-----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, Cc4T6NzmqCNB+SxH8n5U4dSBBgSbcyA4S77wji7qmKo3FZHNCxOriC8JpkTr+hVz XUadBav2555MH9njdFIIGw== 0001045969-99-000223.txt : 19990403 0001045969-99-000223.hdr.sgml : 19990403 ACCESSION NUMBER: 0001045969-99-000223 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: 10KSB SEC ACT: SEC FILE NUMBER: 000-14692 FILM NUMBER: 99583475 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 10KSB 1 FORM 10KSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1998 Commission File Number 0-14692 Global MAINTECH Corporation Minnesota 41-1523657 State of Incorporation I.R.S. Employer Identification No. 7578 Market Place Drive Eden Prairie, MN 55344, (612) 944-0400 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, no par value Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Check if disclosure of delinquent filers in response to Item 405 of Regulations S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [x] The Company's revenues for the Fiscal Year Ended December 31, 1998 totaled $6,209,000. The aggregate market value of voting stock held by non-affiliates of the registrant as of March 5, 1999 was approximately $29,681,000 based upon the closing bid price on the OTC Bulletin Board on that date. The number of shares of the Company's no par value common stock outstanding as of March 5, 1999 was 18,409,397. Transitional Small Business Disclosure Format (Check One): Yes ___ No _X_ DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement for the Annual Meeting of Shareholders for the year ended December 31, 1998 are incorporated by reference in part III Copies of the Company's Forms 10-KSB, as filed with the Securities and Exchange Commission, may be obtained free of charge from James Geiser at the Company, 7578 Market Place Drive, Eden Prairie, Minnesota 55344, phone 612-944-0400 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Annual Report on Form 10-KSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties that may cause the Company's actual results to differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, the uncertainty in the Company's ability to continue to operate profitably in the future; failure of the Company to meet its future additional capital requirements; loss of key personnel; failure of the Company to respond to evolving industry standards and technological changes; inability of the Company to compete in the industry in which it operates; failure of the Company to successfully integrate the operations of newly acquired businesses; lack of market acceptance of the Company's products, including products under development; failure of the Company to secure adequate protection for the Company's intellectual property rights; and the Company's exposure to product liability claims. The forward-looking statements are qualified in their entirety by the cautions and risk factors set forth in Exhibit 99, under the caption "Cautionary Statement," to this Annual Report on Form 10-KSB for the year ended December 31, 1998. PART I ------ Item 1. Description of Business. General The Company, through its wholly owned subsidiaries Global MAINTECH, Inc. and SinglePoint Systems, Inc., designs, develops and markets a computer system, consisting of hardware and software, which monitors and controls diverse computers in a data center from a single, master console. The Virtual Command Center ("VCC" or "VCC Unit") can simultaneously manage mainframes, mid-range computers (e.g., UNIX, Microsoft and Windows NT platforms) and networks. The VCC is designed to perform three primary functions: (a) consolidate consoles (computer terminal with access to the internal operation of a computer) into one monitor, a "virtual console" or single point of control: (b) monitor and control the computers connected to the virtual console; and (c) automate most, if not all, of the routine processes performed by 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 reduced instruction set computer ("RISC") 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 1995, the Company installed it first three VCC Units in the data centers of a large industrial and financial company. In 1996, the Company sold or leased seven additional VCC Units and added two new customers. As of December 31, 1997, the Company had sold or leased a cumulative total of twenty-one VCC Units to a total of eight customers. As of December 31, 1998, the Company had sold or leased a cumulative total of 38 VCC Units to a total of 14 customers. The Company's customers include: General Electric Capital Corporation, Burlington Northern Santa Fe Railroad, Storage Technology Corporation, Systems Management Specialists, Inc., Ferntree Computer Corp. (Australia), SAP America, Inc., Deluxe Corporation, Bank One Services Corp., BMC Software, Frontier Information Technologies, Inc., Merrill Lynch & Co. Inc., Southern California Gas Company, Alltel Information Services, Spiegel Inc. and Minnesota Mining and Manufacturing Company. Our existing customers are not required to buy additional hardware products or to renew their software license and maintenance agreements with us when such licenses and agreements expire. Therefore, a significant portion of our revenue is derived from non-recurring revenue sources. In an effort to enhance its revenue base, the Company purchased two new product lines during 1998. 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. 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 will use 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. Systems Management Software 2 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, sold by other companies. Annual sales of systems-management software were estimated to be $6.8 billion as of November 1996. It is believed this market will grow to almost $10 billion by 2000, which would represent a compound annual growth rate of approximately 30%. The Company believes the VCC also is well suited for use in enterprise computing applications. Enterprise computing is the term associated with the hardware and software which enables computer that contain different processors to be linked together. The VCC has its own proprietary software and hardware which allow it to form an enterprise computing management system. The VCC can be used to monitor and control desktop servers, mid-range servers and mainframes. Sales of all UNIX-based enterprise computing applications in 1997 were approximately $33 billion. The Company is engaged primarily in the business of manufacturing and selling VCC Units. This line of business generated all of the Company's revenue in 1996 and 1997, and the majority of revenue for the year ended December 31, 1998. 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. As of December 31, 1998, the Company had no employees and its operating subsidiaries, Global MAINTECH, Inc. and SinglePoint Systems, Inc. had 69 and 18 employees, respectively. See also "Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent Developments." Item 2. Description of Property. The Company's headquarters is located at 7578 Market Place Drive, Eden Prairie, MN 55344. The lease for this location, 17,369 square feet, terminates on September 30, 2001. In May 1998 the Company entered into a three year office lease for 1,012 square feet located at 19700 Fairchild Road, Suite 320, Irvine, CA 92612 to conduct sales and technical development. In conjunction with an asset purchase the Company acquired two office leases at 4020 Moore Ave., Suite 115, San Jose, CA 95117 with 2,062 square feet and 6059 Frantz Road, Suite 101, Dublin, OH 43017 with 1,152 square feet. These leases provide for monthly payments through October 31, 2002 of $4,846 and December 14, 2000 of $1,200, respectively and are used as sales and technical development offices. The Company is responsible for utilities, insurance, and other operating expenses at all locations. Item 3. Legal Proceedings. None. Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted to a vote of the Company's shareholders during the quarter ended December 31, 1998. 3 PART II ------- Item 5. Market for Common Equity and Related Stockholder Matters. General. The Company's common stock trades on the OTC Bulletin Board under the symbol "GLBM". The following are the high and low bid quotations for the Company's common stock as reported on the OTC Bulletin Board during each quarter of the fiscal years ended December 31, 1998 and 1997. These quotations represent prices quoted between dealers, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. Year Ended December 31, 1998 Common Stock Quarter High Low --------------------------------- First $ 2.75 $ 1.88 Second 2.75 1.94 Third 2.34 1.13 Fourth 1.69 1.06 Year Ended December 31, 1997 Common Stock Quarter High Low --------------------------------- First $ 2.56 $ 1.44 Second 2.75 1.50 Third 2.38 1.69 Fourth 2.88 1.94 As of March 5, 1999, the Company had approximately 3,100 shareholders of record. The Company has not paid cash dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future. Sales of Unregistered Securities. Offering of Series B Preferred Stock and Warrants. From late August 1998 until December 31, 1998, the Company offered up to 615,385 units for sale in a private placement of securities of which 335,961 units were sold to accredited investors. 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 $6.50. The securities were offered under Rule 506 of Regulation D of the Securities Act. Each share of Series B Preferred Stock entitles the holder thereof to receive an annual dividend equal to $0.52. 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 $3.25, 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 $2.50 nor less than $0.75. 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 Nasdaq. Each Warrant is a five-year callable warrant to purchase Common Stock at $3.25 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 $4.375 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 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 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 335,961 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. Unregistered Issuance in Connection with Asset Purchase from Asset Sentinel, Inc. The Company, through its wholly owned subsidiary Global MAINTECH, Inc. ("GMI"), purchased substantially all the assets of Asset Sentinel, Inc., a Minnesota corporation ("ASI"), pursuant to an Asset Purchase Agreement effective as of October 1, 1998 by and among the Company, GMI and ASI. The Company purchased ASI's computer software products, and the trademarks and copyrights related thereto, and assumed no liabilities of ASI. The primary assets acquired by the Company were a suite of software products, including CERBERUS, CAD/COM 4.0 and SentinelSwitch, which provide updated mapping of network, cable and telephone lines in buildings and computer centers. The acquired software may be offered by the Company to customers as an additional component of the Company's base VCC unit or as a stand-alone product. The purchase price was paid as follows: $279,320 was paid by the cancellation of a note receivable from ASI and the remainder was paid by a note payable to ASI in the amount of $145,680 due within six months of the closing date (for a total of $425,000). The note payable was issued pursuant to Section 4(2) of the Securities Act. The purchase price of the assets is subject to adjustment depending on the sales generated by the Company using the purchased assets during the 18-month period following the closing of the transaction. The adjustment to the purchase price, if any, will equal Sales (as defined below) multiplied by 2.2; provided, however, that the amount of such adjustment shall not exceed $2,200,000. "Sales" means the greater of (a) the annualized sales generated by the Company using the purchased assets during the 18-month period following the closing or (b) the sales generated by the Company using the purchased assets during the 12-month period from April 1, 1999 through March 31, 2000. The payment of the adjustment, if any, by GMI shall be in cash or Common Stock at the discretion of GMI. Any shares of Common Stock issued in connection with the adjustment will be issued pursuant to Section 4(2) of the Securities Act. Unregistered Issuance in Connection with Asset Purchase from Enterprise Systems, Inc. The Company, through its wholly owned subsidiary Singlepoint Systems, Inc. ("SSI"), purchased substantially all of the assets of Enterprise Solutions, Inc., an Ohio corporation ("ESI"), pursuant to an Asset Purchase Agreement effective as of November 1, 1998 (the "Purchase Agreement") by and among the Company, GMI, SSI and ESI. In addition to purchasing substantially all of the assets of ESI (including rights under and to ESI's computer software products, the trademarks and copyrights related thereto, ESI's ongoing leases, contracts and certain office equipment), the Company assumed certain liabilities of ESI. 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 ESI's short-term consulting business, which assists companies to optimize their existing systems management 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 ESI; options to purchase a maximum of 1,700,000 shares of Common Stock or a minimum of 400,000 shares of Common Stock, subject to earnings events over the 18 months following the closing, were issued to the shareholders of ESI (the "Shareholder Options"); and options to purchase a maximum of 80,000 shares of Common Stock were issued to the employees of ESI (the "Employee Options"). All such options have an exercise price equal to $1.25 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 1,300,000 shares. Conversely, the Company will pay ESI 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 ESI or return the purchased assets (and related liabilities) to ESI as of the end of the Earn-out period. In the event such assets are returned to ESI, 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. Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations The consolidated financial statements that accompany this discussion show the operating results of the Company for the years ended December 31, 1998 and 1997. These results include the operations of Global MAINTECH, Inc. and its wholly owned subsidiaries. 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 Virtual Command Center or 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 the Company 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 eight 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, the Company 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 4 increased business activities of the Company. Professional and technical expenses which include legal, accounting and investor relations expenses increased due to additional business activity during 1998 (see--Recent Developments). 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 the Company on June 19, 1997. Interest income in 1998 is primarily due to lease income where the Company 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. Liquidity and Capital Resources As of December 31, 1998, the Company had positive working capital of approximately $2,068,000 compared to approximately $2,884,000 as of December 31, 1997. The decrease in positive working capital as of December 31, 1998 is primarily due to the net loss. Net cash used in operating activities for the year ended December 31, 1998 was approximately $1,283,000 compared to approximately $302,000 used by such activities in the year ended December 31, 1997. During the year ended December 31, 1998 operating funds of approximately $92,000 were used by net loss prior to depreciation/amortization and allowance for doubtful accounts. Operating funds were also used for assets including inventory, accounts receivable and prepaid expenses of approximately $718,000. Increases in short-term liabilities provided cash of approximately $780,000. Cash used for investing activities in the year ended December 31, 1998 of approximately $3,603,000 reflects investments of approximately $2,052,000 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, and approximately $1,277,000 in purchases of companies and purchases of software. Additionally, the Company invested approximately $1,076,000 of property and equipment. Cash was provided by the sale of sales-type leases 737,000 and the collection of a note receivable. In 1997 the Company invested approximately $782,000 in capitalized computer software development costs, $942,000 in both sales-type and operating leases of the Company's equipment, $109,000 in purchased technology and patent costs, $75,000 in notes receivable and purchased $362,000 of property and equipment. Net cash of approximately $3,822,000 was provided by financing activities in the year ended December 31, 1998. This is the result of net proceeds from the issuance of Common Stock of approximately $1,489,000 primarily through two separate private placements at per share prices of $1.90 and $1.50, the issuance of Series B Preferred Stock of $2,184,000 and the issuance of short-term notes payable, $250,000 of which are secured by accounts receivable. These proceeds were partially offset by current maturity over the next twelve months of $100,000 related to the $2,000,000 of subordinated notes payable issued in 1997. In the year ended December 31, 1997 cash was provided by the issuance of Common Stock of $2,768,000, the issuance of $2,000,000 of subordinated notes payable and the collection of a $30,000 note receivable. These proceeds in 1997 were offset by decreases in short-term notes payable of approximately $320,000 and the disbursement of $212,000 for deferred debt costs related to the issuance of $2,000,000 of subordinated notes payable. Presently, the Company believes it has sufficient working capital to pay its current liabilities. In addition to the proceeds received from the issuance of debt and equity discussed above, the Company believes its working capital will improve as the Company's profitability improves. This depends on the Company's ability to collect its accounts receivable and to make sales sufficient to realize the full value of its current inventory. Since the Company has recently achieved gross margins of approximately 63% on its sales, management believes the Company's financial health will improve as additional sales are realized. To that end, the Company has continued to purchase additional inventory in anticipation of additional sales. Nevertheless, the Company can provide no assurance as to its future profitability and access to the capital markets. During the year ended December 31, 1998, the Company's liquidity was reduced through its investment in current assets and its capital resources were used to make investments in long-term assets. For the last three months the Company has been negotiating with Mezzanine Capital to allow availability of a working capital line of credit of 5 approximately $1,000,000 as such working capital line is allowed according to the terms of the loan and security agreement dated June 19, 1997, which was executed in connection with the issuance of $2,000,000 of Subordinated debt. As of the date of this report the Company has a commitment from another lender to provide this working capital line secured by accounts receivable. The Company's operating plan for the year ending December 31, 1999 anticipates a substantial increase in sales over the year ended December 31, 1998 with a commensurate increase in earnings. The projected increase in sales is based on an increase in sales of the Company's traditional products and an increase in sales resulting from the Company's acquisitions during 1998. As a result this operating plan projects an increase in liquidity from sales and earnings and from access to capital markets to exceed the Company's anticipated investment in long-term assets. While the Company believes in the viability of its operating plan and currently anticipates that it will continue to have access to capital markets, there can be no assurances to that effect. Year 2000 Issue Background. Many currently installed computer systems and software are coded to accept only two-digit entries in the date code fields. These date code fields will need to accept four-digit entries to distinguish 21st century dates from 20th century dates. This problem could result in system failures or miscalculations causing disruptions of business operations (including, among other things, a temporary inability to process transactions, send invoices or engage in other similar business activities). As a result, many companies' computer systems and software will need to be upgraded or replaced in order to comply with year 2000 requirements. The potential global impact of the year 2000 problem is not known, and, if not corrected in a timely manner, could affect the Company and the U.S. and world economy generally. State of Readiness. The Company has analyzed the potential effect of the year 2000 issue on both the system software included in the Company's products and its internal systems (e.g., word processing and billing software), including its information technology ("IT") and non-IT systems (which systems contain embedded technology in manufacturing or process control equipment containing microprocessors or other similar circuitry). The Company's year 2000 compliance program includes the following phases: identifying systems that need to be modified or replaced; carrying out remediation work to modify existing systems or convert to new systems; and conducting validation testing of systems and applications to ensure compliance. The Company is currently in the remediation phase of this program with respect to software purchased or licensed from software vendors by the Company and used internally and has completed the validation phase of this program with respect to its own products. The amount of remediation work required to address year 2000 problems is not expected to be extensive. The Company has tested all of the system software included in its products and determined that it is year 2000 compliant. In addition, the Company has requested and received documentation from vendors supplying software for its primary business applications addressing year 2000 compliance. In all cases, vendors' responses indicated that their applications were either currently year 2000 compliant or that they would be compliant by the end of 1998. Therefore, the Company will be required to modify some of its existing software applications in order for its internal computer systems to function properly in the year 2000 and thereafter. The Company estimates that it will complete its year 2000 compliance program for all of its significant internal systems no later than July 1, 1999. The Company also has had informal discussions with its major suppliers and customers regarding their efforts to address the year 2000 problem. These actions are intended to help mitigate the possible external impact of the year 2000 problem. However, it is impossible to fully assess the potential consequences in the event service interruptions from suppliers occur or in the event that there are disruptions in such infrastructure areas as utilities, communications, transportation, banking and government. Costs. Because essentially all of the Company's products and internal systems were created in the last few years, such products and internal systems were designed to avoid the year 2000 problem. As a result, the total cost for resolving the Company's year 2000 issues is expected to be less than $10,000, a negligible amount of which has been spent through December 31, 1998. The total cost estimate includes 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. Estimates of year 2000 costs are based on numerous assumptions, and there can be no assurance that the estimates are correct or that actual costs will not be materially greater than anticipated. Contingency. The Company has not yet developed a contingency plan to provide for continuity of processing in the event of various problem scenarios, but it will assess the need to develop such a plan based on the outcome of the validation phase of all of its systems and any additional results from surveys of its major suppliers and customers with respect to their year 2000 compliance. 6 Risk. Based on its assessments to date, the Company believes it will not experience any material disruption as a result of year 2000 problems with respect to its products and the third-party systems it uses for its internal functions, and, in any event, the Company does not anticipate the year 2000 issues it will encounter will be significantly different than those encountered by other computer hardware and software manufacturers, including its competitors. For example, if certain critical third-party providers, such as those providers supplying electricity, water or telephone service, experience difficulties resulting in disruption of service to the Company, a shutdown of the Company's operations at individual facilities could occur for the duration of the disruption. Assuming no major disruption in service from utility companies or other critical third-party providers, the Company believes that it will be able to manage its total year 2000 transition without any material effect on the Company's results of operations or financial condition. Recent Developments Offering of Series B Preferred Stock and Warrants From late August 1998 until December 31, 1998, the Company offered up to 615,385 units for sale in a private placement of securities of which 335,961 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 $6.50. Each share of Series B Preferred Stock entitles the holder thereof to receive an annual dividend equal to $0.52. 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 $3.25, 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 $2.50 nor less than $0.75. 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 $3.25 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 $4.375 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 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 335,961 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. Asset Purchase from Asset Sentinel, Inc. The Company, through its wholly owned subsidiary Global MAINTECH, Inc. ("GMI"), purchased substantially all the assets of Asset Sentinel, Inc., a Minnesota corporation ("ASI"), pursuant to an Asset Purchase Agreement effective as of October 1, 1998 by and among the Company, GMI and ASI. Immediately prior to the acquisition, ASI was a start-up company engaged in the development of a network and electrical line mapping software suite of products. The Company purchased no assets other than the rights under and to ASI's computer software products and the trademarks and copyrights related thereto, and assumed no liabilities of ASI. The primary assets acquired by the Company were a suite of software products, including CERBERUS, CAD/COM 4.0 and SentinelSwitch, which provide updated mapping of network, cable and telephone lines in buildings and computer centers. The acquired software may be offered by the Company to customers as an additional component of the Company's base VCC unit or as a stand-alone product. 7 The transaction was treated as an asset purchase for accounting purposes. The purchase price of $425,000 was delivered as follows: $279,320 was paid by the cancellation of a note receivable from ASI and the remainder was paid by a note payable to ASI in the amount of $145,680 due within six months of the closing date. The purchase price of the assets is subject to adjustment depending on the sales generated by the Company using the purchased assets during the 18- month period following the closing of the transaction. The adjustment to the purchase price, if any, will equal Sales (as defined below) multiplied by 2.2; provided, however, that the amount of such adjustment shall not exceed $2,200,000. "Sales" means the greater of (a) the annualized sales generated by the Company using the purchased assets during the 18-month period following the closing or (b) the sales generated by the Company using the purchased assets during the 12-month period from April 1,1999 through March 31, 2000. The payment of the adjustment, if any, by GMI shall be in cash or Common Stock at the discretion of GMI. Asset Purchase from Enterprise Systems, Inc. The Company, through its wholly owned subsidiary Singlepoint Systems, Inc. ("SSI"), purchased substantially all the assets of Enterprise Solutions, Inc., an Ohio corporation ("ESI"), pursuant to an Asset Purchase Agreement effective as of November 1, 1998 (the "Purchase Agreement") by and among the Company, GMI, SSI and ESI. Immediately prior to the acquisition, ESI was a market leader in critical event notification software for data center management, and provided engineering/project management consulting to implement enterprise automation tools in small, medium and large data centers. In addition to purchasing substantially all of the assets of ESI, the Company assumed certain liabilities of ESI, including rights under and to ESI's computer software products, the trademarks and copyrights related thereto, ESI's ongoing leases, contracts and certain office equipment. 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 ESI's short-term consulting business, which assists companies to optimize their existing systems management and network management tools. The Company expects that this consulting business will generate sales of newly acquired software and of VCC units. The transaction was treated as an asset purchase for accounting purposes. The purchase price was delivered as follows: $200,000 was paid in cash to ESI; options to purchase a maximum total of 1,700,000 shares of Common Stock or a minimum of 400,000 shares subject to earnings events over the next 18 months were issued to the shareholders of ESI (the "Shareholder Options"); and options to purchase a maximum total of 80,000 shares of Common Stock were issued to the employees of ESI (the "Employee Options"). All such options have an exercise price equal to $1.25 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 1,300,000 shares. Conversely, the Company will pay ESI 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 ESI or return the purchased assets (and related liabilities) to ESI as of the end of the Earn-out period. In the event such assets are returned to ESI, the Shareholder Options and the Employee Options will be canceled. Issuance of Promissory Note and Warrants On February 23, 1999, the Company received a loan in the amount of $500,000 from five partners in the investment firm of Andersen, Weinroth & Co. In exchange for the loan, the Company issued a promissory note in the amount of $500,000 and Warrants to purchase up to 400,000 shares of Common Stock. 