date is greater than the number of shares of Common Stock theretofore listed with the Principal Market (and any such other national securities exchange, market or trading facility), the Company shall promptly take such action (including the actions described in the preceding sentence), if required pursuant to the rules and regulations of the Principal Market, to file an additional shares listing application with the Principal Market (and any such other national securities exchange, market or trading facility) covering at least a number of shares equal to the sum of (x) 200% of (A) the number of Underlying Shares as would then be issuable upon a conversion in full of the shares of Preferred Stock, and (B) the number of Underlying Shares as would be issuable as payment of dividends on the Preferred Stock, (y) the number of Warrant Shares as would be issuable upon exercise in full of the Warrants, and (z) the number of New Common Shares issued on the Closing Date. The Company warrants that it (i) has not received any notice, oral or written, affecting its continued listing on the NASD OTC Electronic Bulletin Board, and (ii) is in full compliance with the requirements for continued listing on the NASD OTC Electronic Bulletin Board. The Company will take no action which would impact its continued listing or the eligibility of the Company for such listing. The Company will comply with the listing and trading requirements of its Common Stock on the NASD OTC Electronic Bulletin Board (and of any then Principal Market) and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the Principal Market. In the event the Company receives notification from Nasdaq or any other controlling entity stating that the Company is not in compliance with the listing qualifications of such Principal Market, the Company will immediately thereafter give written notice to each Investor and take all action necessary to bring the Company within compliance with all applicable listing standards of the Principal Market. Section 6.4 Exchange Act Registration. The Company will maintain the ------------------------- registration of its Common Stock under Section 12 of the Exchange Act, will comply in all respects with its reporting and filing obligations under the Exchange Act, and will not take any action or file any document (whether or not permitted by Exchange Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under the Exchange Act. -18- Section 6.5 Legends. The securities to be sold by the Company pursuant ------- to this Agreement shall be free of legends, except as set forth in Article VIII. Section 6.6 Corporate Existence. The Company will take all steps ------------------- necessary to preserve and continue the corporate existence of the Company. Section 6.7 Notice of Certain Events Affecting Registration. The Company ----------------------------------------------- will immediately notify each of the Investors upon the occurrence of any of the following events in respect of a registration statement or related prospectus in respect of an offering of Registrable Securities: (i) receipt of any request for additional information by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the Registration Statement or related prospectus; (ii) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in the Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate. The Company will promptly provide each of the Investors with copies of all correspondence received by the Company with regard to any of the events described in the preceding sentence and make available to the Investors any written responses to the SEC and any such supplement or amendment to the related prospectus. Section 6.8 Consolidation; Merger. For so long as the Preferred Stock, --------------------- the New Common Shares, the Warrants, and/or the Registrable Securities are owned by any Investor, the Company shall not, at any time after the date hereof, effect any merger or consolidation of the Company with or into, or a transfer of all or substantially all of the assets of the Company to, another entity (a "Consolidation Event") unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligation to deliver to the Investors such shares of stock and/or securities as the Investors are entitled to receive pursuant to this Agreement. Section 6.9 Issuance of New Common Shares, Underlying Shares and Warrant ------------------------------------------------------------ Shares. The issuance of the New Common Shares, Underlying Shares and - ------ the Warrant Shares pursuant to exercise of the Warrants, and the conversion of the Preferred Stock, shall be made in accordance -19- with the provisions and requirements of Section 4(2) of the Securities Act or Regulation D and any applicable state securities law. Section 6.10 Legal Opinion. The Company's independent counsel shall ------------- deliver to the Investors upon execution of this Agreement, an opinion in the form of Exhibit E annexed hereto. The Company will obtain for the Investors, at the Company's expense, any and all opinions of counsel which may be reasonably required in order to convert the Preferred Stock and/or exercise the Warrants, including, but not limited to, obtaining for the Investors an opinion of counsel, subject only to receipt of a notice of conversion (the "Notice of Conversion") in the form of Exhibit G, and/or subject only to a receipt of a notice of exercise in the form annexed to the Warrant, directing the Transfer Agent to remove the legend from the certificate. Section 6.11 20% Rule Limitation. If and when required by the Principal ------------------- Market or otherwise on the market or exchange on which the Company's Common Stock is then listed, the Company shall call a meeting of its shareholders, to be held no later than 60 calendar days after becoming subject to such requirement, seeking shareholder approval of the below market issuances of shares of Common Stock (and securities convertible into and exercisable for Common Stock) to the Investors of 20% or more of the number of shares of Common Stock outstanding as of the Subscription Date. In the event that the aforementioned proposal is not so approved within such 60 calendar day period, the Company shall seek a waiver from the Principal Market for such below market issuances. In the event the Company does not receive such waiver within the earlier of ten calendar days after the aforementioned shareholders meeting, or 70 calendar days after becoming subject to such requirement, the Company will repurchase from the Investors based on the Redemption Price (as defined in the Certificate of Designation) that number of shares of Preferred Stock which would result in the Company issuing, in the aggregate, 20% or more of the outstanding Common Stock as of the Subscription Date. Section 6.12 Restrictions on Future Financings. The Company agrees that --------------------------------- it will not, without the prior written consent of all of the Investors, enter into any subsequent or further offer or sale of Common Stock, or any securities or other instruments convertible into shares of Common Stock, with any party that is not a party to this Agreement, until the Registration Statement has been effective for 60 calendar days. This restriction shall not apply to: (a) the issuance of securities (other than for cash) in connection with a merger, consolidation, sale of assets, or other disposition, (b) the exchange of Capital Shares for assets, stock, or joint venture interest, (c) an offering of any of the Company's