8 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, the Company 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 $1.08 per share, subject to adjustment. Warrants with respect to 133,800 shares are callable by the Company upon the occurrence of certain conditions set forth in the Warrants. Warrants with respect to the remaining 266,200 shares are noncallable. 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 herein 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 the Company. In exchange for all of the outstanding shares of BHT common and preferred stock, the Company will deliver one or more warrants to purchase 4,500,000 shares of Common Stock (subject to adjustment) and may also be required to deliver, one year after the Closing Date, Common Stock and cash under the Earn Out Provisions of the Merger Agreement. In connection with the merger, the Company and GMI also will guarantee up to $3,800,000 of outstanding debt of BHT. Options and Warrants of BHT. At or prior to the Effective Time (when the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware or at another time specified in the Certificate of Merger), each outstanding option to purchase the common stock of BHT will be canceled and replaced with warrants (a "Replacement Warrant") to purchase Common Stock of the Company. The number of shares subject to such Replacement Warrants and the exercise prices thereunder are as more fully described under Section 2.07 of the Merger Agreement. The H&QGF Warrants (as defined in the Merger Agreement) will be converted at the Effective Time into new warrants, in form and substance to be agreed upon by the parties to the Merger Agreement (the "Replacement Warrants"), to purchase a like number of shares of Common Stock at an initial exercise price of $4.125, subject to adjustment as set forth in the Replacement Warrants. The Non-H&QGF Warrants (as defined in the Merger Agreement) will remain outstanding following the Merger, and the holders of such warrants will have the option, at any time within 395 days of the Closing Date, to convert each share of Surviving Corporation Common Stock acquired upon exercise of such warrants into a share of the merger consideration. Dissenters' Rights. If the merger and the Merger Agreement are approved by BHT's stockholders and not abandoned or terminated, any holder of BHT's common stock or preferred stock may, by not voting for approval of the Merger Agreement and by following the procedures set forth in Section 262 of the Delaware General Corporation Law ("DGCL"), be entitled to have such stockholder's shares appraised and to receive payment of the "fair value" of such shares pursuant to Section 262 Registration Rights. The Escrow Stock, Escrow Warrants (as such terms are defined in the Merger Agreement) and the Common Stock issuable upon exercise of the Escrow Warrants (the "Warrant Stock") will not be registered under the Securities Act or applicable state securities laws as of the Effective Time, but will have certain "piggyback" and "demand" registration rights set forth in Schedule 6.05 of the Merger Agreement. Conditions to the Parties' Obligations to Consummate the Merger. Consummation of the Merger is subject to numerous conditions, including (i) the truth and correctness of the representations and warranties made by the parties to the Merger Agreement, (ii) the approval of the Merger by BHT's stockholders, (iii) the qualification of no more than 12% of BHT's common stock as Dissenters' Shares under Delaware law, (iv) the cancellation of certain of BHT's debt held by the Stockholder Lenders (as defined in the Merger Agreement), (v) the negotiation and execution by Hambrecht & Quist Guaranty Finance, LLC ("H&QGF," an investor in, and creditor of, BHT), the Company and GMI of up to $3,000,000 in loans to be made by H&QGF to the Company or GMI pursuant to the terms of the H&QGF Agreement (as defined in the Merger Agreement) and the negotiation and execution of a collateral agreement by and among the Company, GMI, BHT and H&QGF. The parties to the Merger may waive compliance with any of the conditions set forth in the Merger Agreement. 9 Termination or Amendment of the Merger Agreement. The Company, GMI, Merger Subsidiary and BHT may, by written agreement among them, amend the Merger Agreement at any time prior to the Effective Time. After the stockholders of BHT have approved the Merger Agreement, however, no amendment can be made which changes the terms of the Merger Agreement in a way that is adverse to the stockholders of BHT, unless such amendment is approved by the stockholders. The Merger Agreement may also be terminated by the parties at any time prior to the filing of the Certificate of Merger, whether before or after action by the stockholders of BHT, by mutual agreement of the parties, upon the occurrence of a breach of representation or covenant contained in the Merger Agreement, if the Merger has not been approved by the BHT stockholders by March 31, 1999 or if there has been a material adverse effect on the business of BHT, the Company or GMI, among others. The Merger will be treated as a stock purchase for accounting and financial reporting purposes. Promptly after the Effective Time, the Surviving Corporation will create and issue shares of a new class of preferred stock (the "Series B Preferred Stock") in exchange for the cancellation of $1,000,000 of debt of the Surviving Corporation held by H&QGF and its participants, Greyrock Business Credit and Cruttenden Roth. The Series B Preferred Stock will be convertible into common stock of the Surviving Corporation at the rate of one share of common stock for each share of Series B Preferred Stock converted. Immediately upon issuance of common stock of the Surviving Corporation in connection with the conversion of Series B Preferred Stock, the common stock so issued will be deemed converted into an equal number of shares of the Company's Common Stock. 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 100,000 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 100,000 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. At any time after the earlier to occur of the 61st day after issueance or the effective date of a registration statement registering the shares of Common Stock to be issued upon conversion of the Series C Preferred Stock, each share of Series C Preferred 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 $2.50 or 80% of the average of the three trading days that have the lowest volume weighted average prices of the Common Stock during the 15 trading days immediately predceding the conversion date. All outstanding shares of Series C Preferred Stock will be automatically converted into Common Stock on March 25, 2002. Each warrant is a five-year callable warrant to purchase Common Stock at $1.66 per share. The Company agreed to use its best efforts to register the shares of Common Stock underlying the Series C Preferred Stock and the Warrants and to pay a penalty if such registration is not effective by the 121st day after issuance of the Series C Preferred Stock. This penalty is equal to 2% of the purchase price of the Series C Preferred Stock for the first 30-day period following such 120-day period and 3% of such purchase price for every 30-day period therafter until the registration statement has been declared effective. Issuance of Convertible Note On March 9, 1999, the Company issued a $100,000 convertible note payable to an accredited investor, convertible into Common Stock at $1.25 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. 10 Item 7. Financial Statements. Index to Financial Data Page ---- Independent Auditors' Report 12 Consolidated balance sheets 13 Consolidated statements of operations 15 Consolidated statements of stockholders' equity 16 Consolidated statements of cash flows 17 Notes to consolidated financial statements 18 11 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 Peat Marwick LLP Minneapolis, Minnesota March 29, 1999 12 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 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. 13 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 preferred share, 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 $2.50 per share or be less than $0.75; dividend of 8% payable in cash or common stock of Company; no par value; 615,385 shares authorized; 335,961 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; 48,496,635 shares authorized; 18,409,397 shares in 1998 and 17,084,858 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. 14 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year 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 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 earnings (loss) per common share: Continuing operations $ (0.11) $ 0.010 -- 0.004 ------------ ------------ Net earnings (loss) $ (0.11) $ 0.014 ============ ============ Diluted earnings (loss) per common share: Continuing operations $ (0.11) $ 0.008 Discontinued operations -- 0.004 ------------ ------------ Net earnings (loss) $ (0.11) $ 0.012 ============ ============ Shares used in calculations: Basic 18,351,712 15,918,047 Diluted 18,351,712 19,555,417
The accompanying notes are an integral part of these consolidated statements. 15 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997
Preferred stock A Preferred stock B Common stock -------------------------------------------------------- Shares amount Shares amount Shares amount - ------------------------------------------------------------------------------------------------------------ Balance at December 31, 1996 700,667 $328,601 -- -- 13,260,534 -- Net income -- -- -- -- -- -- Common stock issued -- -- -- -- 2,752,800 -- Stock issue costs -- -- -- -- -- -- Common stock options and warrants exercised -- -- -- -- 614,970 -- Exercise officer stock options -- -- -- -- -- -- Converted preferred shares Series A (456,554) (214,112) -- -- 456,554 -- - ------------------------------------------------------------------------------------------------------------ Balance at December 31, 1997 244,113 $114,489 -- -- 17,084,858 -- Net loss -- -- -- -- -- -- Accrual of cumulative dividends on Series B convertible preferred stock -- -- -- -- -- -- Common stock issued -- -- -- -- 1,092,001 -- Values of stock options issued in acquisition -- -- -- -- -- -- Stock issue costs -- -- -- -- -- -- Common stock options and warrants exercised -- -- -- -- 117,601 -- Preferred shares Series B -- -- 335,961 2,183,769 -- -- Converted preferred shares Series A (114,937) (53,905) -- -- 114,937 -- - ------------------------------------------------------------------------------------------------------------ Balance at December 31, 1998 129,176 $60,584 335,961 $2,183,769 18,409,397 --
[WIDE TABLE CONTINUED FROM ABOVE]
Additional Notes paid-in Receivable- Accumulated capital Officers defict Total - ------------------------------------------------------------------------------------------------- Balance at December 31, 1996 $2,243,438 ($324,500) ($2,063,640) $183,899 Net income -- -- 228,476 228,476 Common stock issued 2,779,600 -- -- 2,779,600 Stock issue costs (302,278) -- -- (302,278) Common stock options and warrants exercised 360,957 -- -- 360,957 Exercise officer stock options -- 30,000 -- 30,000 Converted preferred shares Series A 214,112 -- -- -- - ------------------------------------------------------------------------------------------------- Balance at December 31, 1997 $5,295,829 ($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 -- -- 1,800,350 Values of stock options issued in acquisition 524,000 -- -- 524,000 Stock issue costs (346,922) -- -- (346,922) Common stock options and warrants exercised 35,634 -- -- 35,634 Preferred shares Series B -- -- -- 2,183,769 Converted preferred shares Series A 53,905 -- -- -- - ------------------------------------------------------------------------------------------------- Balance at December 31, 1998 $7,362,796 ($294,500) ($3,869,379) $5,443,270
16 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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 expenses 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 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 notes 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 for: Interest $ 200,584 $ 200,584 Income taxes $ 9,999 $ 9,999
The accompanying notes are an integral part of these consolidated statements. 17 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. 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. 18 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The Company recognizes revenue from leasing activities in accordance with SFAS No. 13, Accounting for Leases. Accordingly, leases that transfer substantially all the benefits and risks of ownership are accounted for as sales-type leases. All other leases are accounted for as operating leases. Under the sales-type method, profit is recognized at lease inception by recording revenue and cost. Revenue consists of the present value of the future minimum lease payments discounted at the rate implicit in the lease. Cost consists of the equipment's book value. The present value of the estimated value of the equipment at lease termination (the residual value), which is generally not material, and the present value of the future minimum lease payments are recorded as assets. In each period, interest income is recognized as a percentage return on asset carrying values. The Company is the lessor of equipment under operating leases expiring in various years. The cost of equipment subject to such leases is recorded as leased equipment and is depreciated on a straight-line basis over the estimated service life of the equipment. Operating lease revenue is recognized as earned over the term of the underlying lease. Capitalized software development costs: Under the criteria set forth in SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed, capitalization of software development costs begins upon the establishment of technological feasibility of the software. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product revenues, estimated economic life, and changes in software and hardware technology. Capitalized software development costs are amortized utilizing the straight-line method over the estimated economic life of the software not to exceed three years. The 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 is plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans. Earnings (loss) per share: Basic and diluted net earnings (loss) per share is computed by dividing the net earnings (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. 19 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 earnings per share are as follows: Years Ended December 31, 1998 1997 --------------------------- Basic Earnings Per Share Weighted average shares 18,351,712 15,918,047 Diluted Earnings Per Share Weighted average shares 18,351,712 15,918,047 Stock options - 2,765,174 Warrants - 628,083 Conversion of preferred stock, series A - 244,113 Conversion of preferred stock, series B - - --------------------------- Total dilutive shares 18,351,712 19,555,417 =========================== Antidilutive stock options excluded 5,332,000 83,000 Antidilutive warrants excluded 2,859,000 600,000 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. 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. 20 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note 3. Inventories Inventories consists of the following: December 31, ------------------------ 1998 1997 ----------- ------- Raw materials $ 609,412 526,379 Completed systems 386,759 271,056 -------------------------------------------- Total inventories $ 996,171 797,435 =========== ========== 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. 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 - ---------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------- 21 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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 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 1,700,000 shares of common stock exercisable at the fair market value at the date of grant ($1.25). 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 1,300,000 shares. The fair value of 400,000 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. 22 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 earnings (loss) (2,003,166) (1,799,035) 228,476 1,165,806 Net earnings (loss) attributable to common stockholders (2,034,215) (1,830,084) 228,476 1,165,806 Basic earnings (loss) per share (0.11) (0.10) 0.01 0.07 23 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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 due June 1, 1999 $ 250,000 9.5% -- -- Acquisition note payable to Asset Sentinel, Inc. $ 145,000 -- -- -- Subordinated notes payable to Mezzanine Capital Partners and Marquette Bancshares, Inc. due in installments of various amounts as described below through June 30, 2002 $1,900,000 14.00% $2,000,000 14.00% ---------- --------- 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 530,000 shares of common stock at $1.80 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. 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 400,000 shares of common stock at $1.08 per share. The Company may call a one-third portion of the warrants if the common stock price exceeds $3.00 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 $1.25 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 400,000 shares of common stock in February 1998. These warrants are exercisable at $1.90 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 $2.60 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 $3.25 or may be called by the Company in the event the common stock price trades above $4.375 for a period of 20 consecutive trading days and the Company's Common Stock is traded on Nasdaq. 24 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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 $0.75 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 $1.40 and expire on June 6, 2002. An additional 530,000 warrants were issued in 1997, which are exercisable at a per share price of $1.80 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 3,541,979. Such warrants are exercisable at a weighted average price of $2.59 per share and expire in 2000 through 2004. 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 10,000,000 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% percent 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 and earnings per share 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 are summarized as follows: Incentive Stock Nonqualified Options Options --------------------------------------- Weighted Weighted average average exercise exercise Shares price Shares price ------------------- ------------------ Total outstanding at December 31, 1996 2,615,000 $0.49 83,000 $5.87 Granted 1,432,000 $1.51 -- -- Canceled (75,000) $1.00 -- -- Exercised (455,000) $0.40 -- -- ------------------- ------------------ Total outstanding at December 31, 1997 3,517,000 $0.79 83,000 $5.87 Granted 3,543,000 $1.51 -- -- Canceled (337,000) $1.92 50,000 $5.63 Exercised (77,000) $0.36 -- -- ------------------- ------------------ Total outstanding at December 31, 1998 6,646,000 $1.11 33,000 $6.25 =================== ================== Options for 3,314,000 shares of common stock were exercisable at a weighted average exercise price of $0.74 as of December 31, 1998. 25 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Common stock issued: In 1998 the Company issued a total of 1,092,001 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, 114,937 and 456,554 shares of common stock were issued to holders of preferred stock series A on a one-for-one 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 2,752,800 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 1,652,800 and 653,500 shares of common stock in 1997 and 1996, respectively at $0.75 per share pursuant to the private placement memorandum dated November 1996. During 1997 the Company also issued 1,100,000 shares of common stock at $1.40 per share pursuant to a private placement dated June 1997. In addition, 455,000 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 159,970 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 615,385 units for sale in a private placement of securities of which 335,961 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 $6.50. Each share of Series B Preferred Stock entitles the holder thereof to receive an annual dividend equal to $0.52. 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 $3.25, 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 $2.50 nor less than $0.75. 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 $3.25 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 $4.375 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 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 335,964 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. 26 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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: Year Ended Year Ended December 31, 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) ----------- ----------- Deferred tax liabilities 1,064,000 153,000 Depreciation (153,000) (153,000) Capitalized software (911,000) -- ----------- ----------- Net deferred tax assets $ -- $ -- =========== =========== The provision for income taxes consists of the following for the years ended December 31, 1998 and 1997: Year Ended Year Ended December 31, December 31, 1998 1997 ----------- ----------- Current Federal $ - $ - State - - ----------- ----------- Total - - Deferred - - ----------- ----------- Total $ - $ - =========== =========== 27 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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: Year Ended Year Ended December 31, December 31, 1998 1997 ------------- ------------- Expense (benefit) at statutory rate $(681,076) $77,000 State income tax 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 noncancelable 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: 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 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. 28 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- In exchange for all of the outstanding shares of BHT common and preferred stock, the Company will deliver one or more warrants to purchase 4,500,000 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 Comapny 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 hereto as Exhibit 2.2. 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 100,000 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 100,000 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. 29 Item 8. Changes in and disagreements with Accountants. Not applicable. PART III -------- Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act. The information with respect to Directors of the Company under the caption "Election of Board of Directors" contained in the Company's Proxy Statement relating to the Annual Meeting of Shareholders for the year ending December 31, 1998 is incorporated herein by reference. The information with respect to the Executive Officers of the Company under the caption "Executive Officers" contained in the Company's Proxy Statement relating to the Annual Meeting of Shareholders for the year ending December 31, 1998 is incorporated herein by reference. The information contained under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" contained in the Company's Proxy Statement relating to the Annual Meeting of Shareholders for the year ending December 31, 1998 is incorporated herein by reference. Item 10. Executive Compensation. The information contained under the caption "Executive Compensation" in the Company's Proxy Statement relating to the Annual Meeting of Shareholders for the year ending December 31, 1998 is incorporated herein by reference. Item 11. Security Ownership of Certain Beneficial Owners and Management. The information contained under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement relating to the Annual Meeting of Shareholders for the year ending December 31, 1998 is incorporated herein by reference. Item 12. Certain Relationships and Related Transactions. The information contained under the caption "Related Transactions" in the Company's Proxy Statement relating to the Annual Meeting of Shareholders for the year ending December 31, 1998 is incorporated herein by reference. Item 13. Exhibits and Reports on Form 8-K. (a) Index of Exhibits (Not included herein.) Exhibit Description Number ----------- ------ Agreement and Plan of Merger dated December 6, 1994, as 2.1 amended, among the Company, Mirror Consolidation Company, and MAINTECH Resources, Inc. (the Articles of Merger are attached thereto as Exhibit A) (incorporated herein by reference to the Registrant's Form 8-K filed with the Commission on January 19, 1995). Agreement and Plan of Merger dated March 5, 1999, among 2.2 the Company, BHT Acquisition, Inc., and Breece Hill Technologies, Inc. 30 Bylaws of the Company, as amended (incorporated herein 3.1 by reference to the Registrant's Form S-1 (File No. 33-34894)). Second Amended and Restated Articles of Incorporation of 3.2 the Company (incorporated herein by reference to the Registrant's Form 10-QSB for the quarter ended September 30, 1998. (File No. 0-14692)). Certificate of Designation of Series C Convertible 3.3 Preferred Stock, as filed on March 24, 1999 and corrected on March 30, 1999. Form of 11% Convertible Subordinated Debenture due July 4.1 1, 1996 (incorporated herein by reference to the Registrant's Form 10-KSB for the year ended March 31, 1991.) Form of Registration Agreement between the Company and 4.2 holders of the Company's 11% Convertible Subordinated Debentures Due July 1, 1996 (incorporated herein by reference to the Registrant's Form 10-K for the year ended March 31, 1991). Form of Certificate of the Company's Series A 4.3 Convertible Preferred Stock (incorporated herein by reference to the Registrant's Form 10-KSB for the year ended December 31, 1994). Form of Certificate of the Company's Common Stock 4.4 following change of corporate name (incorporated herein by reference to the Registrant's Form 10-KSB for the year ended December 31, 1995). Form of Promissory Note, dated June 19, 1997, issued to 4.5 each of Marquette Bancshares, Inc. and Mezzanine Capital Partners, Inc. (incorporated by reference to the Registrant's Form SB-2, as amended (File No. 333-33477)). Form of Preferred Stock and Warrant Purchase Agreement, 4.6 including Form of Warrant and Registration Rights exhibit thereto, relating to sale of Series B Convertible Preferred Stock and Callable Common Stock Warrants during the fourth quarter of 1998. Form of Certificate of the Company's Series B 4.7 Convertible Preferred Stock. Form of Series C Convertible Preferred Stock Purchase 4.8 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. Form of Certificate of the Company's Series C 4.9 Convertible Preferred Stock; The Company's 1989 Stock Option Plan (incorporated 10.1 herein by reference to Exhibit 28 to the Registrant's Registration Statement on Form S-8, (File 33-33576)). Amendments No. 1 and 2, dated October 17, 1991 and April 10.2 24, 1992, respectively, to the Company's 1989 Stock Option Plan (incorporated herein by reference to the Registrant's Form 10-K for the year ended March 31, 1992). Mirror Technologies, Incorporated 401(K) Plan effective 10.3 April 1, 1992 (incorporated herein by reference to the Registrant's Form 10-K for the year ended March 31, 1992). Exclusive Distributor and Licensing Agreement between 10.4 Yutaka Takagi and Circle Corporation and MAINTECH Resources, Inc. and Global MAINTECH, Inc. dated December 20, 1994 (incorporated herein by reference to the Registrant's Form 10-KSB for the year ended December 31, 1994). Amendment No. 3, dated May 15, 1995 to the Company's 10.5 1989 Stock Option Plan (incorporated herein by reference to the Registrant's Form 10-KSB for the year ended December 31, 1995). Asset Purchase Agreement, dated November 1, 1998, by and 10.6 among Global MAINTECH, Inc., Global MAINTECH Corporation, Singlepoint Systems, Inc. and Enterprise Solutions, Inc. (incorporated herein by reference to the Registrant's Form 8-K filed with the Commission on December 23, 1998 (File No. 0-14692)). License and Asset Purchase Agreement between Infinite 10.7 Graphics Incorporated and the Company dated February 27, 1998 (incorporated herein by reference to the Registrant's Form 10-KSB for the year ended December 31, 1997). Office Lease between the Company and Compass Marketing, 10.8 Inc., sublessor, and Glenborough Realty Trust Incorporated, lessor, dated March 3, 1998 (incorporated herein by reference to the Registrant's Form 10-KSB for the year ended December 31, 1997). Subsidiaries of the Registrant (incorporated herein by 21 31 reference to the Registrant's Form 10-KSB for the year ended December 31, 1994). Consent of KPMG Peat Marwick LLP 23 Financial Data Schedule 27 Cautionary Statement 99 (b) Reports on Form 8-K Form 8-K was filed on December 23, 1998 in connection with the Company's acquisition of the assets from Enterprise Systems, Inc. (File No. 0-14692). 32 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Global MAINTECH Corporation Dated: March 31, 1999 By /s/ James Geiser ----------------------------- James Geiser Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE - ---- ----- ---- /s/ David McCaffrey Chief Executive Officer March 31, 1999 - ------------------------------------ (Principal Executive Officer) and David McCaffrey Director /s/ James Geiser Chief Financial Officer and Secretary March 31, 1999 - ------------------------------------ (Principal Financial and Accounting James Geiser Officer) /s/ Robert E. Donaldson Director March 31, 1999 - ------------------------------------ Robert E. Donaldson /s/ John E. Haugo Director March 31, 1999 - ------------------------------------ John E. Haugo /s/ John Clarey Director March 31, 1999 - ------------------------------------ John Clarey /s/ Douglas Pihl Director March 31, 1999 - ------------------------------------ Douglas Pihl
33 Exhibit Index Exhibit Description Number ----------- ------ Agreement and Plan of Merger dated March 5, 1999, 2.2 among the Company, BHT Acquisition, Inc., and Breece Hill Technologies, Inc. Certificate of Designation of Series C Convertible 3.3 Preferred Stock, as filed on March 24, 1999 and corrected on March 30, 1999. Form of Preferred Stock and Warrant Purchase Agreement, 4.6 including Form of Warrant and Registration Rights exhibit thereto, relating to sale of Series B Convertible Preferred Stock and Callable Common Stock Warrants during the fourth quarter of 1998. Form of Certificate of the Company's Series B 4.7 Convertible Preferred Stock. Form of Series C Convertible Preferred Stock Purchase 4.8 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. Form of Certificate of the Company's Series C 4.9 Convertible Preferred Stock; Consent of KPMG Peat Marwick LLP 23 Financial Data Schedule 27 Cautionary Statement 99 35 EX-2.2 2 AGREEMENT AND PLAN OF MERGER DATED MARCH 5, 1999 ________________________________________________________________________________ AGREEMENT AND PLAN OF MERGER by and among Global MAINTECH Corporation, Global MAINTECH, Inc., BHT Acquisition, Inc. and Breece Hill Technologies, Inc. March 5, 1999 ________________________________________________________________________________ TABLE OF CONTENTS
Page ARTICLE I THE MERGER........................................................................ 1 1.01 The Merger.......................................................... 1 1.02 Certificate of Merger; Effective Time............................... 1 1.03 Effect of Merger.................................................... 1 1.04 Closing............................................................. 2 1.05 Certificate of Incorporation; Bylaws................................ 2 1.06 Directors and Officers.............................................. 2 1.07 Certain Defined Terms............................................... 2 ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES................................ 2 2.01 Conversion of Securities............................................ 2 2.02 Earn Out Payment; Value of Escrow Fund.............................. 3 2.03 Dissenting Shares................................................... 4 2.04 Rights of Holders of Converted Securities........................... 5 2.05 Adjustments to Merger Consideration................................. 6 2.06 Exchange of Certificates; Escrow Fund; Deductions from Escrow Fund.. 6 2.07 Stock Options....................................................... 9 2.08 Notices to Option Holders........................................... 9 2.09 H&QGF Warrants...................................................... 9 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................... 10 3.01 Incorporation and Corporate Power................................... 10 3.02 Execution, Delivery; Valid and Binding Agreements................... 11 3.03 Approval of the Merger Agreement and Plan of Merger; Meeting of Stockholders............................................. 11 3.04 No Breach........................................................... 11 3.05 Governmental Authorities; Consents.................................. 11 3.06 Subsidiaries ....................................................... 12 3.07 Capital Stock....................................................... 12 3.08 Financial Statements................................................ 12 3.09 Absence of Undisclosed Liabilities.................................. 13 3.10 No Material Adverse Changes......................................... 13 3.11 Absence of Certain Developments..................................... 13 3.12 Title to Properties................................................. 15 3.13 Accounts Receivable................................................. 16 3.14 Inventory........................................................... 16 3.15 Tax Matters......................................................... 16 3.16 Contracts and Commitments........................................... 18 3.17 Intellectual Property Rights........................................ 19 3.18 Litigation.......................................................... 20 3.19 Warranties.......................................................... 20 3.20 Employees........................................................... 20 3.21 Employee Benefit Plans.............................................. 20
i 3.22 Insurance........................................................... 21 3.23 Affiliate Transactions.............................................. 22 3.24 Customers and Suppliers............................................. 22 3.25 Officers and Directors; Bank Accounts............................... 22 3.26 Compliance with Laws; Permits....................................... 22 3.27 Environmental Matters............................................... 23 3.28 Brokerage........................................................... 25 3.29 Disclosure.......................................................... 25 3.30 Year 2000 Compliance................................................ 26 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF GMC, GMI AND MERGER SUBSIDIARY.... 26 4.01 Incorporation and Corporate Power................................... 26 4.02 Execution, Delivery; Valid and Binding Agreements................... 26 4.03 No Breach........................................................... 26 4.04 Merger Subsidiary................................................... 27 4.05 Governmental Authorities; Consents.................................. 27 4.06 Brokerage........................................................... 27 4.07 Year 2000 Compliance................................................ 27 4.08 Litigation.......................................................... 28 4.09 Disclosure.......................................................... 28 ARTICLE V COVENANTS OF THE COMPANY 28 5.01 Conduct of the Business............................................. 28 5.02 Access to Books and Records......................................... 30 5.03 Meeting of Stockholders............................................. 30 5.04 Regulatory Filings.................................................. 31 5.05 Conditions.......................................................... 31 5.06 No Shop............................................................. 31 5.07 Information Statement............................................... 31 5.08 Disclosure Schedules................................................ 31 5.09 Collateral Agreement................................................ 31 ARTICLE VI COVENANTS OF GMI AND MERGER SUBSIDIARY............................................ 32 6.01 Regulatory Filings.................................................. 32 6.02 Conditions.......................................................... 32 6.03 Board Representation................................................ 32 6.04 Loan to The Company................................................. 32 6.05 Registration Rights................................................. 32 6.06 Disclosure Schedules................................................ 32 6.07 Delivery of Escrow Warrants......................................... 32 6.08 Collateral Agreement................................................ 33 ARTICLE VII CONDITIONS TO CLOSING............................................................. 33 7.01 Conditions to GMC's, GMI's and Merger Subsidiary's Obligations...... 33
ii 7.02 Conditions to the Company's Obligations............................. 36 ARTICLE VIII TERMINATION....................................................................... 37 8.01 Termination......................................................... 37 8.02 Effect of Termination............................................... 38 ARTICLE IX ADDITIONAL AGREEMENTS............................................................. 39 9.01 Intercompany Financing.............................................. 39 9.02 Disposition of Assets............................................... 39 9.03 Series B Preferred Stock............................................ 39 9.04 Certain Loans from H&QGF, GBC and CR to the Company and the Surviving Corporation....................................... 40 9.05 Confidentiality..................................................... 40 9.06 Solicitation........................................................ 41 9.07 Employee Benefit Plans.............................................. 41 9.08 Directors' and Officers' Indemnification and Insurance.............. 41 9.09 Escrow Agreement.................................................... 42 ARTICLE X SURVIVAL; INDEMNIFICATION......................................................... 43 10.01 Survival of Representations and Warranties.......................... 43 10.02 Indemnification by the Company...................................... 43 10.03 Indemnification by GMI.............................................. 44 10.04 Method of Asserting Claims.......................................... 44 ARTICLE XI MISCELLANEOUS..................................................................... 46 11.01 Press Releases and Announcements.................................... 46 11.02 Expenses............................................................ 46 11.03 Amendment and Waiver................................................ 46 11.04 Notices............................................................. 47 11.05 Assignment.......................................................... 47 11.06 Severability........................................................ 47 11.07 Complete Agreement.................................................. 48 11.08 Counterparts........................................................ 48 11.09 Governing Law....................................................... 48 11.10 No Third-Party Beneficiaries........................................ 48
iii SCHEDULES 6.05 Registration Rights EXHIBITS Exhibit A - Form of Escrow Warrant iv AGREEMENT AND PLAN OF MERGER ---------------------------- This Agreement and Plan of Merger (this "Agreement") dated as of March 5, 1999, is made and entered into by and among Global MAINTECH Corporation, a Minnesota corporation ("GMC"), Global MAINTECH, Inc., a Minnesota corporation ("GMI"), BHT Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of GMI ("Merger Subsidiary") and Breece Hill Technologies, Inc., a Delaware corporation (the "Company"). WHEREAS, the respective Boards of Directors of GMI, Merger Subsidiary and the Company have determined that it is advisable and in the best interests of the respective corporations and their stockholders that Merger Subsidiary be merged with and into the Company in accordance with the Delaware General Corporation Law (the "DGCL") and the terms of this Agreement pursuant to which the Company will be the surviving corporation and will become a wholly owned subsidiary of GMI (the "Merger"); and WHEREAS, GMC, GMI, Merger Subsidiary and the Company desire to make certain representations, warranties, covenants, and agreements in connection with, and to establish various conditions precedent to, the Merger. NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements set forth in this Agreement, the parties hereto hereby agree as follows: ARTICLE I THE MERGER 1.01 The Merger. Upon the terms and subject to the conditions set ---------- forth in this Agreement, at the Effective Time, Merger Subsidiary shall be merged with and into the Company in accordance with the DGCL, whereupon the separate existence of Merger Subsidiary shall cease, and the Company shall continue as the surviving corporation (the "Surviving Corporation"). 1.02 Certificate of Merger; Effective Time. As soon as practicable ------------------------------------- after satisfaction or, to the extent permitted hereunder, waiver of all conditions to the Merger set forth in Article VII, the parties shall cause the Merger to be consummated by filing a certificate of merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware and make all other filings or recordings required by the DGCL in connection with the Merger and the transactions contemplated by this Agreement. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware or at such later time as may be agreed by the parties in writing and specified in the Certificate of Merger (the "Effective Time"). Notwithstanding the foregoing, solely for accounting purposes, the merger will be deemed to be effective as of March 15, 1999. 1.03 Effect of Merger. From and after the Effective Time, the ---------------- Surviving Corporation shall possess all the rights, privileges, powers and franchises and be subject to all of the 1 restrictions, disabilities and duties of the Company and Merger Subsidiary, all as provided under the DGCL. 1.04 Closing. The closing of the Merger (the "Closing") will take ------- place at 10:00 a.m. on a date to be specified by the parties, which shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Article VII (the "Closing Date"), at a time and place and by a method as mutually agreed to by the parties. 1.05 Certificate of Incorporation; Bylaws. At the Effective Time, the ------------------------------------ Certificate of Incorporation and Bylaws of the Company, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation and Bylaws of the Surviving Corporation. 1.06 Directors and Officers. The directors of Merger Subsidiary shall ---------------------- be the initial directors of the Surviving Corporation. The officers of the Company shall be the initial officers of the Surviving Corporation. 1.07 Certain Defined Terms. Certain defined terms used throughout --------------------- this document and its exhibit contain the word "Escrow." The word "Escrow" in such defined terms is employed for ease of reference only, and not by way of limitation with respect to the arrangement under which the Merger Consideration (as defined in Section 2.01, below) is held and distributed. Accordingly, the use of the word "Escrow" in such defined terms shall not exclude the possibility that such defined terms relate to one or more custodial, distribution or other arrangements entered into by the parties hereto in order to effectuate the purposes of this Agreement. ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES 2.01 Conversion of Securities. As of the Effective Time, by virtue of ------------------------ the Merger and without any action on the part of the holder of any shares of capital stock of Merger Subsidiary or the Company, GMC shall deposit with Hambrecht & Quist Guaranty Finance, LLC ("H&QGF"), pursuant to a collateral agreement consistent with this Agreement to be executed by and among H&QGF and the parties to this Agreement prior to the Closing Date (the "Collateral Agreement"), one or more warrants, in substantially the same form as the Form of Warrant attached hereto as Exhibit A, to purchase 4,500,000 shares of GMC Common Stock, no par value (the "Escrow Warrants," which, together with the Earn Out Payment, if any, provided for in Section 2.02 hereof, shall be referred to as the "Merger Consideration"), and: (a) Each share of the Company's Common Stock ("Company Common Stock") issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares, as defined in Section 2.04 hereof) shall be converted into one share, or unit (an "Escrow Unit"), of the Escrow Fund (as defined in Section 2.06(a)); provided, however, that each share of Company Common Stock issued and outstanding immediately prior to the 2 Effective Time and owned by GMC, GMI, Merger Subsidiary or the Company or any direct or indirect subsidiary of GMC, GMI, Merger Subsidiary or the Company shall be canceled and extinguished without any conversion thereof and no payment shall be made with respect thereto. (b) Each share of the Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock") issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares) shall be converted into one Escrow Unit; provided, however, that in the event that an Escrow Unit is worth less than $1.65 (as determined pursuant to Section 2.02) as of the earlier of 365 days after the Closing Date or the date of the first disbursement of the Escrow Fund to holders of Escrow Units (the "Calculation Date"), each such share of Series A Preferred Stock shall be deemed to have been allocated additional Escrow Units (or fractions thereof) immediately prior to the Calculation Date in order that each such share shall have been converted into the right to receive Merger Consideration valued at $1.65 (or such lesser amount based upon a pro rata distribution of the remainder of the Escrow Fund (after the distributions set forth in Section 2.06) among all such preferred shares if the Escrow Fund is insufficient to satisfy such payment of $1.65, in which case no Merger Consideration shall be distributed to any holder of Common Stock pursuant to Section 2.01(a) or Section 2.01(c)). (c) Each outstanding warrant to purchase Company Common Stock which is issued and outstanding immediately prior to the Effective Time and which is held by persons other than H&QGF, Greyrock Business Credit ("GBC") and Cruttenden Roth ("CR")(collectively, the "Non-H&QGF Warrants") will remain outstanding following the Effective Time. The parties hereto agree that in the event that any such warrants are exercised after the Effective Time, the holder of the shares of Common Stock of the Surviving Corporation issued upon such exercise may, at any time prior to the later of the Calculation Date or 30 days after the Earn Out Date, opt to convert such shares into Escrow Units at the rate of one Escrow Unit for each share of Common Stock of the Surviving Corporation so issued. The consideration, if any, paid by the holder of a Non- H&QGF Warrant upon exercise of such a warrant shall be delivered to the Surviving Corporation and recorded on its books as paid-in capital. (d) Each share of common stock, no par value per share, of Merger Subsidiary ("Merger Subsidiary Common Stock") issued and outstanding immediately prior to the Effective Time shall be converted into 100,000 validly issued, fully paid and nonassessable shares of Common Stock of the Surviving Corporation. 2.02 Earn Out Payment; Value of Escrow Fund. The "Earn Out Payment -------------------------------------- Amount," as referred to herein, shall mean (a) the Adjusted Sales (as defined below) less (b) the sum of (i) the Warrant Value (as defined below) and (ii) the cash and GMC Common Stock valued at $5,000,000 delivered pursuant to Section 6.04 and Section 9.01. The payment of such amount, if any, is hereinafter referred to as the "Earn Out Payment." At least 15% but not greater than 50% of the Earn Out Payment shall be in the form of cash. The balance of the Earn Out Payment shall be in the form of shares of GMC Common Stock, valued at a per share price 3 equal to 90% of the average closing price for the 30 trading-day period ending on the last day of the Earn Out Period. Subject to the foregoing, GMC shall determine in its sole discretion the proportion of stock and cash it pays pursuant to the Earn Out Payment. "Earn Out Period," as referred to herein, shall mean the 365-day period following the Effective Time. "Adjusted Sales," as referred to herein, shall mean (a) 68% of the Surviving Corporation's non-IBM sales, net of any discounts, warranties and uncollected debts, plus (b) the greater of (i) 47.1% of the Surviving Corporation's sales of Q2.15 to IBM during the Earn Out Period, or (ii) 85% of the Surviving Corporation's sale of the Q2.15 product line to IBM plus 100% of the gross, pre-tax profit of the Surviving Corporation's sales during the Earn Out Period of any other fixed or intangible assets of the Surviving Corporation sold outside the ordinary course of the Surviving Corporation's business, all as calculated by PriceWaterhouseCoopers, LLP, or such other accounting firm as GMI and the Stockholders' Representative shall mutually agree to use (the "First Auditor"). "Warrant Value," as referred to herein, shall mean 4,500,000 multiplied by the excess, if any, of the average closing bid price for the 30 trading-day period ending on the last day of the Earn Out Period over the exercise price of such Escrow Warrants on the last day of the Earn Out Period. Promptly following calculation of the Earn Out Payment Amount, GMC shall deliver cash and shares of GMC Common Stock representing the Earn Out Payment to the H&QGF pursuant to the Collateral Agreement. Notwithstanding anything in this Agreement to the contrary, in no event shall GMC be required to deliver more than 10,000,000 shares of GMC Common Stock, in the aggregate (as adjusted from time to time to reflect the effect of any stock split, reverse split, stock dividend, reorganization, recapitalization or other like change with respect to GMC Common Stock), pursuant to this Section 2.02 or under the Escrow Warrants issued pursuant to Section 2.01(a). In the event that either GMC, GMI or Merger Subsidiary, on the one hand, or the Company, on the other, dispute the Earn Out Payment Amount calculated by the First Auditor, the disputing party may, by providing the non- disputing party with notice of its objection to the Earn Out Payment Amount, as calculated, within 30 days of the disputing party's receipt of notice of such calculation, obtain a second calculation of the Earn Out Payment Amount by an independent auditor mutually acceptable to the disputing and non-disputing parties (the "Second Auditor"). If the Second Auditor's calculation of the Earn Out Payment Amount varies by more than 10% from the First Auditor's calculation of the Earn Out Payment Amount, then the calculation of the Second Auditor shall be used as the Earn Out Payment Amount. If, however, the Second Auditor's calculation of the Earn Out Payment Amount varies by 10% or less from the First Auditor's calculation of the Earn Out Payment Amount, the calculation of the First Auditor shall be used as the Earn Out Payment Amount. The value of the Escrow Fund shall be the Warrant Value plus the Earn Out Payment Amount (the "Escrow Value"). The value of an Escrow Unit shall be the Escrow Value, as reduced pursuant to Section 2.06(a) hereof, divided by the Number of Escrow Units outstanding and deemed outstanding as of the Calculation Date. 4 2.03 Dissenting Shares. ----------------- (a) Notwithstanding anything in this Agreement to the contrary, if Section 262 of the DGCL shall be applicable to the Merger, shares of Company Common Stock or Series A Preferred Stock that are issued and outstanding immediately prior to the Effective Time and which are held by stockholders who have not voted such shares in favor of the Merger, who shall have delivered, prior to any vote on the Merger, a written demand to the Company for the appraisal of such shares in the manner provided in Section 262 of the DGCL and who, as of the Effective Time, shall not have effectively withdrawn or lost such right to dissenters' rights ("Dissenting Shares") shall not be converted into Escrow Units or represent a right to receive the Merger Consideration pursuant to Section 2.01 hereof and an escrow agreement to be executed by the parties to this agreement on or before the Earn Out Date (the "Escrow Agreement"), but the holders thereof shall be entitled only to such rights as are granted by Section 262 of the DGCL. Each holder of Dissenting Shares who becomes entitled to payment for such shares pursuant to Section 262 of the DGCL shall receive payment therefor from the Surviving Corporation in accordance with the DGCL; provided, however, that if any such holder of Dissenting Shares shall have effectively withdrawn such holder's demand for appraisal of such shares or lost such holder's right to appraisal and payment of such shares under Section 262 of the DGCL, such holder or holders (as the case may be) shall forfeit the right to appraisal of such shares and each such share shall thereupon be deemed to have been canceled, extinguished and converted, as of the Effective Time, into Escrow Units and represent the right to receive payment of the Merger Consideration, as provided in Section 2.01 hereof and the Escrow Agreement. (b) The Company shall give GMI (i) prompt notice of any written demand for fair value, any withdrawal of a demand for fair value and any other instrument served pursuant to Section 262 of the DGCL received by the Company, and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for fair value under such Section 262 of the DGCL. The Company shall not, except with the prior written consent of GMI, voluntarily make any payment with respect to any demand for fair value or offer to settle or settle any such demand. 2.04 Rights of Holders of Converted Securities. On and after the ----------------------------------------- Effective Time and until surrendered for exchange, each outstanding stock certificate which immediately prior to the Effective Time represented shares of Company Common Stock or Series A Preferred Stock (other than Dissenting Shares) and each stock certificate that represented Company Common Stock that was issued upon the exercise of a Non-H&QGF Warrant, which certificate was converted into Escrow Units pursuant to Section 2.01(c) (which certificates are collectively referred to herein as the "Certificates"), shall be deemed for all purposes to evidence ownership of and to represent solely the right to receive that portion of the Merger Consideration to which the holder thereof is entitled to receive pursuant to this Article II, which right shall be uncertificated (the issuance, or allocation, of Escrow Units shall be recorded solely in the books of the Transfer Agent (as such term is defined in Section 2.06(a) hereof)). In any matters relating to the Certificates, the Transfer Agent may rely conclusively upon the record of holders of 5 Certificates maintained by the Company containing the names and addresses of such holders at the Effective Time (or in the case of Certificates resulting from the exercise of Non-H&QGF Warrants, as of the Calculation Date). 2.05 Adjustments to Merger Consideration. The number of shares ----------------------------------- issuable pursuant to the Escrow Warrants, the exercise price thereof and the number of shares to be issued pursuant to the Earn Out Payment shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Company Common Stock, Series A Preferred Stock or GMC Common Stock), reorganization, recapitalization or other like change with respect to Company Common Stock, Series A Preferred Stock or GMC Common Stock occurring after the date of this Agreement and prior to the Effective Time. 2.06 Exchange of Certificates; Escrow Fund; Deductions from Escrow ------------------------------------------------------------- Fund. - ---- (a) Issuance of Escrow Warrants; Appointment of Escrow Agent. As of -------------------------------------------------------- the Effective Time, GMC shall, pursuant to the Collateral Agreement, deposit with H&QGF the Escrow Warrants issuable pursuant to Section 2.01. In addition, promptly following the final determination of the Earn Out Payment as provided for in Section 2.02, GMC shall deposit with H&QGF such cash (the "Escrow Cash") and shares of GMC Common Stock (the "Escrow Shares," and each individually an "Escrow Share"), if any, issuable pursuant to Section 2.02 (such Escrow Cash and Escrow Shares, if any, together with the Escrow Warrants, being hereinafter referred to as the "Escrow Fund"). H&QGF (i) shall hold the Escrow Fund as security for its claims and any claims of GMC or GMI against the Escrow Fund described in the Letter Agreement by and among H&QGF, the Company and GMI dated as of February 23, 1999 (the "Letter Agreement"), including any claims (A) by GMC or GMI for indemnification hereunder, (B) by H&QGF pursuant to its rights (including the dividend payment rights set forth in Section 9.03 hereof and the liquidation preferences to be set forth in the Surviving Corporation's Certificate of Incorporation) as holder of the Surviving Corporation's Series B Nonvoting Preferred Stock to be created pursuant to Section 9.03 (the "Series B Preferred Stock"), (C) by H&QGF, GBC or CR in connection with the Business Loan Agreement in the amount of approximately $2,900,000, which amount represents the Company's debt held by H&QGF, GBC or CR as of the date of this Agreement less the $1,000,000 to be converted into Series B Preferred Stock pursuant to Section 9.04 hereof, and (D) by H&QGF, GBC or CR for any compensation payment due with respect to certain contractual obligations of the Company existing immediately prior to the Effective Time pursuant to certain warrants held by H&QGF, GBC and CR, which warrants represent the right to purchase an aggregate of 777,441 shares of the Company's Common Stock (the "Compensation Payment"), and (ii) shall, in its sole discretion but in any event no later than upon satisfaction of the H&QGF Conditions (as defined below), deliver the remainder of the Escrow Fund, if any (following satisfaction of the claims set forth above), to the Escrow Agent for distribution to the holders of surrendered Certificates pursuant to the terms of this Agreement and the Escrow Agreement. Except as contemplated in the preceding sentence and by Section 2.06(f), the Escrow Fund shall not be used for any other 6 purpose. GMI shall make available to the Escrow Agent from time to time, as needed, cash sufficient to pay cash in lieu of fractional shares pursuant to Section 2.06(e). The H&QGF Conditions, as referred to herein, shall be that (i) the Surviving Corporation shall not be in default of its Business Loan Agreement or related Security Agreement with H&QGF, (ii) GMC shall have delivered the Earn Out Payment, if any, to H&QGF, (iii) any Compensation Payment due shall have been made from the Escrow Fund and (iv) either (A) GMC's Common Stock shall have traded at or above $4.00 per share for twenty consecutive trading days, or (B) there shall be an offer to buy from H&QGF (or other current holder thereof) without recourse, warranty or representation the Series B Preferred Stock for $1,000,000 plus any accrued but unpaid dividends thereon and, if such offer shall be accepted by H&QGF, such purchase price shall be paid in full. (b) Exchange Procedures. As promptly as practicable after the ------------------- Effective Time, the Surviving Corporation or its designee, as transfer agent (the "Transfer Agent"), shall mail to each holder of record of a Certificate that was converted into Escrow Units pursuant to Section 2.01 a letter of transmittal in customary form. The letter of transmittal shall specify that delivery of Certificates shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Transfer Agent. The Transfer Agent shall accompany the letter of transmittal with instructions for use in effecting the surrender of the Certificates in exchange for Escrow Units. Upon surrender of a Certificate for cancellation to the Transfer Agent, together with such letter of transmittal, duly executed, and such other documents as the Transfer Agent may reasonably require, the holder of such Certificate shall be entitled to receive such holder's proportionate share of the Escrow Fund pursuant to the provisions of this Article II, the Letter Agreement and the Escrow Agreement, including cash in lieu of fractional shares of GMC Common Stock to which such holder is entitled pursuant to Section 2.06(e) hereof and any dividends or other distributions to which such holder is entitled pursuant to Section 2.06(c) hereof. The Transfer Agent shall forthwith cancel the Certificates so surrendered, and shall record in its books all Escrow Units outstanding and deemed outstanding pursuant to this Agreement. If there is a transfer of Certificate ownership which is not registered in the transfer records of the Company, the Escrow Units into which such Certificate was converted may be credited to a person other than the person in whose name the Certificate so surrendered is registered, if, upon presentation to the Transfer Agent, such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of the allocation of Escrow Units to a person other than the registered holder of such Certificate or establish to the reasonable satisfaction of GMC that such tax has been paid or is not applicable. Except as provided in Section 2.03, until surrendered as contemplated by this Section 2.06(b), each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive the Merger Consideration due to the holder of the Escrow Units into which such Certificate was converted, including cash in lieu of any fractional shares of GMC Common Stock as contemplated by this 7 Section 2.06 and any dividends or other distributions to which such holder is entitled pursuant to Section 2.06(c). No interest shall be paid or shall accrue on any cash held in the Escrow Fund or payable pursuant to Sections 2.06(c) or 2.06(e). (c) Distributions with Respect to Unexchanged Shares. GMC shall pay ------------------------------------------------ no dividends and make no other distributions with respect to GMC Common Stock with a record date after the Effective Time to the holder of any unsurrendered Certificate with respect to the shares of GMC Common Stock to be issued upon release of the Escrow Fund, and GMI shall make no cash payment in lieu of fractional shares with respect to such GMC Common Stock pursuant to Section 2.06(e), until the holder of record of such Certificate surrenders such Certificate. (d) No Further Ownership Rights in Certificates. The Escrow Units ------------------------------------------- issued upon the surrender of Certificates for exchange in accordance with the terms hereof and the Letter Agreement shall be deemed to have been issued in full satisfaction of all rights pertaining to such Certificates. (e) No Fractional Shares or Escrow Warrants to Purchase Fractional -------------------------------------------------------------- Shares. - ------ (i) No fractional shares, or Escrow Warrants to purchase fractional shares, of GMC Common Stock shall be issued upon distribution of the Escrow Fund, and such fractional share interests shall not entitle the owner thereof to vote or to any rights of a stockholder of GMC. (ii) Notwithstanding any other provision of this Agreement, each holder of a Certificate exchanged for Escrow Units pursuant to the Merger who would otherwise have been entitled to receive a fraction of an Escrow Share or an Escrow Warrant to purchase a fraction of a share of GMC Common Stock (after taking into account all Certificates delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to such fractional part of a share of GMC Common Stock multiplied by either the closing price of GMC Common Stock on the Calculation Date (in the case of a fractional share) or the excess of the closing price of GMC Common Stock on the Calculation Date over the Exercise Price of such Escrow Warrant (in the case of an Escrow Warrant to purchase a fractional share). (f) Termination of Escrow Fund. The Escrow Agent shall deliver any -------------------------- portion of the Escrow Fund, which remains undistributed to the holders of Certificates for two years after the Effective Time, to GMI, upon demand, provided that the H&QGF Conditions have been satisfied. Any holders of Certificates who have not theretofore complied with this Article II shall thereafter look only to GMI for payment of their claim for Merger Consideration, including any cash in lieu of fractional shares of GMC Common Stock and any dividends or distributions with respect to GMC Common Stock. 