securities at then current market prices with no repricing or reset provisions, (d) any employee benefit plan or (e) one offering of the Company's proposed Series E Preferred Stock, on terms acceptable to the Investors, for a total consideration of less than $3,000,000; provided, however, that any action contemplated under this Section is subject to the condition that registration rights, if any, in connection with such action shall not require the filing by the Company of a registration statement of such shares prior to 60 calendar days after the Effective Date. -20- Section 6.13 Conversion of Preferred Stock. The Company will permit ----------------------------- the Investors to exercise their right to convert the Preferred Stock by telecopying an executed and completed Notice of Conversion to the Company as is set forth in the Certificate of Designation. Section 6.14 Exercise of Warrants. The Company will permit the Investors -------------------- to exercise their right to purchase shares of Common Stock pursuant to the Warrants by telecopying an executed and completed Notice of Exercise to the Company as is set forth in the Warrants. Section 6.15 Restriction on Future Issuances of Preferred Stock. The -------------------------------------------------- Company agrees that except as provided for in this Agreement, it will not issue any additional share or shares of Preferred Stock. Section 6.16 Increase in Authorized Shares. At such time as the Company ----------------------------- would be, if a notice of conversion or exercise (as the case may be) were to be delivered on such date, precluded from (a) converting in full all of the shares of Preferred Stock that remain unconverted at such date (and paying any accrued but unpaid dividends in respect thereof in shares of Common Stock), or (b) honoring the exercise in full of the Warrants, due to the unavailability of a sufficient number of shares of authorized but unissued or re-acquired Common Stock, the Board of Directors of the Company shall promptly (and in any case within 60 calendar days from such date) hold a shareholders meeting in which the shareholders would vote for authorization to amend the Company's Articles of Incorporation to increase the number of shares of Common Stock which the Company is authorized to issue to at least a number of shares equal to the sum of (i) all shares of Common Stock then outstanding, (ii) the number of shares of Common Stock issuable on account of all outstanding warrants, options and convertible securities (other than the Preferred Stock and the Warrants) and on account of all shares reserved under any stock option, stock purchase, warrant or similar plan, (iii) 200% of the number of Underlying Shares as would then be issuable upon a conversion in full of the then outstanding shares of Preferred Stock and as payment of all future dividends thereon in shares of Common Stock in accordance with the terms of this Agreement and the Certificate of Designation, and (iv) such number of Warrant Shares as would then be issuable upon the exercise in full of the Warrants. In connection therewith, the Board of Directors shall (x) adopt proper resolutions authorizing such increase, (y) recommend to its shareholders, and otherwise use its best efforts to promptly and duly obtain shareholder approval to carry out such resolutions and (z) within five Business Days of obtaining such shareholder authorization, file an appropriate amendment to the Company's Articles of Incorporation to evidence such increase. Section 6.17 Notice of Breaches. The Company shall give prompt written ------------------ notice to each of the Investors of any breach by it of any representation, covenant, warranty or other agreement contained in this Agreement or any Exhibit annexed hereto, as well as any events or occurrences arising after the date hereof, which would reasonably be likely to cause any representation, covenant, or warranty or other agreement of the Company, contained in this Agreement or any Exhibit annexed hereto, to be incorrect or breached as of such Closing Date. However, no disclosure by the Company pursuant to this Section shall be deemed to cure any breach of any representation, warranty or other agreement contained in this Agreement or any -21- Exhibit annexed hereto. Notwithstanding the generality of the foregoing, the Company shall promptly notify each Investor of any notice or claim (written or oral) that it receives from any lender of the Company to the effect that the consummation of the transactions contemplated by this Agreement or any Exhibit annexed hereto, violates or would violate any written agreement or understanding between such lender and the Company, and the Company shall promptly furnish by facsimile to each Investor a copy of any written statement in support of or relating to such claim or notice. Section 6.18 Transfer of Intellectual Property Rights. Except in the ---------------------------------------- ordinary course of the Company's business consistent with past practice or in connection with the sale of all or substantially all of the assets of the Company, the Company shall not transfer, sell or otherwise dispose of, any Intellectual Property Rights, except that the Company may do so in connection with the proposed sale of BHT or other assets constituting less than 5% of the Company's total assets based on the value of such assets as disclosed in the Company's most recently filed SEC Documents, or allow the Intellectual Property Rights to become subject to any Liens, or fail to renew such Intellectual Property Rights (if renewable and would otherwise expire). Section 6.19 Notices. The Company agrees to provide all holders of the ------- Preferred Stock and the Warrants with copies of all notices and information, including, without limitation, notices and proxy statements in connection with any meetings, that are provided to the holders of shares of Common Stock, contemporaneously with the delivery of such notices or information to such Common Stock holders. ARTICLE VII ----------- Due Diligence Review; Non-Disclosure Of Non-Public Information -------------------------------------------------------------- Section 7.1 Due Diligence Review. The Company shall make available for -------------------- inspection and review by the Investors, advisors to and representatives of the Investors (who may or may not be affiliated with the Investors), and any underwriter participating in any disposition of the Registrable Securities on behalf of the Investors pursuant to the Registration Statement, any such registration statement or amendment or supplement thereto or any blue sky, NASD or other filing, all financial and other records, all SEC Documents and other filings with the SEC, and all other corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company's officers, directors and employees to supply all such information reasonably requested by any of the Investors or any such representative, advisor or underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling the Investors and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy of the Registration Statement. Section 7.2 Non-Disclosure of Non-Public Information. ---------------------------------------- -22- (a) The Company shall not disclose non-public information to the Investors, or advisors to or representatives of, the Investors unless prior to disclosure of such information the Company identifies such information as being non-public information and provides each Investor, and its advisors