8 (g) No Liability. None of GMC, GMI, Merger Subsidiary, the Company, ------------ the Surviving Corporation, H&QGF or the Escrow Agent shall be liable to any person in respect of any portion of the Escrow Fund paid to a public official pursuant to any applicable abandoned property, escheat, or similar law. (h) Investment of Escrow Fund. H&QGF and the Escrow Agent shall be ------------------------- entitled to hold, invest and co-mingle any Escrow Cash with their own cash accounts and money market accounts. H&QGF and the Escrow Agent shall allocate interest to the Escrow Fund at the Applicable Bank Rate (defined below) on the Escrow Cash for the period of time that the Escrow Cash is held by H&QGF or the Escrow Agent, respectively. The Applicable Bank Rate shall be the rate at which Silicon Valley Bank pays interest on money market accounts or deposit accounts of amounts most nearly comparable to the amount of Escrow Cash so held by H&QGF and the Escrow Agent. (i) Lost Certificates. If any Certificate shall have been lost, ----------------- stolen, or destroyed, then upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen, or destroyed, and, if required by the Surviving Corporation, upon the delivery to the Surviving Corporation of a bond in such sum as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, such person shall be entitled to receive that portion of the Escrow Fund to which he or she is entitled pursuant to the terms and conditions set forth in this Article II. 2.07 Stock Options. Each option (individually, a "Stock Option" and, ------------- collectively, the "Stock Options") issued pursuant to the Company's Stock Option Plan (the "Option Plan") and outstanding immediately prior to the Effective Time (an "Outstanding Stock Option") shall be canceled and replaced with an option to purchase GMC Common Stock under the Global MAINTECH Corporation 1989 Stock Option Plan (a "Replacement Option") at an exercise price equal to the exercise price of such Outstanding Stock Option immediately prior to the Effective Time divided by 0.4. The Replacement Options shall not be exercisable until after the Earn Out Date (as defined in Section 9.03). The number of shares issuable upon exercise of each Replacement Option shall equal the number of shares issuable (immediately prior to the Effective Time) upon exercise of the Outstanding Stock Option that it replaced divided by a number to be agreed upon by the parties to this Agreement on or before the Closing Date. 2.08 Notices to Option Holders. As soon as practicable after the ------------------------- Effective Time, GMC shall deliver to each holder of a Stock Option an appropriate notice setting forth such holder's rights pursuant thereto. GMC shall take all corporate action necessary to reserve for issuance a sufficient number of shares of GMC Common Stock for delivery pursuant to the exercise of Replacement Options. 2.09 H&QGF Warrants. The outstanding warrants to purchase Company -------------- Common Stock that are held by H&QGF, GBC and CR (collectively, the "H&QGF Warrants") shall be converted at the Effective Time into new warrants in form and substance to be agreed 9 upon by GMC and the holders of the H&QGF Warrants (the "Replacement Warrants") to purchase a like number of shares of GMC Common Stock at an initial exercise price of $4.125, subject to adjustment as set forth in the Replacement Warrants. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY --------------------------------------------- The Company hereby makes the representations and warranties set forth below to GMI and Merger Subsidiary, except as set forth in the Disclosure Schedule referencing this Article III and delivered by the Company to GMI and Merger Subsidiary no later than 10 days before the Closing Date (the "Disclosure Schedule") (which Disclosure Schedule sets forth the exceptions to the representations and warranties contained in this Article III under captions referencing the Sections to which such exceptions apply). When used in connection with the Company, the term "Material Adverse Change" means any change, event or effect that is or is reasonably likely to be materially adverse to the business, assets (including intangible assets), liabilities, financial condition or results of operations of the Company and its subsidiaries taken as a whole; provided, however, that a Material Adverse Change shall not include any adverse effect following the date of this Agreement on the business, financial condition or results of operations of the Company, taken as a whole, that is attributable to the Merger contemplated by this Agreement or the announcement of the Merger. Disclosure under any section shall constitute disclosure under the Disclosure Schedule without the need for cross-references. All descriptions of agreements or other matters appearing herein are summary in nature and are qualified by reference to the complete documents, which have been supplied to GMI and Merger Subsidiary, or counsel to GMI and Merger Subsidiary or which the Company will make available to GMI or Merger Subsidiary upon request. In no event shall any disclosure hereunder be deemed to constitute an acknowledgment that such disclosure is material to the business or financial condition of the Company. 3.01 Incorporation and Corporate Power. The Company is a corporation --------------------------------- duly incorporated, validly existing and in good standing under the laws of the State of Delaware and, subject to approval of this Agreement by the Company's stockholders, has the requisite corporate power and authority to execute and deliver this Agreement and the Certificate of Merger and to perform its obligations hereunder and thereunder. The Company has the corporate power and authority and all authorizations, licenses, permits and certifications necessary to own and operate its properties and to carry on its business as now conducted and presently proposed to be conducted. The copies of the Company's Certificate of Incorporation and Bylaws which have been furnished by the Company to GMI and Merger Subsidiary prior to the date hereof reflect all amendments made thereto and are correct and complete as of the date hereof. The Company is qualified to do business as a foreign corporation in every jurisdiction in which the nature of its business or its ownership of property requires it to be so qualified, except for those jurisdictions in which the failure to be so qualified would not, individually or in the aggregate, result in a Material Adverse Change in the Company. 10 3.02 Execution, Delivery; Valid and Binding Agreements. The ------------------------------------------------- execution, delivery and performance of the Letter Agreement, this Agreement, the Collateral Agreement and the Certificate of Merger by the Company and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all requisite corporate action, and no other corporate proceedings on its part are necessary to authorize the execution, delivery and performance of the Letter Agreement, this Agreement, the Collateral Agreement and the Certificate of Merger, other than, with respect to this Agreement, approval by the board of directors and stockholders of the Company. The Letter Agreement and this Agreement have been duly executed and delivered by the Company and constitute the valid and binding obligations of the Company, enforceable in accordance with their terms, and the Collateral Agreement and Certificate of Merger, when executed and delivered by the Company, shall constitute the valid and binding obligations of the Company, enforceable in accordance with their terms. 3.03 Approval of the Merger Agreement and Plan of Merger; Meeting of --------------------------------------------------------------- Stockholders. The Company hereby represents that its Board of Directors has, by - ------------ resolutions duly adopted at a meeting held on March __, 1999, approved this Agreement and the Certificate of Merger and the transactions contemplated hereby and thereby, including the Merger, and resolved to recommend approval of this Agreement by the Company's stockholders. None of the resolutions described in this Section 3.03 has been amended or otherwise modified in any respect since the date of adoption thereof and all such resolutions remain in full force and effect. 3.04 No Breach. To the knowledge of the Company, the execution, --------- delivery and performance of this Agreement and the Certificate of Merger by the Company and the consummation by the Company of the transactions contemplated hereby and thereby do not conflict with or result in any breach of any of the provisions of, constitute a default under, result in a violation of, result in the creation of a right of termination or acceleration or any lien, security interest, charge or encumbrance upon any assets of the Company, or require any authorization, consent, approval, exemption or other action by or notice to any court or other governmental body, under the provisions of the Certificate of Incorporation or Bylaws of the Company or any indenture, mortgage, lease, loan agreement or other agreement or instrument by which the Company is bound or affected, or any law, statute, rule or regulation or order, judgment or decree to which the Company is subject, except as would not result in a Material Adverse Change in the Company. 3.05 Governmental Authorities; Consents. Except for the filing of the ---------------------------------- Certificate of Merger with the Secretary of State of the State of Delaware, the Company is not required to submit any notice, report or other filing with any governmental authority in connection with the execution or delivery by it of this Agreement or the Certificate of Merger or the consummation of the transactions contemplated hereby or thereby. Except as set forth in the Disclosure Schedule under the caption referencing this Section 3.05, no consent, approval or authorization of any governmental or regulatory authority or any other party or person (except the approval of this Agreement by the stockholders of the Company) is required to be obtained by 11 the Company in connection with its execution, delivery and performance of this Agreement or the Certificate of Merger or the transactions contemplated hereby or thereby. 3.06 Subsidiaries. Except as otherwise set forth in the Disclosure ------------ Schedule under the caption referencing this Section 3.06, the Company does not own any stock, partnership interest, joint venture interest or any other security or ownership interest issued by any other corporation, organization or entity. All issued and outstanding shares of capital stock of any of the subsidiaries set forth in such Disclosure Schedule are owned by the Company, either directly or through one or more other subsidiaries, free and clear of all liens, charges, encumbrances, claims and options of any nature. All of the outstanding shares of capital stock of such subsidiaries have been duly and validly authorized and issued, and are fully paid and nonassessable. 3.07 Capital Stock. The authorized capital stock of the Company ------------- consists of 30,000,000 shares of Common Stock, par value $0.01 per share, of which, as of the date hereof, 15,683,368 shares are issued and outstanding and 10,000,000 shares of Preferred Stock, par value $0.01 per share, of which, as of the date hereof 912,244 shares of Series A Preferred Stock are issued and outstanding. In addition, as of the date hereof, there are outstanding options to purchase 3,461,500 shares of Company Common Stock and outstanding warrants to purchase 2,978,306 shares of Company Common Stock. All of such outstanding shares of Company Common Stock and Preferred Stock, options and warrants have been duly authorized and are validly issued, fully paid and nonassessable. The Company has no other equity securities or securities containing any equity features authorized, issued or outstanding. There are no agreements or other rights or arrangements existing which provide for the sale or issuance of capital stock by the Company and, except for the options and warrants described above, there are no rights, subscriptions, warrants, options, conversion rights or agreements of any kind outstanding to purchase or otherwise acquire from the Company any shares of capital stock or other securities of the Company of any kind. There are no agreements or other obligations (contingent or otherwise) which may require the Company to repurchase or otherwise acquire any shares of its capital stock. 3.08 Financial Statements. The Company has delivered to GMI copies of -------------------- (a) the unaudited balance sheet, as of December 31, 1998, of the Company (the "Latest Balance Sheet") and the unaudited statements of earnings, stockholders' equity and cash flows of the Company for the year ended December 31, 1998 (such statements and the Latest Balance Sheet being herein referred to as the "Latest Financial Statements") and (b) the audited balance sheets, as of December 31, 1997, 1996 and 1995 of the Company and the audited statements of earnings, stockholders' equity and cash flows of the Company for each of the years ended 1997, 1996 and 1995 (collectively, the "Annual Financial Statements"). The Latest Financial Statements and the Annual Financial Statements are based upon the information contained in the books and records of the Company and the Company has used its best efforts to ensure that, except as set forth in the Disclosure Schedule referencing this Section 3.08, the Latest Financial Statements and the Annual Financial Statements fairly present, in all material respects, the financial condition of the 12 Company as of the dates thereof and results of operations for the periods referred to therein. The Annual Financial Statements have been prepared in accordance with generally accepted accounting principles, consistently applied throughout the periods indicated. The Company has used its best efforts to ensure that the Latest Financial Statements have been prepared in accordance with generally accepted accounting principles applicable to unaudited interim financial statements (and thus may not contain all notes and may not contain prior period comparative data which are required to be prepared in accordance with generally accepted accounting principles) consistently with the Annual Financial Statements and reflect all adjustments necessary to a fair statement of the results for the interim period(s) presented. 3.09 Absence of Undisclosed Liabilities. Except as reflected in the ---------------------------------- Latest Balance Sheet, the Company has no liabilities (whether accrued, absolute, contingent, unliquidated or otherwise, whether due or to become due, whether known or unknown, and regardless of when asserted) arising out of transactions or events heretofore entered into, or any action or inaction, or any state of facts existing, with respect to or based upon transactions or events heretofore occurring, except (i) liabilities which have arisen after the date of the Latest Balance Sheet in the ordinary course of business (none of which is a material uninsured liability for breach of contract, breach of warranty, tort, infringement, claim or lawsuit), or (ii) as otherwise set forth in the Disclosure Schedule under the caption referencing this Section 3.09. 3.10 No Material Adverse Changes. Since the date of the Latest --------------------------- Balance Sheet (the "Balance Sheet Date"), there has been no Material Adverse Change in the Company. 3.11 Absence of Certain Developments. Except as set forth in the ------------------------------- Disclosure Schedule referencing this Section 3.11, since the Balance Sheet Date, the Company has not: (a) borrowed any amount or incurred or become subject to any liability in excess of $25,000, except (i) current liabilities incurred in the ordinary course of business and (ii) liabilities under contracts entered into in the ordinary course of business; (b) mortgaged, pledged or subjected to any lien, charge or any other encumbrance, any of its assets with a fair market value in excess of $25,000, except (i) liens for current property taxes not yet due and payable, (ii) liens imposed by law and incurred in the ordinary course of business for obligations not yet due to carriers, warehousemen, laborers, materialmen and the like, (iii) liens in respect of pledges or deposits under workers' compensation laws, (iv) liens set forth under the caption referencing this Section 3.11 in the Disclosure Schedule, or (v) liens voluntarily created in the ordinary course of business, all of which liens aggregate less than $25,000; (c) discharged or satisfied any lien or encumbrance or paid any liability, in each case with a value in excess of $25,000, other than current liabilities paid in the ordinary course of business; 13 (d) sold, assigned or transferred (including, without limitation, transfers to any employees, affiliates or stockholders) any tangible assets with a fair market value in excess of $25,000, or canceled any debts or claims, in each case, except in the ordinary course of business; (e) sold, assigned or transferred (including, without limitation, transfers to any employees, affiliates or stockholders) any patents, trademarks, trade names, copyrights, trade secrets or other intangible assets; (f) disclosed, to any person other than GMI or Merger Subsidiary and authorized representatives of GMI or Merger Subsidiary, any proprietary confidential information, other than pursuant to a confidentiality agreement prohibiting the use or further disclosure of such information, which agreement is identified in the Disclosure Schedule under the caption referencing this Section 3.11 and is in full force and effect on the date hereof; (g) waived any rights of material value or suffered any extraordinary losses or adverse changes in collection loss experience, whether or not in the ordinary course of business or consistent with past practice; (h) declared or paid any dividends or other distributions with respect to any shares of the Company's capital stock or redeemed or purchased, directly or indirectly, any shares of the Company's capital stock or any options, except as permitted under Section 5.01(b) hereof; (i) issued, sold or transferred any of its equity securities, securities convertible into or exchangeable for its equity securities or warrants, options or other rights to acquire its equity securities, or any bonds or debt securities; (j) taken any other action or entered into any other transaction other than in the ordinary course of business and in accordance with past custom and practice, or entered into any transaction with any "Insider" (as defined in Section 3.23 hereof) which would result in a Material Adverse Change in the Company, other than employment arrangements otherwise disclosed in this Agreement and the Disclosure Schedule, or the transactions contemplated by this Agreement; (k) suffered any material theft, damage, destruction or loss of or to any property or properties owned or used by it, whether or not covered by insurance; (l) made or granted any bonus or any wage, salary or compensation increase to any director, officer, employee who earns more than $50,000 per year, or consultant or made or granted any increase in any employee benefit plan or arrangement, or amended or terminated any existing employee benefit plan or arrangement, or adopted any new employee benefit plan or arrangement or made any commitment or incurred any liability to any labor organization; 14 (m) made any single capital expenditure or commitment therefor in excess of $100,000; (n) made any loans or advances to, or guarantees for the benefit of, any persons such that the aggregate amount of such loans, advances or guarantees at any time outstanding is in excess of $25,000; (o) made charitable contributions or pledges which in the aggregate exceed $25,000; or (p) made any change in accounting principles or practices from those utilized in the preparation of the Annual Financial Statements. 3.12 Title to Properties. ------------------- (a) The Company does not own any real property. The real property demised by the leases (the "Leases") described under the caption referencing this Section 3.12 in the Disclosure Schedule constitutes all of the real property used or occupied by the Company (the "Real Property"). The Real Property has access, sufficient for the conduct of the Company's business as now conducted or as presently proposed to be conducted, to public roads and to all utilities, including electricity, sanitary and storm sewer, potable water, natural gas and other utilities, used in the operation of the business of the Company at that location. (b) The Leases are in full force and effect, and the Company holds a valid and existing leasehold interest under each of the Leases for the term set forth under such caption in the Disclosure Schedule. The Company has delivered to GMI complete and accurate copies of each of the Leases, and none of the Leases has been modified in any respect, except to the extent that such modifications are disclosed by the copies delivered to GMI. The Company is not in material default, and no circumstances exist which, if unremedied, would, either with or without notice or the passage of time or both, result in such default under any of the Leases; nor, to the best knowledge of the Company, is any other party to any of the Leases in default. (c) The Company owns good and marketable title to each of the tangible properties and tangible assets reflected on the Latest Balance Sheet or acquired since the date thereof, free and clear of all liens and encumbrances, except for (i) liens for current taxes not yet due and payable, (ii) liens set forth under the caption referencing this Section 3.12 in the Disclosure Schedule, (iii) the properties subject to the Leases, (iv) assets disposed of since the date of the Latest Balance Sheet in the ordinary course of business, (v) liens imposed by law and incurred in the ordinary course of business for obligations not yet due to carriers, warehousemen, laborers and materialmen and (vi) liens in respect of pledges or deposits under workers' compensation laws, all of which liens aggregate less than $25,000. 15 (d) All of the buildings, machinery, equipment and other tangible assets necessary for the conduct of the Company's business are in good condition and repair, ordinary wear and tear excepted, and are usable in the ordinary course of business. There are no defects in such assets or other conditions relating thereto which, in the aggregate, materially adversely affect the operation or value of such assets. The Company owns, or leases under valid leases, all buildings, machinery, equipment and other tangible assets necessary for the conduct of its business. (e) To the best of the Company's knowledge, the Company is not in violation of any applicable zoning ordinance or other law, regulation or requirement relating to the operation of any properties used in the operation of its business, and the Company has not received any notice of any such violation, or the existence of any condemnation proceeding with respect to any of the Real Property, except, in each case, with respect to violations the potential consequences of which do not or will not result in a Material Adverse Change in the Company. (f) The Company has no knowledge of improvements made or contemplated to be made by any public or private authority, the costs of which are to be assessed as special taxes or charges against any of the Real Property, and there are no present assessments. 3.13 Accounts Receivable. The accounts receivable reflected on the ------------------- Latest Balance Sheet are valid receivables, are not subject to valid counterclaims or setoffs, and are collectible in accordance with their terms, except as otherwise described in the Disclosure Schedule under the caption referencing this Section 3.13, and except to the extent of the bad debt reserve reflected on the Latest Balance Sheet. 3.14 Inventory. The Company's inventory of raw materials, work in --------- process and finished goods consists of items of a quality and quantity usable and, with respect to finished goods only, saleable at the Company's normal profit levels, in each case, in the ordinary course of the Company's business. The Company's inventory of finished goods is not slow-moving as determined in accordance with past practices, obsolete or damaged and is merchantable and fit for its particular use. The Company has on hand or has ordered and expects timely delivery of such quantities of raw materials and has on hand such quantities of work in process and finished goods as are reasonably required timely to fill current orders on hand which require delivery within 60 days and to maintain the manufacture and shipment of products at its normal level of operations. As of the date of the Latest Balance Sheet, the values at which such inventory is carried on the Latest Balance Sheet are in accordance with generally accepted accounting principles. The Disclosure Schedule, under the caption referencing this Section 3.14, contains a materially complete and accurate summary of the Company's inventory of raw materials, work in progress and finished goods as of January 18, 1999. 