and representatives with the opportunity to accept or refuse to accept such non- public information for review. The Company may, as a condition to disclosing any non-public information hereunder, require each of the Investors advisors and representatives to enter into a confidentiality agreement in form reasonably satisfactory to the Company and the Investors. (b) Nothing herein shall require the Company to disclose non- public information to any of the Investors or their advisors or representatives, and the Company represents that it does not disseminate non-public information to any investors who purchase stock in the Company in a public offering, to money managers or to securities analysts, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the advisors and representatives of the Investors and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in the prospectus included in the Registration Statement would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements, therein, in light of the circumstances in which they were made, not misleading. Nothing contained in this Section shall be construed to mean that such persons or entities other than the Investors (without the written consent of the Investors prior to disclosure of such information) may not obtain non-public information in the course of conducting due diligence in accordance with the terms of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, that the Registration Statement contains an untrue statement of a material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading. ARTICLE VIII ------------ Legends ------- Section 8.1 Legends. The Investors agree to the imprinting, so long as is ------- required by this Section, of the following legend (or such substantially similar legend as is acceptable to the Investors and their counsel, the parties agreeing that any unacceptable legended securities shall be replaced promptly by and at the Company's cost, the "Legend") on the securities: [FOR PREFERRED STOCK AND WARRANTS] NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES MAY BE [CONVERTIBLE OR EXERCISABLE] HAVE BEEN REGISTERED WITH THE SECURITIES -23- AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. [ONLY FOR NEW COMMON SHARES, UNDERLYING SHARES, ADDITIONAL SHARES AND WARRANT SHARES TO THE EXTENT THE RESALE THEREOF IS NOT COVERED BY AN EFFECTIVE REGISTRATION STATEMENT AT THE TIME OF CONVERSION, ISSUANCE OR EXERCISE] THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. The New Common Shares, Underlying Shares, Additional Shares and/or Warrant Shares shall not contain the legend set forth above or any other restrictive legend (other than as pursuant to the Registration Statement) if the conversion of the Preferred Stock, exercise of the Warrants or other issuances of the New Common Shares, the Underlying Shares, the Additional Shares, and/or the Warrant Shares, as the case may be, occurs at any time while a Registration Statement is effective under the Securities Act or, in the event there is not an effective Registration Statement at such time, if in the opinion of counsel to the Company such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the SEC). The Company agrees that it will provide the Investors, upon request, with a certificate or certificates representing New Common Shares, Underlying Shares, Additional Shares and/or Warrant Shares, free from such legend at such time as such legend is no longer required hereunder. The Company may not take any action or make any notation on its records or give instructions to any transfer agent of the Company which enlarge the restrictions of transfer set forth in this Section. Upon the execution and delivery hereof, the Company is issuing to the transfer agent for its Common Stock (and to any substitute or replacement transfer agent for its Common Stock upon the Company's appointment of any such substitute or replacement transfer agent) instructions in substantially the form of Exhibit F hereto. Such instructions shall be irrevocable by the Company from and after the date hereof or from and after the issuance thereof to any such -24- substitute or replacement transfer agent, as the case may be, except as otherwise expressly provided in the Registration Rights Agreement. It is the intent and purpose of such instructions, as provided therein, to require the transfer agent for the Common Stock from time to time upon transfer of Registrable Securities by the Investors to issue certificates evidencing such Registrable Securities free of the Legend during the following periods and under the following circumstances and except as provided below, without consultation by the transfer agent with the Company or its counsel and without the need for any further advice or instruction or documentation to the transfer agent by or from the Company or its counsel or the Investors: (a) at any time after the Effective Date, upon surrender of one or more certificates evidencing the Warrants, the Preferred Stock, the New Common Shares, the Underlying Shares or the Warrant Shares that bear the aforementioned Legend, to the extent accompanied by a notice requesting the issuance of new certificates free of the aforementioned legend to replace those surrendered; provided that (i) the Registration Statement shall then be effective; (ii) the Investor(s) confirm to the transfer agent that it has sold, pledged or otherwise transferred or agreed to sell, pledge or otherwise transfer such Common Stock in a bona fide transaction to a third party that is not an affiliate of the Company; and (iii) the Investor(s) confirm to the transfer agent that the Investor(s) have complied with the prospectus delivery requirement; or (b) at any time upon any surrender of one or more certificates evidencing Registrable Securities, that bear the aforementioned Legend, to the extent accompanied by a notice requesting the issuance of new certificates free of such legend to replace those surrendered and containing representations that (i) the Investor(s) is permitted to dispose of such Registrable Securities, without limitation as to amount or manner of sale pursuant to Rule 144(k) under the Securities Act (or any other similar exemption as may then be in effect), or (ii) the Investor(s) has sold, pledged or otherwise transferred or agreed to sell, pledge or otherwise transfer such Registrable Securities, in a manner other than pursuant to an effective registration statement, to a transferee who will upon such transfer be entitled to freely tradable securities. The Company shall have counsel provide any and all opinions necessary for the sale under Rule 144 (or such other applicable exemption). Any of the notices referred to above in this Section may be sent by facsimile to the Company's transfer agent. Section 8.2 No Other Legend or Stock Transfer Restrictions. No legend ---------------------------------------------- other than the one specified in this Article (or pursuant to the Registration Statement) has been or shall be placed on the share certificates representing the Common Stock, and no instructions or "stop transfer orders," so called, "stock transfer restrictions," or other restrictions have been or shall be given to the Company's transfer agent with respect thereto other than as expressly set forth in this Article. -25- Section 8.3 Investor's Compliance. Nothing in this Article shall affect --------------------- in any way any of the Investors' obligations under any agreement to comply with all applicable securities laws upon resale of the Common Stock. ARTICLE