16 3.15 Tax Matters. ----------- (a) Each of the Company and any subsidiary, any affiliated, combined or unitary group of which the Company or any subsidiary is or was a member, any "Plans" (as defined in Section 3.21 hereof), as the case may be (each, a "Tax Affiliate" and, collectively, the "Tax Affiliates"), has (except where the failure to do so would not result in a Material Adverse Change in the Company): (i) timely filed (or has had timely filed on its behalf) all returns, declarations, reports, estimates, information returns, and statements ("Returns") required to be filed or sent by it in respect of any "Taxes" (as defined in subsection (i) below) or required to be filed or sent by it by any taxing authority having jurisdiction; (ii) timely and properly paid (or has had paid on its behalf) all Taxes shown to be due and payable on such Returns; (iii) established on its Latest Balance Sheet, in accordance with generally accepted accounting principles, reserves that are adequate for the payment of any Taxes not yet due and payable; (iv) complied with all applicable laws, rules, and regulations relating to the withholding of Taxes and the payment thereof (including, without limitation, withholding of Taxes under Sections 1441 and 1442 of the Internal Revenue Code of 1986, as amended (the "Code"), or similar provisions under any foreign laws), and timely and properly withheld from individual employee wages and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under all applicable laws. (b) There are no liens for Taxes upon any assets of the Company or of any Tax Affiliate, except liens for Taxes not yet due. (c) No deficiency for any Taxes has been proposed, asserted or assessed against the Company or the Tax Affiliates that has not been resolved and paid in full. No waiver, extension or comparable consent given by the Company or the Tax Affiliates regarding the application of the statute of limitations with respect to any Taxes or Returns is outstanding, nor is any request for any such waiver or consent pending. There has been no Tax audit or other administrative proceeding or court proceeding with regard to any Taxes or Returns, nor is any such Tax audit or other proceeding pending, nor has there been any notice to the Company by any Taxing authority regarding any such Tax, audit or other proceeding, or, to the best knowledge of the Company, is any such Tax audit or other proceeding threatened with regard to any Taxes or Returns. The Company does not expect the assessment of any additional Taxes of the Company or the Tax Affiliates and is not aware of any unresolved questions, claims or disputes concerning the liability for Taxes of the Company or the Tax Affiliates which would exceed the estimated reserves established on its books and records. (d) Neither the Company nor any Tax Affiliate is a party to any agreement, contract or arrangement that would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code and the consummation of the transactions contemplated by this Agreement will not be a factor causing payments to be made by the Company or any Tax Affiliate that are not deductible (in whole or in part) under Section 280G of the Code. 17 (e) Neither the Company nor any Tax Affiliate has requested any extension of time within which to file any Return, which Return has not since been filed. (f) All transactions that could give rise to an understatement of federal income tax (within the meaning of Section 6661 of the Code as it applied prior to repeal) or an underpayment of tax (within the meaning of Section 6662 of the Code) were reported in a manner for which there is substantial authority or were adequately disclosed (or, with respect to Returns filed before the Closing Date, will be reported in such a manner or adequately disclosed) on the Returns required in accordance with Sections 6661(b)(2)(B) and 6662(d)(2)(B) of the Code. (g) Neither the Company nor any Tax Affiliate has filed any consent under Section 341(f) of the Code. (h) All Taxes of the Company which will be due and payable, whether now or hereafter, for any period ending on, ending on and including, or ending prior to the Closing Date, shall have been paid by or on behalf of the Company or shall be reflected on the Company's books as an accrued Tax liability, either current or deferred, the amount of which as of the date of the Latest Financial Statements is as set forth therein and the amount of which as of the date of any subsequent interim financial statements shall be as set forth therein and in Section 3.15 of the Company Disclosure Schedule. (i) For purposes of this Agreement, the terms "Tax" and "Taxes" mean all taxes, charges, fees, levies, or other assessments, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, social security, unemployment, excise, estimated, severance, stamp, occupation, property, or other taxes, customs duties, fees, assessments, or charges of any kind whatsoever, including, without limitation, all interest and penalties thereon, and additions to tax or additional amounts imposed by any taxing authority, domestic or foreign, upon the Company or any Tax Affiliate. 3.16 Contracts and Commitments. ------------------------- (a) The Disclosure Schedule under the caption referencing this Section 3.16 lists all material agreements, whether oral or written, to which the Company is a party, which are currently in effect, and which relate to the operation of the Company's business, including all of those involving the expenditure by, or potential obligation of, the Company of $25,000 or more and any (i) collective bargaining agreement or contract with any labor union, (ii) bonus, pension, profit sharing, retirement or other form of deferred compensation plan, (iii) hospitalization insurance or other welfare benefit plan or practice, whether formal or informal, (iv) stock purchase, stock option or similar plan, (v) contract for the employment of any officer, individual employee or other person on a full-time or consulting basis or relating to severance pay for any such person, (vi) confidentiality agreement, (vii) contract, agreement or understanding relating to 18 the voting of capital stock or the election of directors of the Company and any other agreement not entered into in the ordinary course of business; provided, however, that this Section 3.16(a) shall not apply to purchase orders made or obtained by the Company in the ordinary course of its business. (b) The Company has performed all obligations required to be performed by it in connection with the contracts or commitments required to be disclosed in the Disclosure Schedule under the caption referencing this Section 3.16 and is not in receipt of any claim of default under any contract or commitment required to be disclosed under such caption; the Company has no present expectation or intention of not fully performing any material obligation pursuant to any contract or commitment required to be disclosed under such caption; and the Company has no knowledge of any breach or anticipated breach by any other party to any contract or commitment required to be disclosed under such caption. (c) Prior to the date of this Agreement, GMI and Merger Subsidiary have been supplied with a true and correct copy of each written contract or commitment, and a written description of each oral contract or commitment, referred to under the caption referencing this Section 3.16 in the Disclosure Schedule, together with all amendments, waivers or other changes thereto. 3.17 Intellectual Property Rights. The Disclosure Schedule describes ---------------------------- under the caption referencing this Section 3.17 all rights in patents, patent applications, trademarks, service marks, trade names, corporate names, copyrights, trade secrets, know-how or other intellectual property rights owned by, licensed to or otherwise controlled by the Company or used in, developed for use in or necessary to the conduct of the Company's business as now conducted or planned to be conducted. The Company owns and possesses all right, title and interest, or holds a valid license to use, or prior to the Effective Time will own and possess or hold a valid license to use, the rights set forth under such caption. The Disclosure Schedule describes under the caption referencing this Section 3.17 all intellectual property rights which have been licensed to third parties and those intellectual property rights which are licensed from third parties. The Company has taken all necessary action to protect the intellectual property rights set forth under such caption. The Company has not received any notice of, nor are there any facts known to the Company which indicate a likelihood of, any infringement or misappropriation by, or conflict from, any third party with respect to the intellectual property rights which are listed; to the best knowledge of the Company, no claim by any third party contesting the validity of any intellectual property rights listed in the Disclosure Schedule has been made, is currently outstanding or is threatened; the Company has not received any notice of any infringement, misappropriation or violation by the Company of any intellectual property rights of any third parties and the Company has not, to the best of its knowledge, infringed, misappropriated or otherwise violated any such intellectual property rights; and no infringement, illicit copying, misappropriation or violation has occurred or will occur with respect to products currently being sold by the Company or with respect to the products currently under development (in their present state of development) or with respect to the conduct of the Company's business as now conducted. 19 3.18 Litigation. Except as set forth in the Disclosure Schedule ---------- under the caption referencing this Section 3.18, there are no actions, suits, proceedings, orders or investigations pending or, to the best knowledge of the Company, threatened against the Company, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. 3.19 Warranties. The Disclosure Schedule summarizes under the caption ---------- referencing this Section 3.19 all claims, to the best knowledge of the Company, outstanding, pending or threatened for breach of any warranty relating to any products sold by the Company prior to the date hereof. The description of the Company's product warranties set forth under the caption referencing this Section 3.19 is correct and complete in all material respects. The reserves for warranty claims on the Latest Balance Sheet are consistent with the Company's prior practices and are fully adequate to cover all warranty claims made against any products of the Company sold prior to the date thereof. 3.20 Employees. (a) To the best knowledge of the Company, no --------- executive employee of the Company and no group of the Company's employees has any plans to terminate his or its employment; (b) the Company has complied with all laws relating to the employment of labor, including provisions thereof relating to wages, hours, equal opportunity, collective bargaining and the payment of social security and other taxes; (c) the Company has no material labor relations problem pending and its labor relations are satisfactory; (d) there are no workers' compensation claims pending against the Company nor is the Company aware of any facts that would give rise to such a claim; (e) to the best knowledge of the Company, no employee of the Company is subject to any secrecy or noncompetition agreement or any other agreement or restriction of any kind that would impede in any way the ability of such employee to carry out fully all activities of such employee in furtherance of the business of the Company; and (f) no employee or former employee of the Company has any claim with respect to any intellectual property rights of the Company set forth under the caption referencing Section 3.17 hereof in the Disclosure Schedule. 3.21 Employee Benefit Plans. ---------------------- (a) Except as set forth under the caption referencing Section 3.21 hereof in the Disclosure Schedule, with respect to all employees and former employees of the Company and all dependents and beneficiaries of such employees and former employees, (i) the Company does not maintain or contribute to any nonqualified deferred compensation or retirement plans, contracts or arrangements; (ii) the Company does not maintain or contribute to any qualified defined contribution plans (as defined in Section 3(34) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 414(i) of the Code; (iii) the Company does not maintain or contribute to any qualified defined benefit plans (as defined in Section 3(35) of ERISA or Section 414(j) of the Code); and (iv) the Company does not maintain or contribute to any employee welfare benefit plans (as defined in Section 3(1) of ERISA). 20 (b) To the extent required (either as a matter of law or to obtain the intended tax treatment and tax benefits), all employee benefit plans (as defined in Section 3(3) of ERISA) which the Company does maintain or to which it does contribute (collectively, the "Plans") comply in all material respects with the requirements of ERISA and the Code. With respect to the Plans, (i) all required contributions which are due have been made and a proper accrual has been made for all contributions due in the current fiscal year; (ii) there are no actions, suits or claims pending, other than routine uncontested claims for benefits; and (iii) there have been no prohibited transactions (as defined in Section 406 of ERISA or Section 4975 of the Code). (c) GMI and Merger Subsidiary have received true and complete copies of (i) the most recent determination letter, if any, received by the Company from the Internal Revenue Service regarding the Plans which the Company maintains or to which it contributes and any amendment to any Plan made subsequent to any Plan amendments covered by any such determination letter; (ii) the most recent financial statements and annual report or return for the Plans; and (iii) the most recently prepared actuarial valuation reports. (d) The Company does not contribute (and has not ever contributed) to any multi-employer plan, as defined in Section 3(37) of ERISA. The Company has no actual or potential liabilities under Section 4201 of ERISA for any complete or partial withdrawal from a multi-employer plan. The Company has no actual or potential liability for death or medical benefits after separation from employment, other than (i) death benefits under the employee benefit plans or programs (whether or not subject to ERISA) set forth under the caption referencing this Section 3.21 in the Disclosure Schedule and (ii) health care continuation benefits described in Section 4980B of the Code. (e) Neither the Company nor any of its directors, officers, employees or other "fiduciaries," as such term is defined in Section 3(21) of ERISA, has committed any breach of fiduciary responsibility imposed by ERISA or any other applicable law with respect to the Plans which would subject the Company, GMC, GMI, Merger Subsidiary, the Surviving Corporation, GMI's subsidiaries or any of their respective directors, officers or employees to any liability under ERISA or any applicable law. (f) The Company has not incurred any liability for any tax or civil penalty or any disqualification of any employee benefit plan (as defined in Section 3(3) of ERISA) imposed by Sections 4980B and 4975 of the Code and Part 6 of Title I and Section 502(i) of ERISA. 3.22 Insurance. The Disclosure Schedule, under the caption --------- referencing this Section 3.22, lists and briefly describes each insurance policy maintained by the Company with respect to the Company's properties, assets and operations and sets forth the date of expiration of each such insurance policy. All of such insurance policies are in full force and effect and are issued by insurers of recognized responsibility. The Company is not in default in any material respect with regard to its obligations under any of such insurance policies. 21 3.23 Affiliate Transactions. Except as disclosed under the caption ---------------------- referencing this Section 3.23 in the Disclosure Schedule, and other than pursuant to this Agreement, no officer, director or employee of the Company or any member of the immediate family of any such officer, director or employee, or any entity in which any of such persons owns any beneficial interest (other than any publicly-held corporation whose stock is traded on a national securities exchange or in the over-the-counter market and less than one percent of the stock of which is beneficially owned by any of such persons) (collectively "Insiders"), has any agreement with the Company (other than normal employment arrangements) or any interest in any property, real, personal or mixed, tangible or intangible, used in or pertaining to the business of the Company (other than ownership of capital stock of the Company). None of the Insiders has any direct or indirect interest in any competitor, supplier or customer of the Company or in any person, firm or entity from whom or to whom the Company leases any property, or in any other person, firm or entity with whom the Company transacts business of any nature. For purposes of this Section 3.23, the members of the immediate family of an officer, director or employee shall consist of the spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law of such officer, director or employee. 3.24 Customers and Suppliers. The Disclosure Schedule under the ----------------------- caption referencing this Section 3.24 lists the 10 largest customers and the 10 largest suppliers of the Company for the fiscal years ended December 31, 1997 and 1998 and sets forth opposite the name of each such customer or supplier the approximate percentage of net sales or purchases by the Company attributable to such customer or supplier for each such period. Since the Balance Sheet Date, no customer or supplier listed on the Disclosure Schedule under the caption referencing this Section 3.24 has indicated to the Company that it will stop or decrease the rate of business done with the Company except for changes in the ordinary course of the Company's business. 3.25 Officers and Directors; Bank Accounts. The Disclosure Schedule, ------------------------------------- under the caption referencing this Section 3.25, lists all officers and directors of the Company and all of the Company's bank accounts (designating each authorized signer). 3.26 Compliance with Laws; Permits. ----------------------------- (a) The Company and its officers, directors, agents and employees have complied in all material respects with all applicable laws, regulations and other requirements, including, but not limited to, federal, state, local and foreign laws, ordinances, rules, regulations and other requirements pertaining to product labeling, consumer products safety, equal employment opportunity, employee retirement, affirmative action and other hiring practices, occupational safety and health, workers' compensation, unemployment and building and zoning codes, which materially affect the business of the Company or the Real Property and to which the Company may be subject, and to the best knowledge of the Company, no claims have been filed against the Company alleging a violation of any such laws, regulations or other requirements. The Company has no knowledge of any action, pending or threatened, to change the zoning or 22 building ordinances or any other laws, rules, regulations or ordinances affecting the Real Property. The Company is not relying on any exemption from or deferral of any such applicable law, regulation or other requirement that would not be available to GMI after it acquires the Company's properties, assets and business. (b) The Company has, in full force and effect, all licenses, permits and certificates, from federal, state, local and foreign authorities (including, without limitation, federal and state agencies regulating occupational health and safety) necessary to conduct its business and own and operate its properties (other than Environmental Permits, as such term is defined in Section 3.27(c) hereof) (collectively, the "Permits"). A true and correct list of all the Permits is set forth under the caption referencing this Section 3.26 in the Disclosure Schedule. The Company has conducted its business in compliance with all material terms and conditions of the Permits. (c) The Company has not made or agreed to make gifts of money, other property or similar benefits (other than incidental gifts of articles of nominal value) to any actual or potential customer, supplier, governmental employee or any other person in a position to assist or hinder the Company in connection with any actual or proposed transaction. (d) In particular, but without limiting the generality of the foregoing, the Company to its best knowledge has not violated in any material respect and has no liability, and has not received a notice or charge asserting any violation of or liability, under the federal Occupational Safety and Health Act of 1970 or any other federal or state acts (including rules and regulations thereunder) regulating or otherwise affecting employee health and safety. 3.27 Environmental Matters. --------------------- (a) As used in this Section 3.27, the following terms shall have the following meanings: (i) "Hazardous Materials" means any dangerous, toxic or hazardous pollutant, contaminant, chemical, waste, material or substance as defined in or governed by any federal, state or local law, statute, code, ordinance, regulation, rule or other requirement relating to such substance or otherwise relating to the environment or human health or safety, including without limitation any waste, material, substance, pollutant or contaminant that might cause any injury to human health or safety or to the environment or might subject the Company to any imposition of costs or liability under any Environmental Law. (ii) "Environmental Laws" means all applicable federal, state, local and foreign laws, rules, regulations, codes, ordinances, orders, decrees, directives, permits, licenses and judgments relating to pollution, contamination or protection of the environment (including, without limitation, all applicable federal, state, local and foreign 23 laws, rules, regulations, codes, ordinances, orders, decrees, directives, permits, licenses and judgments relating to Hazardous Materials in effect as of the date of this Agreement). (iii) "Release" shall mean the spilling, leaking, disposing, discharging, emitting, depositing, ejecting, leaching, escaping or any other release or threatened release, however defined, whether intentional or unintentional, of any Hazardous Material. (b) The Company and the Real Property are in material compliance with all applicable Environmental Laws. (c) The Company has obtained, and maintained in full force and effect, all environmental permits, licenses, certificates of compliance, approvals and other authorizations necessary to conduct its business and own or operate the Real Property (collectively, the "Environmental Permits"). A true and correct copy of each such Environmental Permit shall be provided by the Company to GMI and Merger Subsidiary at least 10 days prior to the Closing. The Company has conducted its business in material compliance with all terms and conditions of the Environmental Permits. The Company has filed all reports and notifications required to be filed under and pursuant to all applicable Environmental Laws. (d) Except as set forth in the Disclosure Schedule under the caption referencing this Section 3.27, to the best of the Company's knowledge, (i) no Hazardous Materials have been generated, treated, contained, handled, located, used, manufactured, processed, buried, incinerated, deposited, stored, or released on, under or about any part of the Company or the Real Property, (ii) the Company and the Real Property and any improvements thereon, contain no asbestos, urea, formaldehyde, radon at levels above natural background, polychlorinated biphenyls (PCBs) or pesticides, and (iii) no aboveground or underground storage tanks are located on, under or about the Real Property, or have been located on, under or about the Real Property and then subsequently been removed or filled. If any such storage tanks exist on, under or about the Real Property, such storage tanks have been duly registered with all appropriate governmental entities and are otherwise in compliance with all applicable Environmental Laws. (e) Except as set forth in the Disclosure Schedule under the caption referencing this Section 3.27, the Company has not received notice alleging in any manner that the Company is, or might be potentially responsible for any Release of Hazardous Materials, or any costs arising under or violation of Environmental Laws. (f) To the best of the Company's knowledge, no expenditure will be required in order for GMI, Merger Subsidiary or the Surviving Corporation to comply with any Environmental Laws in effect at the time of the Closing in connection with the operation or continued operation of the business of the Company or the Real Property in a manner consistent with the current operation thereof by the Company. 24 (g) The Company and the Real Property are not and have not been listed on the United States Environmental Protection Agency National Priorities List of Hazardous Waste Sites, or any other list, schedule, law, inventory or record of hazardous or solid waste sites maintained by any federal, state or local agency. (h) The Company has disclosed and delivered to GMI and Merger Subsidiary all environmental reports and investigations which the Company has obtained or ordered with respect to the business of the Company and the Real Property. (i) To the best of the Company's knowledge, no part of the business of the Company or the Real Property have been used as a landfill, dump or other disposal, storage, transfer, handling or treatment area for Hazardous Materials, or as a gasoline service station or a facility for selling, dispensing, storing, transferring, disposing or handling petroleum and/or petroleum products. (j) To the best of the Company's knowledge, no lien has been attached or filed against the Company or the Real Property in favor of any governmental or private entity for (i) any liability or imposition of costs under or violation of any applicable Environmental Law; or (ii) any Release of Hazardous Materials. (k) The Company, on behalf of itself and its successors and assigns, hereby waives, releases and agrees not to bring any claim, demand, cause of action or proceeding, including without limitation any cost recovery action, against GMI, Merger Subsidiary or the Surviving Corporation under any Environmental Law. 3.28 Brokerage. Except as set forth in the Disclosure Schedule --------- referencing this Section 3.28, no third party shall be entitled to receive any brokerage commissions, finder's fees, fees for financial advisory services or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of the Company. 3.29 Disclosure. Neither this Agreement nor any of the Exhibits ---------- hereto nor any of the documents delivered by or on behalf of the Company pursuant to Article VII hereof nor the Disclosure Schedules nor any of the financial statements referred to in Section 3.08 hereof, taken as a whole, contains any untrue statement of a material fact regarding the Company or its business or any of the other matters dealt with in this Article III relating to the Company or the transactions contemplated by this Agreement. This Agreement, the Exhibits hereto, the documents delivered to GMI and Merger Subsidiary by or on behalf of the Company pursuant to Article VII hereof, the Disclosure Schedule and the financial statements referred to in Section 3.08 hereof, taken as a whole, do not omit any material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they were made, not misleading, and there is no fact which has not been disclosed to GMI or Merger Subsidiary of 25 which any officer or director of the Company is aware which materially affects adversely or could reasonably be anticipated to result in a Material Adverse Change in the Company. 3.30 Year 2000 Compliance. All software and hardware used by the -------------------- Company is Year 2000 Compliant, including date century recognition, calculations which accommodate same century and multi-century formulas and date values that reflect the century. As used herein, "Year 2000 Compliant" shall mean the ability of such software and hardware to (i) consistently handle date information before, during and after January 1, 2000, including but not limited to accepting date input, providing date output, and performing calculations on dates or portions of dates; (ii) function accurately in accordance with all documentation without interruption before, during and after January 1, 2000, without any change of operations associated with the advent of the new century; (iii) respond to two-digit date input in a way that resolves any ambiguity as to century in a disclosed, defined and predetermined manner; and (iv) store and provide output of date information in ways that are unambiguous as to century. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF GMC, GMI AND MERGER SUBSIDIARY ---------------------------------------------------------------- GMC, GMI and Merger Subsidiary, jointly and severally, hereby represent and warrant to the Company that: 4.01 Incorporation and Corporate Power. Each of GMC, GMI and Merger --------------------------------- Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Minnesota and Delaware, as applicable, with the requisite corporate power and authority to enter into this Agreement and the Certificate of Merger and perform its obligations hereunder and thereunder. 4.02 Execution, Delivery; Valid and Binding Agreements. The ------------------------------------------------- execution, delivery and performance of the Letter Agreement, this Agreement and the Collateral Agreement by GMC, GMI and Merger Subsidiary, and the Certificate of Merger, by Merger Subsidiary, and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all requisite corporate action, and no other corporate proceedings on its part are necessary to authorize the execution, delivery or performance of the Letter Agreement, this Agreement, the Collateral Agreement or the Certificate of Merger. The Letter Agreement and this Agreement have been duly executed and delivered by GMC, GMI and Merger Subsidiary and constitute the valid and binding obligations of GMC, GMI and Merger Subsidiary, enforceable in accordance with their terms, and the Certificate of Merger, when executed and delivered by Merger Subsidiary, will constitute the valid and binding obligation of Merger Subsidiary, enforceable in accordance with its terms. 4.03 No Breach. GMI is not in violation of any term of its --------- Certificate of Incorporation, Bylaws or in any material respect of any agreement required to be filed as an exhibit to any registration statements or reports filed with the SEC by GMC. GMI has complied 26 with, is not in violation of, and has not received any notices of violation with respect to, any federal, state, local or foreign statute, law or regulation with respect to the conduct of its business, or the ownership or operation of its business, except for such violations or failures to comply as could not be reasonably expected to result in a Material Adverse Change in GMI. The execution, delivery and performance of this Agreement by GMC, GMI and Merger Subsidiary and the Certificate of Merger by Merger Subsidiary and the consummation by GMC, GMI and Merger Subsidiary of the transactions contemplated hereby and thereby do not conflict with or result in any breach of any of the provisions of, constitute a default under, result in a violation of, result in the creation of a right of termination or acceleration or any lien, security interest, charge or encumbrance upon any assets of GMC, GMI or Merger Subsidiary, or require any authorization, consent, approval, exemption or other action by or notice to any court or other governmental body, under the provisions of the Articles of Incorporation or Certificate of Incorporation, as applicable or the Bylaws of GMC, GMI or Merger Subsidiary or any indenture, mortgage, lease, loan agreement or other agreement or instrument by which GMC, GMI or Merger Subsidiary is bound or affected, or any law, statute, rule or regulation or order, judgment or decree to which GMC, GMI or Merger Subsidiary is subject. 4.04 Merger Subsidiary. All of the outstanding capital stock of ----------------- Merger Subsidiary is owned by GMI free and clear of any lien, claim or encumbrance or any agreement with respect thereto. Since the date of its incorporation, Merger Subsidiary has not engaged in any activity of any nature except in connection with or as contemplated by this Agreement and the Certificate of Merger. 4.05 Governmental Authorities; Consents. Except for the filing of the ---------------------------------- Certificate of Merger with the Secretary of State of the State of Delaware, neither GMC, GMI nor Merger Subsidiary is required to submit any notice, report or other filing with any governmental authority in connection with the execution or delivery by it of this Agreement or the Certificate of Merger or the consummation of the transactions contemplated hereby or thereby. No consent, approval or authorization of any governmental or regulatory authority or any other party or person is required to be obtained by GMC, GMI or Merger Subsidiary in connection with its execution, delivery and performance of this Agreement or the Certificate of Merger or the transactions contemplated hereby or thereby. 4.06 Brokerage. No third party shall be entitled to receive any --------- brokerage commissions, finder's fees, fees for financial advisory services or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of GMC, GMI or Merger Subsidiary. 4.07 Year 2000 Compliance. All software and hardware used by GMC and -------------------- GMI is Year 2000 Compliant, including date century recognition, calculations which accommodate same century and multi-century formulas and date values that reflect the century. As used herein, "Year 2000 Compliant" shall mean the ability of such software and hardware to (i) consistently handle date information before, during and after January 1, 2000, including but 27 not limited to accepting date input, providing date output, and performing calculations on dates or portions of dates; (ii) function accurately in accordance with all documentation without interruption before, during and after January 1, 2000, without any change of operations associated with the advent of the new century; (iii) respond to two-digit date input in a way that resolves any ambiguity as to century in a disclosed, defined and predetermined manner; and (iv) store and provide output of date information in ways that are unambiguous as to century. 4.08 Litigation. To the best knowledge of GMC and GMI, there is no ---------- action, suit, proceeding, claim, arbitration or investigation pending, or threatened against GMI or Merger Subsidiary which in any manner challenges or seeks to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement or the Merger. 4.09 Disclosure. Neither this Agreement, nor any of the Exhibits ---------- hereto, nor any of the documents delivered by or on behalf of GMC or GMI pursuant to Article VII hereof, nor any document filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, nor the Disclosure Schedules to be furnished by GMC, GMI or Merger Subsidiary, taken as a whole, contains any untrue statement of a material fact regarding GMC, GMI or their businesses or any of the other matters dealt with in this Article IV relating to GMC, GMI or the transactions contemplated by this Agreement. Except as disclosed in the Disclosure Schedule referencing this Section 4.09, this Agreement, the Exhibits hereto, the documents delivered to the Company by or on behalf of GMC, GMI and Merger Subsidiary pursuant to Article VII hereof, taken as a whole, do not omit any material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they were made, not misleading, and there is no fact which has not been disclosed to the Company of which any officer or director of GMC or GMI is aware which materially affects adversely or could reasonably be anticipated to result in a Material Adverse Change in GMC or GMI. ARTICLE V COVENANTS OF THE COMPANY ------------------------ 5.01 Conduct of the Business. The Company shall observe each term set ----------------------- forth in this Section 5.01 and the Company agrees that, from the date hereof until the Effective Time, unless otherwise consented to by GMI or Merger Subsidiary in writing: (a) The business of the Company shall be conducted only in, and the Company shall not take any action except in, the ordinary course of the Company's business, on an arm's-length basis and in accordance in all material respects with all applicable laws, rules and regulations and the Company's past custom and practice; (b) The Company shall not, directly or indirectly, do or permit to occur any of the following: (i) issue or sell any additional shares of, or any options, warrants, conversion privileges or rights of any kind to acquire any shares of, any of its capital stock; (ii) sell, pledge, dispose of or encumber any of its assets, except in the ordinary course of business; (iii) amend or 28 propose to amend its Certificate of Incorporation or Bylaws; (iv) split, combine or reclassify any outstanding shares of Common Stock, or declare, set aside or pay any dividend or other distribution payable in cash, stock, property or otherwise with respect to shares of Common Stock; (v) redeem, purchase or acquire or offer to acquire any shares of Common Stock or other securities of the Company, with the exception of up to 100,000 shares of the Company's Common Stock that may be repurchased from current or former employees of the Company at a per share price not to exceed $1.00; (vi) acquire (by merger, exchange, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership, joint venture or other business organization or division or material assets thereof; (vii) incur any indebtedness for borrowed money or issue any debt securities except the borrowing of working capital in the ordinary course of business and consistent with past practice; (viii) accelerate, beyond the normal collection cycle, collection of accounts receivable; or (ix) enter into or propose to enter into, or modify or propose to modify, any agreement, arrangement or understanding with respect to any of the matters set forth in this Section 5.01(b); (c) The Company shall not, directly or indirectly, (i) enter into or modify any employment, severance or similar agreements or arrangements with, or grant any bonuses, salary increases, severance or termination pay to, any officers or directors or consultants; or (ii) in the case of employees, officers or consultants who earn in excess of $50,000 per year, take any action with respect to the grant of any bonuses, salary increases, severance or termination pay or with respect to any increase of benefits payable in effect on the date hereof; (d) The Company shall not adopt or amend any bonus, profit sharing, compensation, stock option, pension, retirement, deferred compensation, employment or other employee benefit plan, trust, fund or group arrangement for the benefit or welfare of any employees or any bonus, profit sharing, compensation, stock option, pension, retirement, deferred compensation, employment or other employee benefit plan, agreement, trust, fund or arrangements for the benefit or welfare of any director; (e) The Company shall not cancel or terminate its current insurance policies or cause any of the coverage thereunder to lapse, unless simultaneously with such termination, cancellation or lapse, replacement policies providing coverage equal to or greater than the coverage under the canceled, terminated or lapsed policies for substantially similar premiums are in full force and effect; (f) The Company shall (i) use its best efforts to preserve intact the Company's business organization and goodwill, keep available the services of the Company's officers and employees as a group and maintain satisfactory relationships with suppliers, distributors, customers and others having business relationships with the Company; (ii) confer on a regular and frequent basis with representatives of GMI or Merger Subsidiary to report operational matters and the general status of ongoing operations; (iii) not intentionally take any action which would render, or which reasonably may be expected to render, any representation or warranty made by it in this Agreement materially untrue at the Closing; (iv) notify GMI and Merger 29 Subsidiary of any emergency or other change in the normal course of the Company's business or in the operation of the Company's properties and of any governmental or third party complaints, investigations or hearings (or communications indicating that the same may be contemplated) if such emergency, change, complaint, investigation or hearing would be material, individually or in the aggregate, to the business, operations or financial condition of the Company or to the Company's, GMI's or Merger Subsidiary's ability to consummate the transactions contemplated by this Agreement; and (v) promptly notify GMI and Merger Subsidiary in writing if the Company shall discover that any representation or warranty made by it in this Agreement was when made, or has subsequently become, untrue in any respect; (g) The Company shall (i) file any Tax returns, elections or information statements with respect to any liabilities for Taxes of the Company or other matters relating to Taxes of the Company which pursuant to applicable law must be filed prior to the Closing Date; (ii) promptly upon filing provide copies of any such Tax returns, elections or information statements to GMI and Merger Subsidiary; (iii) make any such Tax elections or other discretionary positions with respect to Taxes taken by or affecting the Company only upon prior consultation with and consent of GMI or Merger Subsidiary; and (iv) not amend any Return; and (h) The Company shall not perform any act referenced by (or omit to perform any act which omission is referenced by) the terms of Section 3.11. 5.02 Access to Books and Records. Between the date hereof and the --------------------------- Closing Date, the Company shall afford to GMI, Merger Subsidiary and their authorized representatives (the "GMI's Representatives") full access during normal business hours and upon reasonable notice to the offices, properties, books, records, officers, employees and other items of the Company, and otherwise provide such assistance as is reasonably requested by GMI and Merger Subsidiary in order that GMI and Merger Subsidiary may have a full opportunity to make such investigation and evaluation as it shall reasonably desire to make of the business and affairs of the Company; provided, however, that the Company and its agents shall have no obligation to provide any documents or information that is subject to attorney-client privilege or that is confidential attorney work product. In addition, the Company and its officers and directors shall cooperate fully (including providing introductions, where necessary) with GMI to enable GMI to contact such third parties, including customers, prospective customers, specifying agencies, vendors, or suppliers of the Company as GMI deems reasonably necessary to complete its due diligence; provided that GMI agrees not to initiate such contacts without the prior approval of the Company, which approval will not be unreasonably withheld. 5.03 Meeting of Stockholders. The Company shall, promptly after the ----------------------- date of this Agreement and in no event later than April 5, 1999, take all action necessary in accordance with the DGCL and its Certificate of Incorporation and Bylaws to convene a meeting of the stockholders of the Company for the purpose of voting to approve this Agreement and the Merger, and the Company shall consult with GMI in connection therewith. The Company shall use its best efforts to solicit from the stockholders of the Company proxies in favor of this 30 Agreement and the Merger and shall take all other actions necessary or advisable to secure the vote or consent of stockholders required by the DGCL to approve this Agreement and the Merger, unless otherwise required by the applicable fiduciary duties of directors of the Company, as determined by such directors in good faith after consultation with independent legal counsel. 5.04 Regulatory Filings. The Company shall, as promptly as practicable ------------------ after the execution of this Agreement, make or cause to be made all filings and submissions under any laws or regulations applicable to the Company for the consummation of the transactions contemplated herein. The Company will coordinate and cooperate with GMI and Merger Subsidiary in exchanging such information, will not make any such filing without providing to GMI and Merger Subsidiary a final copy thereof for their review and consent at least two full business days in advance of the proposed filing and will provide such reasonable assistance as GMI and Merger Subsidiary may request in connection with all of the foregoing. 5.05 Conditions. The Company shall take all commercially reasonable ---------- actions necessary or desirable to cause the conditions set forth in Section 7.01 to be satisfied and to consummate the transactions contemplated herein as soon as reasonably possible after the satisfaction thereof (but in any event within three business days of such date). 5.06 No Shop. The Company shall not enter into any agreement, or make ------- any undertaking or commitment, (i) to merge or consolidate with, or acquire substantially all of the property and assets of, any other corporation or person, (ii) to sell, lease or exchange all or substantially all of their respective properties and assets to any other corporation or person or (iii) otherwise to cause the ownership or control of the Company or any of its subsidiaries to be transferred to any party other than GMI. 5.07 Information Statement. The Company shall promptly provide to GMI --------------------- the information pertaining to the Company, including financial statements, necessary for GMI to prepare an information statement, which shall be sent to all holders of the Company's Common Stock and Preferred Stock for the purpose of approving this Agreement and the Merger at a meeting of such holders to be held on or prior to March 30, 1999 (the "Information Statement"). 5.08 Disclosure Schedules. The Company shall provide the Disclosure -------------------- Schedules required hereunder to GMI at least 10 days prior to the Closing Date. 5.09 Collateral Agreement. The Company shall enter into the Collateral -------------------- Agreement referenced in Section 2.01 hereof. 31 ARTICLE VI COVENANTS OF GMI AND MERGER SUBSIDIARY -------------------------------------- GMI and Merger Subsidiary covenant and agree with the Company as follows: 6.01 Regulatory Filings. GMI or Merger Subsidiary shall, as promptly ------------------ as practicable after the execution of the Agreement, make or cause to be made all filings and submissions under any laws or regulations applicable to GMI and Merger Subsidiary necessary for the consummation of the transactions contemplated herein. GMI and Merger Subsidiary will coordinate and cooperate with the Company in exchanging such information, will not make any such filing without providing to the Company a final copy thereof for its review and consent at least two full business days in advance of the proposed filing and will provide such reasonable assistance as the Company may request in connection with all of the foregoing. 6.02 Conditions. GMI or Merger Subsidiary shall take all commercially ---------- reasonable actions necessary or desirable to cause the conditions set forth in Section 7.02 to be satisfied and to consummate the transactions contemplated herein as soon as reasonably possible after the satisfaction thereof (but in any event within three business days of such date). 6.03 Board Representation. GMC shall use its best efforts to cause to -------------------- be elected to GMI's Board of Directors, as of the Closing Date and from time to time thereafter, as necessary, two persons nominated by Vernon F. Taylor III (the "Stockholders' Representative") and a third person 150 days after the Effective Date if GMI's net worth 150 days after the Effective Date is less than the sum of $12,000,000 and GMI's investment in the Surviving Corporation. 6.04 Loan to The Company. On or before the Closing Date, GMI shall ------------------- loan to the Company $2,500,000, which loan shall be converted into a contribution to capital immediately following the Effective Time. 6.05 Registration Rights. Holders of the GMC Common Stock to be issued ------------------- in connection with the Earn Out Payment, if any, pursuant to Section 2.02 and upon exercise of the Escrow Warrants (the "Unregistered GMC Common Stock") shall have the registration rights set forth in Schedule 6.05 hereto, subject to the terms and conditions set forth therein. 6.06 Disclosure Schedules. GMC, GMI and Merger Subsidiary shall -------------------- provide their respective Disclosure Schedules to the Company at least 10 days prior to the Closing Date. 6.07 Delivery of Escrow Warrants. On or before the Effective Time, GMC --------------------------- shall deliver the Escrow Warrants to H&QGF as secured party under the Business Loan Agreement. 32 6.08 Collateral Agreement. GMI and Merger Subsidiary shall enter into -------------------- the Collateral Agreement referenced in Section 2.01 hereof. ARTICLE VII CONDITIONS TO CLOSING --------------------- 7.01 Conditions to GMC's, GMI's and Merger Subsidiary's Obligations. -------------------------------------------------------------- The obligation of GMC, GMI and Merger Subsidiary to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions at or before the Effective Time: (a) The representations and warranties set forth in Article III hereof shall be true and correct in all material respects at and as of the Effective Time as though then made and as though the Effective Time had been substituted for the date of this Agreement throughout such representations and warranties (without taking into account any disclosures by the Company of discoveries, events or occurrences arising on or after the date hereof), except that any such representation or warranty made as of a specified date (other than the date hereof) shall only need to have been true on and as of such date; (b) The Company shall have performed in all material respects all of the covenants and agreements required to be performed by them prior to the Effective Time under this Agreement; (c) The Company shall have obtained, or caused to be obtained, each consent and approval necessary in order that the transactions contemplated herein not constitute a material breach or violation of, or result in a right of termination or acceleration of, or creation of any encumbrance on any of the Company's assets pursuant to the provisions of, any agreement, arrangement or undertaking of or affecting the Company or any license, franchise or permit of or affecting the Company; (d) The Letter Agreement, this Agreement, the Certificate of Merger and the Merger shall have been duly and validly authorized by the board of directors of the Company and this Agreement shall have been duly and validly approved by the stockholders of the Company, the Company shall have delivered to GMI evidence, in form satisfactory to GMI's counsel, of such authorization and approval, and the Certificate of Merger shall have been duly executed by the Company; (e) All material governmental filings, authorizations and approvals that are required for the consummation of the transactions contemplated by this Agreement or the Certificate of Merger shall have been duly made and obtained; (f) There shall not be threatened, instituted or pending any action or proceeding, before any court or governmental authority or agency, domestic or foreign, 33 (i) challenging or seeking to make illegal, or to delay or otherwise directly or indirectly restrain or prohibit, the consummation of the transactions contemplated hereby or seeking to obtain material damages in connection with such transactions, (ii) seeking to prohibit direct or indirect ownership or operation by GMI or Merger Subsidiary of all or a material portion of the business or assets of the Company or to GMI or Merger Subsidiary or any of their subsidiaries or the Company to dispose of or to hold separately all or a material portion of the business or assets of GMI or Merger Subsidiary and their subsidiaries or of the Company, as a result of the transactions contemplated hereby, (iii) seeking to require direct or indirect transfer or sale by GMI or Merger Subsidiary of any of the shares of Company Common Stock, (iv) seeking to invalidate or render unenforceable any material provision of this Agreement, the Certificate of Merger or any of the other agreements attached as exhibits hereto (collectively, the "Related Agreements"), or (v) otherwise relating to and materially adversely affecting the transactions contemplated hereby; (g) There shall not be any action taken, or any statute, rule, regulation, judgment, order or injunction enacted, entered, enforced, promulgated, issued or deemed applicable to the transactions contemplated hereby by any federal, state or foreign court, government or governmental authority or agency, which would reasonably be expected to result, directly or indirectly, in any of the consequences referred to in Section 7.01(f) hereof; (h) GMI shall have completed its due diligence investigation of the Company, including the Company's financial statements, tax returns, contracts, employee benefit plans, real property and equipment, and such investigation shall be satisfactory to GMI in its sole discretion, and the officers of the Company shall have made themselves available for additional due diligence as reasonably requested by GMI at any time before the Closing Date; provided, however, that GMI's satisfaction with its due diligence in its sole discretion, as a closing condition, shall terminate at the end of the tenth calendar day following the mailing of the Information Statement to be prepared pursuant to Section 5.07 hereof; (i) The Company's Disclosure Schedules shall not contain or disclose any fact or circumstance existing as of the date of this Agreement which has not been disclosed to GMI as of the date of this Agreement (with the understanding that write-downs of evaluation units, demonstration units, consigned units and parts and other equipment has been disclosed to GMI as of the date of this Agreement) regarding the business, assets, properties, condition (financial or otherwise) or results of operations of the Company which, individually or in the aggregate with other such facts and circumstances, are reasonably likely to cause the Company or its business to realize a loss, cost, expense or diminution in value, or otherwise result in an adverse effect on the business, assets, properties, condition (financial or otherwise) or results of operations of the Company, taken as a whole, of $250,000 or more (a "Material Adverse Effect"); (j) There shall have been no damage, destruction or loss of or to any property or properties owned or used by the Company, whether or not covered by insurance, which, in the 34 aggregate, has, or would be reasonably likely to have, a Material Adverse Effect on the Company; (k) No more than 12% of the outstanding shares of Company Common Stock shall be qualified to be Dissenting Shares as of the Effective Time; (l) GMI shall have received from counsel for the Company a written opinion, dated the date of the Effective Time, addressed to GMC, GMI and Merger Subsidiary and reasonably satisfactory to counsel for GMI; (m) Prior to the Effective Time, the Company shall have delivered to GMI all of the following: (i) a certificate of the Secretary of the Company, dated as of the date of the Effective Time, stating that the conditions precedent set forth in subsections (a) and (b) above have been satisfied; (ii) a copy of each of (X) the text of the resolutions adopted by the board of directors of the Company authorizing the execution, delivery and performance of the Letter Agreement, this Agreement and the Certificate of Merger and the consummation of all of the transactions contemplated by this Agreement and the Certificate of Merger and (Y) the Bylaws of the Company, along with a certificate executed on behalf of the Company by its corporate secretary certifying to GMI that such copies are true and correct copies of such resolutions and Bylaws, respectively, and that such resolutions and bylaws were duly adopted and have not been amended or rescinded; (iii) the Company's minute books, stock transfer records, corporate seal and other materials related to the Company's corporate administration; (iv) a copy of the Certificate of Incorporation of the Company, certified by the Secretary of State of the State of Delaware, and Certificates of Good Standing from the Secretary of State of the State of Delaware evidencing the good standing of the Company in such jurisdiction; (v) copies of the third party and governmental consents and approvals and of the authorizations referred to in subsections (c), (d) and (e) above; (vi) incumbency certificates executed on behalf of the Company by its corporate secretary certifying the signature and office of each officer executing this Agreement and the Certificate of Merger and the Related Agreements executed by the Company; (vii) an executed copy of each of the Related Agreements; 35 (viii) such other certificates, documents and instruments as GMI reasonably requests related to the transactions contemplated hereby; (n) Vernon Taylor Jr., Vernon Taylor III and the Ruth and Vernon Taylor Foundation (the "Stockholder Lenders") shall have canceled $280,000 of short-term Company debt, plus accrued but unpaid interest, in exchange for the issuance by the Company to the Stockholder Lenders of a number of shares of the Company's Common Stock equal to the amount of such debt and accrued but unpaid interest divided by $1.00; (o) No more than 35 of the stockholders of the Company shall not be "accredited investors" within the meaning of Rule 501 under the 1933 Act, and the Company shall have delivered to GMI evidence, in form satisfactory to GMI's counsel, of compliance with this condition; and (p) H&QGF, GMC and GMI shall have negotiated and executed loan agreements providing for one or more loans in the aggregate amount of up to $3,000,000 to be made by H&QGF to GMC, GMI or the Surviving Corporation. (q) The Company shall have executed the Collateral Agreement. 7.02 Conditions to the Company's Obligations. The obligation of the --------------------------------------- Company to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions at or before the Effective Time: (a) The representations and warranties set forth in Article IV hereof will be true and correct in all material respects at and as of the Effective Time as though then made and as though the Effective Time had been substituted for the date of this Agreement throughout such representations and warranties, except that any such representation or warranty made as of a specified date (other than the date hereof) shall only need to have been true on and as of such date; (b) GMI and Merger Subsidiary shall have performed in all material respects all the covenants and agreements required to be performed by them prior to the Effective Time under this Agreement and the Certificate of Merger prior to the Effective Time, and Merger Subsidiary shall have executed the Certificate of Merger; (c) All material governmental filings, authorizations and approvals that are required for the consummation of the transactions contemplated hereby will have been duly made and obtained; (d) There shall not be threatened, instituted or pending any action or proceeding, before any court or governmental authority or agency, domestic or foreign, (i) challenging or seeking to make illegal, or to delay or otherwise directly or indirectly restrain 36 or prohibit, the consummation of the transactions contemplated by this Agreement or the Certificate of Merger or seeking to obtain material damages in connection with such transactions, (ii) seeking to invalidate or render unenforceable any material provision of this Agreement, the Certificate of Merger or any of the Related Agreements, or (iii) otherwise relating to and materially adversely affecting the transactions contemplated hereby or thereby; (e) There shall not be any action taken, or any statute, rule, regulation, judgment, order or injunction, enacted, entered, enforced, promulgated, issued or deemed applicable to the transactions contemplated by this Agreement or the Certificate of Merger by any federal, state or foreign court, government or governmental authority or agency, which would reasonably be expected to result, directly or indirectly, in any of the consequences referred to in Section 7.02(d) hereof; (f) The Company shall have received from counsel for GMI and Merger Subsidiary a written opinion, dated as of the date of the Effective Time, addressed to the Company and reasonably satisfactory to the Company's counsel; and (g) At or prior to the Effective Time, GMI shall have delivered to the Company (i) a certificate of the Secretary of GMI, dated as of the date of the Effective Time, stating that the conditions precedent set forth in subsections (a) and (b) above have been satisfied, (ii) a copy of each of (X) the text of the resolutions adopted by the board of directors of GMC, GMI and Merger Subsidiary authorizing the execution, delivery and performance of the Letter Agreement, this Agreement and the Certificate of Merger and the consummation of all of the transactions contemplated by the Letter Agreement, this Agreement and the Certificate of Merger and (Y) certificates executed on behalf of each of GMC, GMI and Merger Subsidiary by their respective corporate secretaries certifying to the Company that such copies are true and correct copies of such resolutions and that such resolutions were duly adopted and have not been amended or rescinded, and (iii) an executed copy of each of the Related Agreements. (h) GMI and Merger Subsidiary shall have executed the Collateral Agreement. ARTICLE VIII TERMINATION ----------- 8.01 Termination. This Agreement may be terminated at any time prior ----------- to the Effective Time: (a) by the mutual consent of GMC, GMI, Merger Subsidiary and the Company; (b) by either GMC, GMI or Merger Subsidiary, on the one hand, or the Company, on the other, if there has been a material misrepresentation, breach of warranty or 37 breach of covenant on the part of the other in the representations, warranties and covenants set forth in this Agreement; (c) by either GMC, GMI or Merger Subsidiary, on the one hand, or the Company, on the other, if the transactions contemplated by this Agreement or the Certificate of Merger have not been approved by the Company's stockholders by April 5, 1999; provided that neither will be entitled to terminate this Agreement pursuant to this Section 8.01(c) if such party's willful breach of this Agreement has prevented the stockholder approval of the transactions contemplated by this Agreement or the Certificate of Merger; (d) by GMC, GMI or Merger Subsidiary if, after the date hereof, there shall have been a Material Adverse Effect or if an event shall have occurred which, so far as reasonably can be foreseen, would result in any such Material Adverse Effect, except to the extent such Material Adverse Effect is directly caused by GMC, GMI or Merger Subsidiary; (e) by the Company if after the date hereof, there shall have been a fact or circumstance regarding the business, assets, properties, condition (financial or otherwise), results of operations of the GMC or GMI which, individually or in the aggregate with other such facts and circumstances, are reasonably likely to cause GMC or GMI or their respective businesses to realize a loss, cost, expense or diminution in value, or otherwise result in an adverse effect on the business, assets, properties, condition (financial or otherwise) or results of operations of GMC or GMI, taken as a whole, of $250,000 or more, or if an event shall have occurred which, so far as reasonably can be foreseen, would result in any such result, except to the extent such result is directly caused by the Company; or (f) by GMC, GMI or Merger Subsidiary if, before the end of the tenth calendar day following the mailing of the Information Statement to be prepared pursuant to Section 5.07 hereof, GMI shall be unsatisfied with the results of its due diligence investigation contemplated in Section 7.01(h). 