IX ---------- Choice of Law ------------- Section 9.1 Choice of Law; Venue; Jurisdiction. This Agreement will be ---------------------------------- construed and enforced in accordance with and governed exclusively by the laws of the State of New York, except for matters arising under the Securities Act, without reference to principles of conflicts of law. Each of the parties consents to the exclusive jurisdiction of the U.S. District Court sitting in the Southern District of the State of New York sitting in Manhattan in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum ----- non conveniens, to the bringing of any such proceeding in such jurisdictions. - --- ---------- Each party hereby agrees that if another party to this Agreement obtains a judgment against it in such a proceeding, the party which obtained such judgment may enforce same by summary judgment in the courts of any country having jurisdiction over the party against whom such judgment was obtained, and each party hereby waives any defenses available to it under local law and agrees to the enforcement of such a judgment. Each party to this Agreement irrevocably consents to the service of process in any such proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such party at its address set forth herein. Nothing herein shall affect the right of any party to serve process in any other manner permitted by law. Each party waives its right to a trial by jury. In the event that any Investor, or any person claimed to be affiliated or associated with such Investor becomes involved in any capacity in any action, proceeding or investigation brought by or against any such person, including shareholders of the Company, in connection with or as a result of any matter referred to in this Agreement or any exhibit annexed hereto, the Company shall reimburse such Investor and/or those claimed to be affiliated or associated with such Investor for its legal fees and expenses and other expenses (including the cost of any investigation and preparation) incurred in connection therewith, as those fees and expenses are incurred, provided, however, that if at the conclusion of such action, proceeding or investigation it shall be finally judicially determined by a court of competent jurisdiction, without availability of an appeal, that indemnity for such fees and expenses is contrary to law, or that such Investor is not the prevailing party then in that event, such Investor and/or any other person having received such advances of fees and/or expenses shall reimburse the Company in full for the sums advanced. ARTICLE X --------- Assignment; Entire Agreement, Amendment; Termination ---------------------------------------------------- Section 10.1 Assignment. The Investor's interest in this Agreement and ---------- its ownership of the Preferred Stock and the Warrants may be assigned or transferred at any time, in whole or -26- in part, to any other person or entity (including any affiliate of the Investors) who agrees to, and truthfully can, make the representations and warranties contained in Article III, and who agrees to be bound by the covenants of Article V. The provisions of this Agreement shall inure to the benefit of, and be enforceable by, any transferee of any of the shares of the Preferred Stock and/or the Warrants purchased or acquired by the Investors hereunder with respect to the Common Stock held by such person. Section 10.2 Termination. This Agreement shall terminate upon the ----------- earliest of (i) the date that all the Registrable Securities have been sold by the Investors pursuant to the Registration Statement; or (ii) five years after the Closing Date. ARTICLE XI ---------- Notices ------- Section 11.1 Notices. All notices, demands, requests, consents, ------- approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a Business Day during normal business hours where such notice is to be received), or the first Business Day following such delivery (if delivered other than on a Business Day during normal business hours where such notice is to be received) or (b) on the second Business Day following the date of mailing by reputable courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: If to the Company: Global Maintech Corporation 7578 Market Place Drive Eden Prairie, MN 55344 Attention: Chief Executive Officer Facsimile: (612) 944-0400 Telephone: (612) 944-3311 If to the Investors, at the addresses listed on Schedule A. Either party hereto may from time to time change its address or facsimile number for notices under this Section 11.1 by giving at least ten calendar days' prior written notice of such changed address or facsimile number to the other party hereto. -27- Section 11.2 Indemnification. The Company agrees to indemnify and hold --------------- harmless each of the Investors and each officer, director of the Investors or person, if any, who controls the Investors within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several (which shall, for all purposes of this Agreement, include, but not be limited to, all costs of defense and investigation and all attorneys' fees), to which the Investors may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon the breach by the Company of any term of this Agreement, the Certificate of Designation, the Escrow Agreement or the Registration Rights Agreement. This indemnity agreement will be in addition to any liability which the Company may otherwise have. Each Investor severally (and not jointly) agrees that it will indemnify and hold harmless the Company, and each officer, director of the Company or person, if any, who controls the Company within the meaning of the Securities Act, against any losses, claims, damages or liabilities (which shall, for all purposes of this Agreement, include, but not be limited to, all costs of defense and investigation and all attorneys' fees) to which the Company or any such officer, director or controlling person may become subject under the Securities Act or otherwise, insofar as such losses claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon the breach by such Person of any term of this Agreement, the Certificate of Designation, the Escrow Agreement and the Registration Rights Agreement. This indemnity agreement will be in addition to any liability which the Investors or any subsequent assignee may otherwise have. Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve the indemnifying party from any liability which it may have to any indemnified party otherwise than as to the particular item as to which indemnification is then being sought solely pursuant to this Section. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, assume the defense thereof, subject to the provisions herein stated and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless the indemnifying party shall not pursue the action to its final conclusion. The indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the action with counsel reasonably satisfactory to the indemnified party; provided that if the indemnified party is one of the Investors, the fees and expenses of such counsel shall be at the expense of the indemnifying party if (i) the employment of such counsel has been specifically authorized in writing by the -28- indemnifying party, or (ii) the named parties to any such action (including any impleaded parties) include both the Investors and the indemnifying party and the Investors shall have been advised by such counsel that there may be one or more legal defenses available to the indemnifying party different from or in conflict with any legal defenses which may be available to the Investors (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the Investors, it being understood, however, that the indemnifying party shall, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable only for the reasonable fees and expenses of one separate firm of attorneys for the Investor(s), which firm shall be designated in writing by the Investor(s)). No settlement of any action against an indemnified party shall be made without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld. Section 11.3 Contribution. In order to provide for just and equitable ------------ contribution under the Securities Act in any case in which (i) the indemnified party makes a claim for indemnification pursuant to Section 11.2 hereof but is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that the express provisions of Section 11.2 hereof provide for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any indemnified party, then the Company and the applicable Investor shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (which shall, for all purposes of this Agreement, include, but not be limited to, all costs of defense and investigation and all attorneys' fees), in either such case (after contribution from others) on the basis of relative fault as well as any other relevant equitable considerations. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in Section 11.2 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contributions from any person who was not guilty of such fraudulent misrepresentation. Section 11.4 Remedies, Characterizations, Other Obligations, Breaches and ------------------------------------------------------------ Injunctive Relief. The remedies provided in this Agreement, the Registration - ----------------- Rights Agreement and the Certificate of Designation shall be cumulative and in addition to all other remedies available under this Agreement, the Registration Rights Agreement and the Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Agreement, the Registration Rights Agreement and the Certificate of Designation. Amounts set forth or provided for herein and therein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Investors thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The -29- Company acknowledges that a breach by it of its obligations hereunder and thereunder will cause irreparable harm to the holders of the Preferred Stock and that the remedy at law for any such breach may be inadequate. Furthermore, the Company agrees that, in the event of any breach or threatened breach of Sections 6.12, 6.13, 6.14, 6.15, 8.1 or 12.6 herein or Section V of the Certificate of Designation, the holders of the Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach or threatened breach, without the necessity of showing economic loss and without any bond or other security being required. ARTICLE XII ----------- Miscellaneous ------------- Section 12.1 Counterparts; Facsimile; Amendments. This Agreement may be ----------------------------------- executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. Except as otherwise stated herein, in lieu of the original documents, a facsimile transmission or copy of the original documents shall be as effective and enforceable as the original. This Agreement may be amended only by a writing executed by the Company, all of the Investors. Section 12.2 Entire Agreement. This Agreement, the Exhibits or ---------------- Attachments hereto, which include, but are not limited to the Certificate of Designation, the Warrant, the Escrow Agreement, and the Registration Rights Agreement, set forth the entire agreement and understanding of the parties relating to the subject matter hereof and supersedes all prior and contemporaneous agreements, negotiations and understandings between the parties, both oral and written relating to the subject matter hereof. The terms and conditions of all Exhibits and Attachments to this Agreement are incorporated herein by this reference and shall constitute part of this Agreement as is fully set forth herein. Section 12.3 Survival; Severability. The representations, warranties, ---------------------- covenants and agreements of the parties hereto shall survive the Closing hereunder. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that such severability shall be ineffective if it materially changes the economic benefit of this Agreement to any party. Section 12.4 Title and Subtitles. The titles and subtitles used in this ------------------- Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. Section 12.5 Reporting Entity for the Common Stock. The reporting entity ------------------------------------- relied upon for the determination of the trading price or trading volume of the Common Stock on any given Trading Day for the purposes of this Agreement and all Exhibits shall be Bloomberg, L.P. or any -30- successor thereto. The written mutual consent of the Investors and the Company shall be required to employ any other reporting entity. Section 12.6 Replacement of Certificates. Upon (i) receipt of evidence --------------------------- reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of a certificate representing the Preferred Stock, the New Common Shares, the Warrants, the Underlying Shares, the Additional Shares, or the Warrant Shares, and (ii) in the case of any such loss, theft or destruction of such certificate, upon delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or (iii) in the case of any such mutilation, on surrender and cancellation of such certificate, the Company at its expense will execute and deliver, in lieu thereof, a new certificate of like tenor. Section 12.7 Fees and Expenses. Each of the parties shall pay its own ----------------- fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Agreement and the transactions contemplated hereby, except that the Company shall pay on the Subscription Date $40,000 in cash, out of escrow, to Parker Chapin Flattau & Klimpl, LLP for legal fees in connection with the preparation and negotiation of the Notes, this Agreement, the Certificate of Designation, the Registration Rights Agreement, the Warrants and related documents contemplated hereunder. Section 12.8 Noncircumvention. The Company and the Investors agree that ---------------- they shall not circumvent this Agreement and the Company and the Investors agree that they will not circumvent the provisions of this Agreement or the Escrow Agreement and the Company's obligation for the payment of fees to the Escrow Agent. Section 12.9 Publicity. The Company and the Investors shall consult with --------- each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and no party shall issue any such press release or otherwise make any such public statement without the prior written consent of the other parties, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other parties with prior notice of such public statement. Notwithstanding the foregoing, the Company shall not publicly disclose the name of the Investors without the prior written consent of the Investors, except to the extent required by law, in which case the Company shall provide the Investors with prior written notice of such public disclosure. Section 12.10 No Group. It is hereby agreed and acknowledged by the -------- parties hereto that each Investor is acting individually and for its own account in purchasing the Preferred Stock, the New Common Shares and the Warrants, with no agreement to act together for the purpose of acquiring, holding, voting or disposing of any equity securities or otherwise. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] [SIGNATURE PAGE FOLLOWS] -31- IN WITNESS WHEREOF, the parties hereto have caused this Series D Convertible Preferred Stock Purchase Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above. GLOBAL MAINTECH CORPORATION By: /s/ James Geiser ------------------------------------------ James Geiser Chief Financial Officer and Secretary ESQUIRE TRADE & FINANCE INC. By: /s/ Roland Winiger ------------------------------------------ Roland Winiger, Director AUSTINVEST ANSTALT BALZERS By: /s/ Dr. Walter Grill ------------------------------------------- Dr. Walter Grill, Director ASSANZON DEVELOPMENT CORPORATION By /s/ ---------------------------------------------_ NESHER INC. By: /s/ -------------------------------------------- -32- GARROS, LTD. By: /s/ ---------------------------------------- AMRO INTERNATIONAL By: /s/ ---------------------------------------- -33- SCHEDULE A ---------- PRIOR INVESTORS: 1. Esquire Trade & Finance Inc. Trident Chambers P.O. Box 2154 6342 Baar, Switzerland Facsimile: 41-41-760-1031 Attention: Roland Winiger, Director Initial Investment Amount: $500,000 No. of Shares of Preferred Stock: 500 No. of New Common Shares: 28,125 2. Austinvest Anstalt Balzers Landstrasse 938 9494 Furstentums Balzers, Liechtenstein Attention: Dr. Walter Grill Facsimile: 431-534-532-895 Initial Investment Amount: $500,000 No. of Shares of Preferred Stock: 500 No. of New Common Shares: 28,125 3. Nesher, Inc. 18 Peel Road Douglas, Isle of Man 1M1-4L2 United Kingdom Attention: David Grin Facsimile: 01197236050756 Initial Investment Amount: $100,000 No. of Shares of Preferred Stock: 100 No. of New Common Shares: 5,625 4. Assanzon Development Corporation 3501 Bamboo Grove 76 Kennedy Road Mid-levels, Hong Kong Attention: Facsimile: Initial Investment Amount: $500,000 No. of Shares of Preferred Stock: 500 No. of New Common Shares: 28,125 NOTE INVESTORS 1. Garros, Ltd. P.O. Box 146 Road Town, Tortola British Virgin Islands Attention: Giora Lavie Facsimile: (011) 972-3-544-1870 Initial Investment Amount: $150,000 No. of Shares of Preferred Stock: 150 No. of New Common Shares: 4,500 2. Austinvest Anstalt Balzers Landstrasse 938 9494 Furstentums Balzers, Liechtenstein Attention: Dr. Walter Grill Facsimile: 431-534-532-895 Initial Investment Amount: $75,000 No. of Shares of Preferred Stock: 75 No. of New Common Shares: 2,250 3. Esquire Trade & Finance Inc. Trident Chambers P.O. Box 2154 6342 Baar, Switzerland Facsimile: 41-41-760-1031 Attention: Roland Winiger, Director Initial Investment Amount: $75,000 No. of Shares of Preferred Stock: 75 No. of New Common Shares: 2,250 NEW INVESTORS 1. Amro International Ultra Finance Grossmuenster Platz, No. 6 Zurich, Switzerland CH8022 Attention: Thomas Badian Facsimile: (212) 214-0440 Investment Amount: $500,000 No. of Shares of Preferred Stock: 500 No. of New Common Shares: 15,000 2. Garros, Ltd. P.O. Box 146 Road Town, Tortola British Virgin Islands Attention: Giora Lavie Facsimile: (011) 972-3-544-1870 Investment Amount: $200,000 No. of Shares of Preferred Stock: 200 No. of New Common Shares: 6,000 SCHEDULE 4.3 ------------ 5% BENEFICIAL OWNERS -------------------- 1. One Person (or group of Persons) has recently exceeded (or is about to exceed) a 5% beneficial ownership of shares of the Company's Common Stock outstanding that has not been previously disclosed. In November 1999 the Company sold Common Stock in the amount of $500,000 at $4.00 per share to Liviakis Financial Communications, Inc., John M. Liviakis and Renee A. Liviakis (collectively, "Liviakis Group") and entered into an amendment to its Consulting Agreement with Liviakis Financial Communications, Inc. The shares of Common Stock have not been issued for these transactions but when such issuances occur, the Company expects the Liviakis Group's beneficial ownership of the Company's Common Stock to exceed 5%. Attorneys for the Liviakis Group presently are preparing the necessary forms for filing the required SEC documents. SCHEDULE 4.14 ------------- LITIGATION ---------- SCHEDULE 4.25 -------------- PRIVATE PLACEMENTS ------------------ 1. Common Stock issued at $4.00 per share. Total shares issued were 125,000 for gross proceeds of $500,000.00. The transaction closed on November 17, 1999. EX-4.11 6 SERIES D CONVERTIBLE PREFERRED STOCK SPECIMEN EXHIBIT 4.11 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 _________________________________________________ Shares of ______________________________________________ fully paid and nonassessable shares of Series D 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 be sealed with the seal of the corporation. NO this day of ' . ______________________ ____________ _______ ____________________________ __________________________ Secretary President [CORPORATE SEAL] Neither these securities nor the securities into which these securities may be convertible have been registered with the securities and exchange commission or the securities commission of any state in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, may not be offered or sold except pursuant to an effective registration statement under the securities act or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the securities act and in accordance with applicable state securities laws. A full statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof of the corporation and the qualifications, limitations or restrictions of such preferences and/or rights will be furnished by said corporation to any stockholder under request and without charge. EX-4.12 7 SERIES E FORM OF SPA EXHIBIT 4.12 SERIES E FORM OF SPA SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT, dated as of December 30/th/, 1999, is entered into by and between Global MAINTECH Corp., a Minnesota corporation, with headquarters located at 7578 Market Place Drive Eden Prairie, MN 55344 (the "Company"), and the undersigned (referred to individually as the "Buyer" and collectively as the ("Buyers"). W I T N E S S E T H: WHEREAS, the Company and the Buyers 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 E, $1,000 stated value (the "Preferred Stock"), of the Company which will be convertible into shares of Common Stock, no par value per share 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 undersigned 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 up to $2,650,000 of such Preferred Stock, and having the terms and conditions set forth in the Certificate of Designations, attached hereto as Annex I (the "Certificate of Designations"). 