8.02 Effect of Termination. In the event of termination of this --------------------- Agreement as provided in Section 8.01 by either GMC, GMI or Merger Subsidiary, on the one hand, or the Company, on the other, all provisions of this Agreement shall terminate and there shall be no liability on the part of any of GMC, GMI, Merger Subsidiary, or the Company or the Company's stockholders, officers or directors, except that Sections 9.04, 9.05, 11.01, 11.02, 11.03 and 11.09 hereof shall survive indefinitely, and the parties to this Agreement shall remain liable for willful breaches of this Agreement prior to the time of such termination. 38 ARTICLE IX ADDITIONAL AGREEMENTS --------------------- 9.01 Intercompany Financing. ---------------------- (a) On or before 90 days after the Closing Date, GMI shall deliver $2,500,000 in cash as a capital contribution to the Surviving Corporation. If GMI shall fail to make such capital contribution in full within 90 days of the Closing Date, the unpaid balance shall be delivered in the form of GMC Common Stock valued in the amount of such unpaid balance based on the average closing price for the 20 trading day period ending on the 90/th/ day after the Closing Date, which GMC Common Stock shall be delivered by GMC to the Surviving Corporation. GMC shall have the right at any time after such delivery to repurchase some or all of the GMC Common Stock so delivered at the product of (i) the average closing price of GMC Common Stock for the 20 trading day period ending one day before the date on which such shares were delivered to the Surviving Corporation (the "Base Price") and (ii) 120% (the "Repurchase Price"); provided that GMC shall have the obligation to repurchase at the Repurchase Price, on or before the Earn Out Date (as defined in Section 9.03 hereof), all of the GMC Common Stock so delivered; provided, however, that GMC shall deliver only the Base Price to the Surviving Corporation and shall deliver the remainder of the Repurchase Price to the Escrow Agent for deposit into the Escrow Fund for the benefit of the holders of the Escrow Units. (b) The funds received by the Company and the Surviving Corporation pursuant to Section 6.04 and this Section 9.01 shall be used by the Company and the Surviving Corporation for working capital purposes only, shall be paid to H&QGF only pursuant to the Company's obligations under its debt agreements held by H&QGF, unless GMI shall consent thereto, in advance, in writing, and shall in no case be distributed to the holders of the Company's securities (other than as repayment of intercompany indebtedness to GMI or GMC after the Closing). Immediately following the first disbursement of cash from GMI to the Company under the loan of $2,500,000 to be made pursuant to Section 6.04, the Company shall obtain the prior approval of GMI for any capital expenditure of the Company in excess of $25,000. 9.02 Disposition of Assets. GMI shall not cause the Surviving --------------------- Corporation to dispose of any assets valued at more than $50,000 unless it has the written consent of the Chief Executive Officer or President of the Surviving Corporation or until 90 days or more after the Closing Date. 9.03 Series B Preferred Stock. ------------------------ (a) Promptly after the Effective Time, the Surviving Corporation shall amend its Certificate of Incorporation to create a new class of nonvoting preferred stock (the "Series B Preferred Stock") and shall use its best efforts to negotiate and conclude an agreement with 39 H&QGF, GBC and CR to exchange $1,000,000 of the Surviving Corporation's indebtedness held by H&QGF, GBC and CR for 400,000 shares of such Series B Preferred Stock. (b) The Series B Preferred Stock shall pay a dividend at an annual rate of 12%, in cash and in Escrow Units at a rate of $1.30 per Escrow Unit. The dividend shall be paid entirely in Escrow Units until November 1, 1999. From November 1, 1999 through the 365/th/ day following the Closing Date (the "Earn Out Date"), the dividend shall be paid 50% in cash and 50% in Escrow Units. After the Earn Out Date, the dividend shall be paid entirely in cash. All dividends to be paid in Escrow Units pursuant to this Section 9.03 (including all Escrow Units due up to and through the Earn Out Date) shall be deemed prepaid at Closing. All dividends due in cash shall be paid quarterly in arrears by the Surviving Corporation. (c) Each share of Series B Preferred Stock shall be convertible into one share of the common stock of the Surviving Corporation ("Surviving Corporation Common Stock"); provided, however, that upon any such conversion each share of Surviving Corporation Common Stock so issued shall immediately be deemed tendered to GMC in exchange for one share of GMC Common Stock to be delivered by GMC to the former holder of the Series B Preferred Stock. 9.04 Certain Loans from H&QGF, GBC and CR to the Company and the ----------------------------------------------------------- Surviving Corporation. Reference is made herein to an "Existing Business Loan - --------------------- Agreement" which shall mean the Business Loan Agreement between the Company and H&QGF dated September 30, 1996, as amended on April 24, 1997, and including all documents related thereto. On the Closing Date, the Existing Business Loan Agreement shall be assumed by the Surviving Corporation and amended to change certain of its terms and provisions, and the resulting post-Closing agreement between the Surviving Corporation and H&QGF shall be referred to as the "Business Loan Agreement." Each share of Company Common Stock received by H&QGF, GBC and CR as interest earned before the Closing Date under certain loans from H&QGF (and its participants, GBC and CR) to the Company pursuant to the Existing Business Loan Agreement shall be converted as of the Closing Date into one Escrow Unit, pursuant to Section 2.01(a) hereof. Interest under the Business Loan Agreement, which interest shall accrue at an annual rate of 9.75%, shall be prepaid to H&QGF, GBC and CR on the Closing Date for interest to be earned up to and including the ninetieth day following the Closing Date (the "Prepaid Interest"). Such Prepaid Interest shall be paid in Escrow Units at the rate of one Escrow Unit for each $1.30 of Prepaid Interest. 9.05 Confidentiality. --------------- (a) For purposes of this Section 9.04, a "party" shall refer to (a) the Company and (b) together, GMI and Merger Subsidiary. Each party shall treat as confidential and shall cause its accountants, counsel and other representatives to treat as confidential, all documents and information concerning the other party furnished by the other party to such party (including documents and information furnished prior to the date hereof) in connection with the transactions contemplated by this Agreement, except to the extent that such information or documents (i) at the 40 time of its disclosure to the receiving party by or on behalf of the disclosing party is already known or available to the receiving party; provided, that the receiving party is not subject to similar restrictions on confidentiality as set forth herein with a third party with respect to such information; (ii) is or becomes known or available to the public other than as a result of unauthorized disclosure by the receiving party or its directors, officers, employees, agents or representatives, (iii) is or becomes known or available to the receiving party without similar restrictions of confidentiality as set forth herein from a source other than the disclosing party, provided that such source is not known by the receiving party, after reasonable inquiry, to be bound by a confidentiality agreement with, or other obligation of secrecy to, the disclosing party that would prohibit such disclosures to the receiving party by such other party; (iv) is independently generated by the receiving party and not derived from confidential information; or (v) is required to be disclosed by the receiving party by law, regulation, court order or other legal process. Subject to the foregoing, each party will not release or disclose such information or documents to any person other than its representatives in connection with this Agreement and will not use such information for purposes other than as contemplated by this Agreement. In the event of the termination of this Agreement, each party hereto shall, and shall cause its representatives to, deliver to the other party the originals of all documents obtained by such party or on behalf of such party from the other party in connection with this Agreement, whether so obtained before or after the execution hereof, and such party shall, and shall cause its representatives to, destroy all copies thereof. (b) Unless otherwise required by law, no party shall disclose to any person (other than the party's representatives) any information regarding the transactions contemplated by this Agreement, including the existence and terms of this Agreement. 9.06 Solicitation. Each of the Company, GMI and Merger Subsidiary ------------ consent that from the date hereof until three years after termination of this Agreement pursuant to Article VIII or the Effective Time, whichever occurs first, they will not (except in connection with the transactions contemplated hereby) offer to hire, hire, attempt to offer to hire or attempt to hire any employees of GMI or Merger Subsidiary (in the case of the Company) or the Company (in the case of GMI or Merger Subsidiary). 9.07 Employee Benefit Plans. GMI shall allow retained employees of ---------------------- the Company to participate, effective as of the Closing Date, under the terms of the GMI's Employee Benefit Plans, including without limitation its health, medical, disability, life or other insurance, retirement, 401(k) or severance plans, as employees of similar salary and position at GMI or its subsidiaries as if such employees had been employees of GMI subsidiaries during their employment by the Company. Nothing herein shall (i) obligate GMI to offer employment to or to continue to employ any person employed by the Company prior to the Effective Time or (ii) prevent GMI from reducing or discontinuing any benefit for all of its employees, including those employed by the Company prior to the Effective Time. Any employee of the Company retained by GMI shall be an "at will" employee, unless otherwise provided by agreement between GMI and such employee. 41 9.08 Directors' and Officers' Indemnification and Insurance. ------------------------------------------------------ (a) Except to the extent required by law, until the second anniversary of the Effective Time, GMI will not take any action so as to amend, modify or repeal the provisions for indemnification of directors, officers, stockholders, employees or agents contained in the Certificate of Incorporation or bylaws of the Surviving Corporation (which as of the Effective Time shall be no less favorable to such individuals than those maintained by the Company on the date hereof) in such a manner as would adversely affect the rights of any individual who shall have served as a director, officer, stockholder, employee or agent of the Company prior to the Effective Time (each an "Indemnified Party") to be indemnified by the Company in respect of their serving in such capacities prior to the Effective Time. GMI shall indemnify all directors, officers, employees, and stockholders who are officers or directors of the Company against any liability or losses (including reasonable attorney's fees for counsel who are reasonably acceptable to GMI) any of them may incur because of any claim brought against them prior to within two years from the Effective Time as officers, directors, employees, agents or stockholders of the Company, and in connection therewith, shall, subject to relevant state law and the Certificate of Incorporation and Bylaws of the Company and the Surviving Corporation, advance reasonable attorney's fees to them to defend any such claim; provided, however, that GMI shall be entitled to cooperate in the defense of any such matter; and provided, further, that GMI shall not be liable for any settlement effected without its written consent (which consent shall not be unreasonably withheld); and provided, further, that GMI shall not be obligated pursuant to this Section to pay the fees and disbursements of more than one counsel for all Indemnified Parties in any single action, except to the extent that, in the opinion of counsel for the Indemnified Parties, two or more of such Indemnified Parties have conflicting interests in the outcome of such action. GMI may obtain directors' and officers' liability insurance covering its obligations under this section. (b) GMI and the Surviving Corporation shall maintain, until April 5, 2001, the policies of directors' and officers' liability insurance maintained by the Company as of the date hereof (or policies of at least the same coverage and amounts containing terms that are no less advantageous to the insured parties) with respect to claims arising from facts or events that occurred on or prior to the Effective Time. (c) The provisions of this Section are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and each party entitled to insurance coverage under paragraph (b) above, respectively, and his or her heirs and legal representatives, and shall be in addition to any other rights an Indemnified Party may have under the Certificate of Incorporation or Bylaws of the Surviving Corporation, under the DGCL or otherwise. 9.09 Escrow Agreement. On or before the Earn Out Date, GMC, GMI and ---------------- the Surviving Corporation shall enter into the Escrow Agreement (as defined in Section 2.02 hereof) pursuant to which the Merger Consideration shall be distributed consistent with the terms of the Letter Agreement, this Agreement and the Collateral Agreement. 42 ARTICLE X SURVIVAL; INDEMNIFICATION ------------------------- 10.01 Survival of Representations and Warranties. Notwithstanding any ------------------------------------------ investigation made by or on behalf of any of the parties hereto or the results of any such investigation and notwithstanding the participation of such party in the Closing, the representations and warranties contained in Article III and Article IV hereof shall survive the Effective Time for a period of one year following the Effective Time. 10.02 Indemnification by the Company. ------------------------------ (a) Subject to the limitations of Section 10.02(b), the Company agrees to indemnify in full GMC, GMI and Merger Subsidiary and their respective officers, directors, employees, agents and stockholders (collectively, the "GMI Indemnified Parties") and hold them harmless against any loss, liability, deficiency, damage, expense or cost (including reasonable legal expenses), whether or not actually incurred or paid (collectively, "Losses"), which GMI Indemnified Parties may suffer, sustain or become subject to, prior to the first anniversary of the Effective Time, as a result of (i) any misrepresentation in any of the representations and warranties of the Company contained in this Agreement or in any exhibits, schedules, certificates or other documents delivered or to be delivered by or on behalf of the Company pursuant to the terms of this Agreement or otherwise referenced or incorporated in this Agreement (collectively, the "Related Documents"), (ii) any breach of, or failure to perform, any agreement of the Company contained in this Agreement or any of the Related Documents, (iii) any "Claims" (as defined in Section 10.04(a) hereof) or threatened Claims against GMI arising out of the actions or inactions of the Company with respect to the Company's business prior to the Effective Time; or (iv) any untrue statement or alleged untrue statement of any material fact contained in the Information Statement, or any amendment or supplement thereto, or arising out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading (collectively, "GMI Losses"); provided, however, that the Company will not be liable in any such case to the extent that any such loss, damage, liability, cost or expense arises out to or is based upon any untrue statement or alleged untrue statement or omission or allege omission so made in conformity with information furnished by GMC, GMI or Merger Subsidiary. Notwithstanding anything in this Section 10.02 to the contrary, the GMI Indemnified Parties agree to seek indemnification from the Escrow Fund only. (b) The Company shall be liable to the GMI Indemnified Parties for any GMI Loss (i) only if GMI or Merger Subsidiary delivers to the Stockholder's Representative written notice, setting forth in reasonable detail the identity, nature and amount of GMI Losses related to such claim or claims prior to the first anniversary of the Effective Time and (ii) only if the aggregate amount of all GMI Losses exceeds $250,000 (the "Basket Amount"), in which case the Company shall be obligated to indemnify the GMI Indemnified Parties only for the excess of the 43 aggregate amount of all such GMI Losses over the Basket Amount. GMI or Merger Subsidiary's failure to provide the detail required by clause (i) in the preceding sentence shall not constitute either a breach of this Agreement by GMI or Merger Subsidiary or any basis for the Company to assert that GMI or Merger Subsidiary did not comply with the terms of this Section 10.03 sufficient to cause either GMI or Merger Subsidiary to have waived its rights under this Section 10.03. 10.03 Indemnification by GMI. ---------------------- (a) Subject to the limitations of Section 10.03(b), GMI agrees to indemnify in full the Company and the Company's officers, directors, employees, agents and stockholders (collectively, the "Company Indemnified Parties") and hold them harmless against any Losses which any of the Company Indemnified Parties may suffer, sustain or become subject to, prior to the first anniversary of the Effective Time, as a result of (i) any misrepresentation in any of the representations and warranties of GMI and Merger Subsidiary contained in this Agreement or in any of the Related Documents, (ii) any breach of, or failure to perform, any agreement of GMC, GMI or Merger Subsidiary contained in this Agreement or any of the Related Documents, (iii) any Claims or threatened Claims against the Company arising out of the actions or inactions of GMC, GMI or Merger Subsidiary with respect to the Company's business or the Real Property after the Effective Time; or (iv) any untrue statement or alleged untrue statement of any material fact contained in the Information Statement, or any amendment or supplement thereto, or arise out of are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading; provided, however, that GMI will not be liable in any such case to the extent that any such loss, damage, liability, cost or expense arises out to or is based upon any untrue statement or alleged untrue statement or omission or allege omission so made in conformity with information furnished by the Company (collectively, "Company Losses"). (b) GMI will be liable to the Company Indemnified Parties for any Company Loss (i) only if the Company delivers to GMI and Merger Subsidiary written notice, setting forth in reasonable detail the identity, nature and amount of Company Losses related to such claim or claims prior to the first anniversary of the Effective Time and (ii) only if the aggregate amount of all Company Losses exceeds the Basket Amount, in which case GMI shall be obligated to indemnify the Company Indemnified Parties only for the excess of the aggregate amount of all such Company Losses over the Basket Amount. The Company's failure to provide the detail required by clause (i) in the preceding sentence shall not constitute either a breach of this Agreement by the Company or any basis for GMC, GMI or Merger Subsidiary to assert that the Company did not comply with the terms of this Section 10.03 sufficient to cause either the Company to have waived its rights under this Section 10.03. 10.04 Method of Asserting Claims. As used herein, an "Indemnified -------------------------- Party" shall refer to a "GMI Indemnified Party" or "Company Indemnified Party," as applicable, the 44 "Notifying Party" shall refer to the party hereto whose Indemnified Parties are entitled to indemnification hereunder, and the "Indemnifying Party" shall refer to the party hereto obligated to indemnify such Notifying Party's Indemnified Parties. (a) In the event that any of the Indemnified Parties is made a defendant in or party to any action or proceeding, judicial or administrative, instituted by any third party for the liability or the costs or expenses of which are Losses (any such third party action or proceeding being referred to as a "Claim"), the Notifying Party shall give the Indemnifying Party prompt notice thereof. The failure to give such notice shall not affect any Indemnified Party's ability to seek reimbursement unless such failure has materially and adversely affected the Indemnifying Party's ability to defend successfully a Claim. The Indemnifying Party shall be entitled to contest and defend such Claim; provided, that the Indemnifying Party (i) has a reasonable basis for concluding that such defense may be successful and (ii) diligently contests and defends such Claim. Notice of the intention so to contest and defend shall be given by the Indemnifying Party to the Notifying Party within 20 business days after the Notifying Party's notice of such Claim (but, in all events, at least five business days prior to the date that an answer to such Claim is due to be filed). Such contest and defense shall be conducted by reputable attorneys employed by the Indemnifying Party. The Notifying Party shall be entitled at any time, at its own cost and expense (which expense shall not constitute a Loss unless the Notifying Party reasonably determines that the Indemnifying Party is not adequately representing or, because of a conflict of interest, may not adequately represent, any interests of the Indemnified Parties, and only to the extent that such expenses are reasonable), to participate in such contest and defense and to be represented by attorneys of its or their own choosing. If the Notifying Party elects to participate in such defense, the Notifying Party will cooperate with the Indemnifying Party in the conduct of such defense. Neither the Notifying Party nor the Indemnifying Party may concede, settle or compromise any Claim without the consent of the other party, which consents will not be unreasonably withheld. Notwithstanding the foregoing, (i) if a Claim seeks equitable relief or (ii) if the subject matter of a Claim relates to the ongoing business of any of the Indemnified Parties, which Claim, if decided against any of the Indemnified Parties, would materially adversely affect the ongoing business or reputation of any of the Indemnified Parties, then, in each such case, the Indemnified Parties alone shall be entitled to contest, defend and settle such Claim in the first instance and, if the Indemnified Parties do not contest, defend or settle such Claim, the Indemnifying Party shall then have the right to contest and defend (but not settle) such Claim. (b) In the event any Indemnified Party should have a claim against any Indemnifying Party that does not involve a Claim, the Notifying Party shall deliver a notice of such claim with reasonable promptness to the Indemnifying Party. If the Indemnifying Party notifies the Notifying Party that it does not dispute the claim described in such notice or fails to notify the Notifying Party within 30 days after delivery of such notice by the Notifying Party whether the Indemnifying Party disputes the claim described in such notice, the Loss in the amount specified in the Notifying Party's notice will be conclusively deemed a liability of the Indemnifying Party and the Indemnifying Party shall pay the amount of such Loss to the Indemnified Party on demand. If the Indemnifying Party has timely disputed its Liability with 45 respect to such claim, the Chief Executive Officers of each of the Indemnifying Party and the Notifying Party will proceed in good faith to negotiate a resolution of such dispute, and if not resolved through the negotiations of such Chief Executive Officers within 60 days after the delivery of the Notifying Party's notice of such claim, such dispute shall be resolved fully and finally in Minneapolis, Minnesota by a mutually acceptable arbitrator selected pursuant to, and an arbitration governed by, the Commercial Arbitration Rules of the American Arbitration Association. The arbitrator shall resolve the dispute within 30 days after selection and judgment upon the award rendered by such arbitrator may be entered in any court of competent jurisdiction. (c) After the Closing, the rights set forth in this Article X shall be each party's sole and exclusive remedies against the other party hereto for misrepresentations or breaches of covenants contained in this Agreement and the Related Documents. Notwithstanding the foregoing, nothing herein shall prevent any of the Indemnified Parties from bringing an action based upon allegations of fraud or other intentional breach of an obligation of or with respect to either party in connection with this Agreement and the Related Documents. In the event such action is brought, the prevailing party's reasonable attorneys' fees and reasonable costs shall be paid by the nonprevailing party. (d) Any indemnification payable under this Article X shall be, to the extent permitted by law, an adjustment to purchase price. ARTICLE XI MISCELLANEOUS ------------- 11.01 Press Releases and Announcements. Prior to the Effective Time, -------------------------------- no party hereto shall issue any press release (or make any other public announcement) related to this Agreement or the transactions contemplated hereby or make any announcement to the employees, customers or suppliers of the Company without prior written approval of the other party hereto, except as may be necessary, in the opinion of counsel to the party seeking to make disclosure, to comply with the requirements of this Agreement, the Certificate of Merger or applicable law. If any such press release or public announcement is so required, the party making such disclosure shall consult with the other party prior to making such disclosure, and the parties shall use all reasonable efforts, acting in good faith, to agree upon a text for such disclosure which is satisfactory to both parties. 11.02 Expenses. Except as otherwise expressly provided for herein, the -------- Company, GMC, GMI and Merger Subsidiary will each pay all of their own expenses (including attorneys', investment bankers' and accountants' fees) in connection with the negotiation of this Agreement, the performance of their respective obligations under this Agreement and the Certificate of Merger and the consummation of the transactions contemplated hereby and thereby (whether consummated or not). 11.03 Amendment and Waiver. This Agreement may not be amended or -------------------- waived except in a writing executed by the party against which such amendment or waiver is sought to be enforced; provided, however, that after the approval of this Agreement by the stockholders of 46 the Company, no amendment may be made which reduces the Merger Consideration or which effects any changes which would materially adversely affect the stockholders of the Company without the further approval of the stockholders of the Company. No course of dealing between or among any persons having any interest in this Agreement will be deemed effective to modify or amend any part of this Agreement or any rights or obligations of any person under or by reason of this Agreement. 