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 1 shares, if any, issued as dividends thereon, unless the context otherwise requires. (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 to: City National Bank 1950 Avenue of the Stars Los Angeles, CA 90067 ABA# 122016066 For credit to the account of Law Offices of Michael S. Rosenblum Escrow for Nash, LLC Account No.: 009477772 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. Each Buyer represents and warrants to, and covenants and agrees with, the Company as follows: 2 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 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 are 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, 1998, (ii) the Company's reports on Form 10-QSB for the periods ending March 31, 1999, June 30, 1999 and September 30, 1999 (the "SEC Reports"); f. The Buyer understands that its investment in the Securities involves a high degree of risk. 3 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 Certificate of Designations) shall each 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 such 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 Paragraph 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 such Buyer to have a beneficial ownership interest in excess of 4.99%. The Company hereby indemnifies and holds each 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 each Buyer under Sections 13(d) and 16 resulting from a conversion(s) of Preferred Stock, unless such claim arises from such 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 4 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 such 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 each 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-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 NASDAQ "Bulletin Board" market. 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 November 15, 1999, 4,823,187 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 5 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 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, 1998 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 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 distibution of cash or other 6 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. 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, the Company has no liabilities or obligations other than those disclosed in the Company's SEC Reports 7 or those incurred in the ordinary course of the Company's business since December 31, 1998, 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. n. No Default. Except as disclosed in Annex V hereto 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 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 of stock in the Company (obtained by conversions of the Preferred Stock) for any period beyond that which is required under the Securities 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 Securities Act, Securities Exchange Act, any rules applicable to securities traded on the NASDAQ "Bulletin Board" and the express terms of this Agreement, the Certificate of Designation for the Preferred Stock and the Registration Rights Agreement. Notwithstanding the 8 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 for the Preferred Stock, both dated the date hereof), each Buyer acting individually 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) 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 (then held by such 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) such Buyer on the day of the "short sale" as a result of prior conversions. 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): 9 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 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 subparagraph (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 10 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). (iv) In the event the Company breaches the provisions of this Paragraph 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, (II) $5.125 [the lowest closing bid price during the ten (10) day trading period immediately prior to the Closing Date], and Buyer may, within thirty (30) days after it receives written notice of such breach from the Company, require the Company to immediately redeem all outstanding Preferred Stock in accordance with Section 4(k)(y). 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 50,000 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 "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 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. The Certificate of Designation for the Preferred Stock shall contain provisions substantially consistent with the above terms, with such additional provisions as may be 11 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. 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 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 12 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 five (5) 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
c. 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, require the Company (without limiting its other remedies hereunder) to immediately redeem all outstanding Preferred Stock in accordance with Section 4(k)(y). 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 13 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 paragraphs 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 paragraph, 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. 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. 14 (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 Two Million Six Hundred Fifty Thousand Dollars ($2,650,000) 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: 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; 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 Paragraph 4g; and 15 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. 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 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 16 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: COMPANY: Global MAINTECH Corp. 7578 Market Place Drive Eden Prairie, MN 55344 ATTN: CEO Telecopier No.: (612) 944-0400 Telephone No.: (612) 944-3311 with a copy to: 17 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 Telecopier No. (310) 286-2100 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: 2,650* AGGREGATE PURCHASE PRICE OF SUCH PREFERRED STOCK: $2,650,000* *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 30/th/ day of December, 1999. Printed Names of Buyers 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. Global MAINTECH Corp., a Minnesota corporation By: ___________________________ Title: _____________________________ Date: _________________________ ANNEX TO SIGNATURE PAGE AMOUNT SHARES - ------ ------ $2,500,000 2,500 Nash, LLC, a Cayman Islands limited liability company By: /s/ ----------------------------------------- Manager $100,000 100 Greenfield Capital Partners, LLC, a Delaware limited liability company By: /s/ ----------------------------------------- Manager $50,000 50 Carbon Mesa, LLC, a Bahamian limited liability company By: /s/ ----------------------------------------- Manager ADDRESS: c/o Thomson Kernaghan & Co. 365 Bay Street, Suite 1000, 10/th/ 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 ------------------ Securities Purchase Agreement Between Global MAINTECH Corp and Buyers Dated December 30, 1999 ANNEX V The Company is in negotiations to sell its Breece Hill Technologies, Inc. subsidiary and may sell other assets constituting less than 5% of the Company's total assets as disclosed in the Company's most recently filed SEC Reports. In November 1999 the Company sold common stock in the amount of $500,000 at $4.00 per share to Liviakis Financial Communications, Inc, John M. Liviakis and Renee A. Liviakis and entered into an amendment to its Consulting Agreement with Liviakis Financial Communications, Inc. The Company is in the process of negotiating final documentation with investors and their representatives for $1,000,000 of 8% Cumulative Convertible Redeemable Preferred Stock, Series D. EX-4.13 8 SERIES E CONVERTIBLE PREFERRED STOCK SPECIMEN EXHIBIT 4.13 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 _________________________________________________ Shares of ____________________________________________________ fully paid and nonassessable shares of Series E 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 be sealed with the seal of the corporation. NO this day of , . ______________________ ____________________ ____ _________________________ ________________________________ Secretary President [CORPORATE SEAL] Neither these securities nor the securities into which these securities may be convertible have been registered with the securities and exchange commission or the securities commission of any state in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, may not be offered or sold except pursuant to an effective registration statement under the securities act or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the securities act and in accordance with applicable state securities laws. A full statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof of the corporation and the qualifications, limitations or restrictions of such preferences and/or rights will be furnished by said corporation to any stockholder under request and without charge. EX-4.14 9 FORM OF CERTIFICATE OF DESIGNATION OF SERIES F EXHIBIT 4.14 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 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 -1- 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. -2- 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 "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. -3- "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 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: -4- 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 -5- failure to issue and deliver the 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 -6- 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 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. -7- 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. 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. -8- 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 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 -9- 4. cancel or modify the rights of the holders of the Series F 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 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 -10- 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, 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. -11- 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 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; -12- (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. 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 -13- 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 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 -14- EX-4.16 10 FORM OF CERTIFICATE FOR SHARES OF SERIES F EXHIBIT 4.16 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 _________________________________________________ Shares of ____________________________________________________ fully paid and nonassessable shares of Series F 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 be sealed with the seal of the corporation. NO this day of , . ______________________ ____________________ ____ _________________________ ________________________________ Secretary President [CORPORATE SEAL] Neither these securities nor the securities into which these securities may be convertible have been registered with the securities and exchange commission or the securities commission of any state in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, may not be offered or sold except pursuant to an effective registration statement under the securities act or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the securities act and in accordance with applicable state securities laws. A full statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof of the corporation and the qualifications, limitations or restrictions of such preferences and/or rights will be furnished by said corporation to any stockholder under request and without charge. EX-5 11 OPINION OF DORSEY & WHITNEY LLP Exhibit 5 --------- DORSEY & WHITNEY LLP Pillsbury Center South 220 South Sixth Street Minneapolis, Minnesota 55402-1498 Global MAINTECH Corporation 7578 Market Place Drive Eden Prairie, Minnesota 55344 Re: Registration Statement on Form SB-2 Ladies and Gentlemen: We have acted as counsel to Global MAINTECH Corporation, a Minnesota corporation (the "Company"), in connection with a Registration Statement on Form SB-2, together with any subsequent amendments thereto (the "Registration Statement"), relating to the proposed registration by the Company of 3,074,726 shares of the Company's common stock, no par value per share, to be soled by the selling shareholders named therein. We have examined such documents and have reviewed such questions of law as we have considered necessary and appropriate for the purposes of our opinion set forth below. In rendering our opinion, we have assumed the authenticity of all documents submitted to us as originals, the genuineness of all signatures and the conformity to authentic originals of all documents submitted to us as copies. We have also assumed the legal capacity for all purposes relevant hereto of all natural persons and, with respect to all parties to agreements or instruments relevant hereto other than the Company. As to questions of fact material to our opinion, we have relied upon certificates of officers of the Company and of public officials. Based on the foregoing, we are of the opinion that the Common Stock has been duly authorized by all requisite corporate action and, upon issuance, delivery and payment therefor will be validly issued, fully paid and nonassessable. The opinion set forth above is subject to the following qualifications and exceptions: (a) In rendering the opinion set forth above, we have assumed that, at the time of the issuance and delivery of the Common Stock, resolutions of the board of directors of the Company relating hereto will not have been modified or rescinded, there will not have occurred any change in the law affecting the authorization, issuance or delivery of the Common Stock, the Registration Statement will have been declared effective by the Securities and Exchange Commission and will continue to be effective, and neither the issuance and sale thereof will result in a violation of any agreement or instrument then binding upon the Company or any order of any court or governmental body having jurisdiction over the Company. Global MAINTECH Corporation Page 2 Our opinion expressed above is limited to the laws of the State of Minnesota and the federal laws of the United States of America. We hereby consent to your filing of this opinion as an exhibit to the Registration Statement, and to the reference to our firm under the caption "Legal Matters" contained in the prospectus included therein. Dated: March 3, 2000 Very truly yours, /s/ Dorsey & Whitney LLP KLC EX-21 12 SUBSIDIARIES OF THE COMPANY EXHIBIT 21 List of Subsidiaries -------------------- Name State of Incorporation - ---- ---------------------- Global MAINTECH, Inc. Minnesota Breece Hill Technologies, Inc. Delaware Envisio, Inc. Minnesota Generation Systems, Inc. California Singlepoint Systems, Inc. Minnesota EX-23.1 13 CONSENT OF KPMG LLP EXHIBIT 23.1 Consent of Independent Auditors The Board of Directors Global MAINTECH Corporation: We consent to the use of our report dated March 29, 1999, except as to Note 12 which is as of September 2, 1999, included herein and to the reference to our firm under the heading "Experts" in the prospectus in this Form SB-2 registration statement. /s/ KPMG LLP Minneapolis, Minnesota March 3, 2000 -----END PRIVACY-ENHANCED MESSAGE-----