11.04 Notices. All notices, demands and other communications to be ------- given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when personally delivered or three days after being mailed, if mailed by first class mail, return receipt requested, or when receipt is acknowledged, if sent by facsimile, telecopy or other electronic transmission device. Notices, demands and communications to GMI, Merger Subsidiary and the Company will, unless another address is specified in writing, be sent to the address indicated below: Notices to GMI or Merger Subsidiary: with a copy to: - ----------------------------------- -------------- Mr. James Geiser Dorsey & Whitney Global MAINTECH, Inc. 220 South Sixth Street 7578 Market Place Drive Minneapolis, MN 55402 Eden Prairie, MN 55344 Attention: Kenneth L. Cutler, Esq. Telecopy: (612) 944-3311 Telecopy: (612) 340-8738 Notices to the Company: with a copy to: - ---------------------- -------------- Mr. James G. Watson Brobeck Phleger & Harrison LLP President and Chief Executive Officer 1125 Seventeenth Street, Suite 2525 Breece Hill Technologies, Inc. Denver, CO 80202 6287 Arapahoe Avenue Attention: Jeremy W. Makarechian, Esq. Boulder, CO 80303 Telecopy: (303)299-8819 Telecopy: (303)449-2431 Notices to the Stockholders' Representative: - ------------------------------------------- Mr. Vernon F. Taylor III Chairman, Board of Directors Breece Hill Technologies, Inc. 6287 Arapahoe Avenue Boulder, CO 80303 Telecopy: (303)449-2431 11.05 Assignment. This Agreement and all of the provisions hereof will ---------- be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by any party hereto without the prior written consent of the other parties hereto. 47 11.06 Severability. Whenever possible, each provision of this ------------ Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 11.07 Complete Agreement. This Agreement, the Certificate of Merger ------------------ and the Related Agreements and other exhibits hereto, the Disclosure Schedule and the other documents referred to herein contain the complete agreement between the parties and supersede any prior understandings, agreements or representations by or between the parties, written or oral, which may have related to the subject matter hereof in any way. 11.08 Counterparts. This Agreement may be executed in one or more ------------ counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same instrument. 11.09 Governing Law. The internal law, without regard for conflicts of ------------- laws principles, of the State of California will govern all questions concerning the construction, validity and interpretation of this Agreement and the performance of the obligations imposed by this Agreement. 11.10 No Third-Party Beneficiaries. Notwithstanding anything to the ---------------------------- contrary in Section 9.06, no employee or former employee of the Company shall be entitled to rights under this Agreement as a third-party beneficiary. [The remainder of this page was intentionally left blank. Signature page follows.] 48 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Global MAINTECH Corporation By /s/ James Geiser --------------------------- Name: Title: Global MAINTECH, Inc. By /s/ James Geiser --------------------------- Name: Title: BHT Acquisition, Inc. By /s/ James Geiser --------------------------- Name: Title: Breece Hill Technologies, Inc. By /s/ James Watson --------------------------- Name: Title: SCHEDULE 6.05 REGISTRATION RIGHTS 1. Piggyback Registration Rights. If at any time or from time to time 90 days ----------------------------- or more after the Closing Date, GMC proposes to register any of its securities under the Act on any form for the registration of securities under such Act, whether or not for its own account, other than by a registration statement on Form S-8 or other form which does not include substantially the same information as would be required in a form for the general registration of securities or would not be available for the Registrable Securities (a "Piggyback Eligible Registration"), it shall as expeditiously as possible (and at least 15 days before the proposed registration) give written notice to all holders of Unregistered GMC Common Stock and the Non-H&QGF Warrants, by giving such notice to the Stockholders' Representative, specifying its intention to register and specifying such holders' rights under this Section 1 (the "Piggyback Registration Rights"). Upon the written request of any such holder made within 20 days after receipt of any such notice (which request shall specify the number of shares of Unregistered GMC Common Stock intended to be disposed of by such holder), GMC shall include in the registration statement the Unregistered GMC Common Stock which the Company has been so requested to register by the holders thereof (the "Selling Stockholders") and shall keep such registration statement in effect and in compliance with each applicable Federal and state law or regulation for 180 days (a "Piggyback Registration"). a. Withdrawal of Piggyback Registration by GMC. If, at any time after ------------------------------------------- giving written notice of its intention to register any securities in a Piggyback Eligible Registration but prior to the effective date of the related registration statement, GMC shall determine for any reason not to register such securities, GMC shall give written notice of such determination to each Selling Stockholder, by giving such notice to the Stockholders' Representative, and thereupon shall be relieved of its obligation to register any Unregistered GMC Common Stock in connection with such Piggyback Eligible Registration. All best efforts obligations of GMC pursuant to Section 3 shall cease if GMC determines to terminate prior to such effective date any registration where Unregistered GMC Common Stock are being registered pursuant to this Section 1. b. Piggyback Registration of Underwritten Public Offerings. If a ------------------------------------------------------- Piggyback Eligible Registration involves an offering by or through underwriters, then, (i) all Selling Stockholders must sell their Unregistered GMC Common Stock to the underwriters selected by GMC on the same terms and conditions as apply to securities otherwise being sold through the underwriters and (ii) any Selling Stockholder may elect in writing, not later than three business days prior to the effectiveness of the registration statement filed in connection with such registration, not to have his, her or its Unregistered GMC Common Stock so included in connection with such registration. c. Payment of Registration Expenses for Piggyback Registration. GMC ----------------------------------------------------------- shall pay any and all Registration Expenses (as defined below) incurred or made in connection with each registration of Unregistered GMC Common Stock requested pursuant to a Piggyback Registration Right. For purposes of this Section 1, Registration Expenses shall mean any and all expenses incurred in connection with any registration or action incident to performance of or compliance by GMC with Section 1, 2, 3 or 4 of this Schedule, including, without limitation, (i) all Securities and Exchange Commission, national securities exchange and NASD registration and filing fees; (ii) all listing fees and all transfer agent fees; (iii) all fees and expenses of complying with state securities or blue sky laws (including the fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Unregistered GMC Common Stock); (iv) all printing, mailing, messenger and delivery expenses; and (v) all fees and disbursements of counsel for GMC and of its accountants, including the expenses of any special audits or "cold comfort" letters. d. Priority in Piggyback Eligible Registration. If a Piggyback Eligible ------------------------------------------- Registration involves an offering by or through underwriters, GMC shall not be required to include Unregistered GMC Common Stock therein if and to the extent the underwriter managing the offering reasonably believes in good faith and advises each Selling Stockholder, by advising the Stockholders' Representative, that inclusion of the Selling Stockholder's Unregistered GMC Common Stock would materially adversely affect such offering; provided, that, except with respect to Unregistered GMC Common Stock requested to be included in the Piggyback Eligible Registration by certain officers of GMC in the amount of $294,500 identified as "notes receivable-officers" in the Consolidated Balance Sheets in GMC's annual report on Form 10-KSB for the year ended December 31, 1997, (i) if other Selling Stockholders who are employees, officers, directors or other affiliates of GMC have requested registration of securities in the proposed offering, GMC will reduce or eliminate such other Selling Stockholders' securities before any reduction or elimination of Unregistered GMC Common Stock; (ii) any such reduction or elimination (after taking into account the effect of clause (i)) shall be pro rata to all other holders of the --- ---- securities of GMC exercising "piggyback registration rights" similar to those set forth herein in proportion to the respective number of shares they have requested to be registered, and (iii) in such event, such Selling Stockholders may delay any offering by them of all Unregistered GMC Common Stock requested to be included or that portion of such Unregistered GMC Common Stock eliminated for such period, not to exceed 60 days, as the managing underwriter shall request and GMC shall file such supplements and post-effective amendments and take such other action necessary under Federal and state law or regulation as may be necessary to permit such Selling Stockholders to make their proposed offering for a period of 180 days following such period of delay. 2. Demand Registration Rights. -------------------------- a. Request for Registration. If, at any time 30 days or more after the ------------------------ Closing Date and prior to the expiration of two years after the Closing Date, any holder of the Unregistered GMC Common Stock requests that GMC file a registration statement under the Act with respect to that holder's Unregistered GMC Common Stock, GMC as soon as practicable shall use its best efforts to file a registration statement with respect to all Unregistered GMC Common Stock that it has been so requested to include and obtain the effectiveness thereof and to take all other action necessary under any Federal or state law or regulation to permit the Unregistered GMC Common Stock that are then held and/or that may be acquired upon the exercise of the Escrow Warrants specified in the notices of the holder or holders thereof to be sold or otherwise disposed of and GMC shall maintain such compliance with each such Federal and state law and regulation for 180 days (a "Demand Registration"); provided, however, that GMC shall be entitled to defer such registration for a period of up to 90 days if and to the extent that its Board of Directors shall determine that such registration would materially interfere with a pending corporate transaction. GMC shall also promptly give written notice, by giving such notice to the Stockholders' Representative, to the holders of any other Unregistered GMC Common Stock and the Non-H&QGF Warrants that have not made a request to GMC pursuant to the provisions of this subsection (a) of its intention to effect any required registration or qualification, and shall use its best efforts to effect as expeditiously as possible such registration or qualification of all other such Unregistered GMC Common Stock that are then held and/or that may be acquired upon the exercise of Escrow Warrants, the holder or holders of which have requested such registration or qualification within 15 days after such notice has been given by GMC as provided in the preceding sentence. GMC shall be required to effect a registration or qualification pursuant to this Section 2(a) only once. b. Payment of Registration Expenses for Demand Registration. GMC shall -------------------------------------------------------- pay all Registration Expenses in connection with a Demand Registration only if holders of more than 50% of the Unregistered GMC Common Stock request registration pursuant to this Section 2. In all other cases, the holder or holders of Unregistered GMC Common Stock to be registered pursuant to this Section 2 shall bear all Registration Expenses in connection with such registration. c. Selection of Underwriters. If any Demand Registration is requested to ------------------------- be in the form of an underwritten offering, the managing underwriter, the co-manager (if any) and the qualified independent underwriter required under the rules of the NASD (if any) shall be selected and obtained by the holders of a majority of the Unregistered GMC Common Stock to be registered. Such selection shall be subject to GMC's consent, which consent shall not be unreasonably withheld. All fees and expenses (other than Registration Expenses otherwise required to be paid) of any managing underwriter, any co-manager or any qualified independent underwriter or other independent pricer required under the rules of the NASD shall be paid for by such underwriters or by the Selling Stockholders. 3. Registration Procedure. If and whenever GMC is required to use its best ---------------------- efforts to take action pursuant to any Federal or state law or regulation to permit the sale or other disposition of any Unregistered GMC Common Stock that are then held or that may be acquired in connection with the Earn Out Payment, if any, or the exercise of Escrow Warrants in order to effect or cause the registration of any Unregistered GMC Common Stock under the Act as provided in Section 1 or 2, GMC shall, as expeditiously as practicable: a. furnish to each Selling Stockholder and the underwriters, if any, without charge, as many copies of the registration statement, the prospectus or prospectuses (including each preliminary prospectus) and any amendment or supplement thereto as they may reasonably request; b. enter into such agreements (including an underwriting agreement) and take all other actions reasonably required in connection therewith in order to expedite or facilitate the disposition of such Unregistered GMC Common Stock and in such connection, if the registration is in connection with an underwritten offering (i) make such representations and warranties to the underwriters in such form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings and confirm the same if and when requested; (ii) obtain opinions of counsel to GMC and updates thereof (which counsel and opinions in form, scope and substance shall be reasonably satisfactory to the underwriters) addressed to the underwriters and the Selling Stockholders covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such underwriters; (iii) obtain "cold comfort" letters and updates thereof from GMC's accountants addressed to the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters by underwriters and the Selling Stockholders in connection with underwritten offerings; (iv) set forth in full in any underwriting agreement entered into the indemnification provisions and procedures of Section 4 with respect to all parties to be indemnified pursuant to Section 4; and (v) deliver such documents and certificates as may be reasonably requested by the underwriters to evidence compliance with clause (i) of this Section 3(b) and with any customary conditions contained in the underwriting agreement or other agreement entered into by GMC; the above shall be done at each closing under such underwriting or similar agreement or as and to the extent required thereunder; c. make available for inspection by the Stockholders' Representative all financial and other records, pertinent corporate documents and properties of GMC, and cause GMC's officers, directors and employees to supply all information reasonably requested by any such representatives in connection with such registration. Similarly, each Selling Stockholder shall furnish to GMC such information regarding the distribution of such securities and such other information as may otherwise be required by the Act to be included in the related registration statement. d. otherwise use its best efforts to comply with all applicable Federal and state regulations; and take such other action as may be reasonably necessary or advisable to enable each such Selling Stockholder and each such underwriter to consummate the sale or disposition in such jurisdiction or jurisdiction in which any such Selling Stockholder or underwriter shall have requested that the Unregistered GMC Common Stock be sold. 4. Indemnification. In the event that any Unregistered GMC Common Stock is --------------- included in a registration statement pursuant to Section 6.05 of the Agreement and this Schedule 6.05: a. Indemnification by GMC. GMC will indemnify and hold harmless the ---------------------- Selling Stockholders and any underwriter (as defined in the 1933 Act) for such Selling Stockholders from and against any and all loss, damage, liability, cost and expense to which the Selling Stockholders or any such underwriter may become subject under the 1933 Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading, provided however, that GMC will not be liable in any such case to the extent that any such loss, damage, liability, cost or expense arises out to or is based upon any untrue statement or alleged untrue statement or omission or allege omission so made in conformity with information furnished by any Selling Stockholder or such underwriter; b. Indemnification by Selling Stockholders. Any Selling Stockholder and --------------------------------------- any underwriter for the Selling Stockholders shall indemnify and hold harmless GMC and GMI to the same extent as provided in paragraph (a) of this Section 4 to the extent that any such loss, damage, liability, cost or expense to which GMC and GMI may become subject is caused by or arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in conformity with information furnished by such Selling Stockholder or underwriter; and c. Indemnification Procedure. Promptly after receipt by an indemnified ------------------------- party pursuant to the provisions of paragraph (a) or (b) of this Section 4 of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of said paragraph (a) or (b), promptly notify the indemnifying party of the commencement thereof; but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than hereunder. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, if the defendants in any action include both the indemnified party and the indemnifying party and there is a conflict of interest which would prevent counsel for the indemnifying party from also representing the indemnified party, the indemnified party or parties shall have the right to select separate counsel to participate in the defense of such action on behalf of such indemnified party or parties. 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 pursuant to the provisions of said paragraph (a) or (b) for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless (i) the indemnified party shall have employed counsel in accordance with the proviso of the preceding sentence, (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after the notice of the commencement of the action, or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. 5. Limitation on Registration Rights. Notwithstanding anything to the --------------------------------- contrary contained in this Schedule 6.05, holders of the Unregistered GMC Common Stock shall have the foregoing registration rights only to the extent that an exemption from the registration and prospectus delivery requirements of the Act pursuant to Rule 144 promulgated under the Act is not available. 6. Assignment. The registration and indemnification rights granted to the ---------- holders of Unregistered GMC Common Stock pursuant to this Schedule 6.05 and Section 6.05 of the Merger Agreement shall be for the benefit of and enforceable by the recipients of Unregistered GMC Common Stock issued in connection with the Earn Out Payment, if any, and exercise of Escrow Warrants, and any subsequent holders of Unregistered GMC Common Stock, whether or not any express assignment of such rights to any such subsequent holder is made. EX-3.3 3 CERTIFICATE OF DESIGNATION OF SERIES C CONV PREFERRED STOCK CERTIFICATE OF DESIGNATION of SERIES C CONVERTIBLE PREFERRED STOCK of GLOBAL MAINTECH CORPORATION (as filed on March 24, 1999 and corrected on March 30, 1999) (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 March 9, 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 C Convertible Preferred Stock" (the "Series C Preferred Stock") and the number of shares constituting the Series C Preferred Stock shall be 1,675. The Series C Preferred Stock shall have a stated value (the "Stated Value") of $1,000 per share. II. Dividends. A. 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 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 C 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 C 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 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 Company subordinate in liquidation to the Series C Preferred Stock. Dividends on the Series C Preferred Stock shall be non-participating and the holders of the Series C 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 C Preferred Stock shall be entitled to receive out of the assets available for distribution to shareholders the Stated Value per share of Series C 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 C 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 C Preferred Stock. C. After the 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 Company 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 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 C Preferred Stock shall have no voting rights except as expressly required by law or as expressly provided herein. V. Conversion of Series C Preferred Stock. The holders 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: A. Subject to the provisions of Section XI hereof, at any time or times, upon the earlier to occur of (i) the 61/st/ calendar day after the Issuance Date, or (ii) the Effective Date, 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, which is determined (per share of Series C 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 C Preferred Stock. The "Conversion Price" shall mean, as of any Conversion Date (as defined below) the lesser of (i) $2.50 or (ii) 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 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. The "Issuance Date" shall mean, with respect to each share of Series C Preferred Stock, the date of issuance of the applicable share of Series C 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. C. 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 Company and delivering to Company 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 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 C Preferred Stock (together with the certificates representing the share or 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 Company 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 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 C Preferred Stock certificates representing the portion of the Series C 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: 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 "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 C 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 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. 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 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 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 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. F. Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series C 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 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 Company 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 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. G. Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of any Series C 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 C Preferred Stock certificate(s), if mutilated, the Company shall execute and deliver new certificates for Series C 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 C Preferred Stock if the holder contemporaneously requests the Company to convert such shares of Series C 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 C 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 C Preferred Stock which were not converted. J. Each share of Series C Preferred Stock outstanding three 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 C Preferred Stock. L. In the event a holder shall elect to convert any share or shares of Series C 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 C 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 C 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 C Preferred Stock. No share or shares of Series C 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 C Preferred Stock accordingly. VII. Reservation of Shares. The Company 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 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 C 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 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. B. Without limiting the generality of the preceding paragraph, the Company 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: 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 C Preferred Stock; 2. reduce the amount payable to the holders of Series C 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 C 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 C Preferred Stock provided for in Section V herein; or 4. cancel or modify the rights of the holders of the Series C 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 C 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 C 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 C 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 C 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 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 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. 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 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 Company 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 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 C 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 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 Company will select those to be redeemed pro-rata amongst the then holders of the Series C Preferred Stock based on the number of shares of Series C Preferred Stock then outstanding. B. In the event the Company serves a Redemption Notice within four calendar months after the Issuance Date the "Redemption Price" shall be equal to 130% of the Stated Value of the shares of Series C Preferred Stock which are subject to such Redemption Notice, plus all accrued but unpaid dividends on such shares, and in the event the Company serves a Notice of Redemption at any time after the fourth calendar month after the Issuance Date, the Redemption Price shall be equal to the greater of (i) 115% of the Stated Value of the shares of Series C 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 C Preferred Stock which are the subject of such Redemption Notice. "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. 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 C 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 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 Company shall wire transfer the appropriate amount of funds to the holders of the Series C Preferred Stock. If the Company 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 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 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 C Preferred Stock being redeemed to the Company within three Business Days after they have received good funds for the Redemption Price of such shares. D. 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. 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. 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 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 the automatic conversion upon the Maturity Date as contained herein. EX-4.6 4 FORM OF PREFERRED STOCK AND WARANT PURCHASE AGREEMENT FORM OF PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT This Preferred Stock and Warrant Purchase Agreement is made and entered into as of the _____ day of ___________, 1998, between Global MAINTECH Corporation, a Minnesota corporation, and those investors who have executed an Acceptance on Schedule A attached hereto (collectively, the "Investors" and each, an "Investor"). Except where the context otherwise requires, all references to the "Company" herein shall be collectively to Global MAINTECH Corporation and its subsidiaries, including, without limitation, Global MAINTECH, Inc. For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged by the Company and the Investors, the Company and the Investors agree as follows: 1. Sale and Purchase of Securities. Subject to the terms and conditions hereof, the Company agrees to sell to each Investor at the Closing (as defined herein), and each Investor agrees, severally, to purchase from the Company at the Closing, the number of Units set forth above such Investor's name on Schedule A, each Unit consisting of one share of the Company's Series B Convertible Cumulative Preferred Stock (the "Preferred Stock") with the rights and preferences provided in the Certificate of Designation for such Preferred Stock attached hereto as Exhibit A (the "Certificate of Designation") and a five-year callable Warrant in the form attached hereto as Exhibit B (the "Warrant") provided, however, the Company shall not be obligated to sell more than 615,385 Units in the aggregate. Subject to adjustment as set forth in the Warrant, the Warrant in each Unit will entitle the holder thereof to purchase the same number of shares of common stock into which the share of Preferred Stock contained in the same Unit will have been converted. The purchase price per Unit is $6.50. The Units, the Preferred Stock and the Warrant are sometimes collectively referred to herein as the "Securities." 2. Closing. (a) Closing. Provided that Investor acceptances have been received for at least the Minimum Offering, the closing or closings of the purchase and sale of the Securities hereunder shall take place at the offices of Leonard, Street and Deinard Professional Association, Minneapolis, Minnesota, at 1:00 p.m., Minnesota time, on September 23, 1998 or at such other place(s) or different time(s) or day(s) as the Company in its own discretion shall determine (the "Closing"). At the Closing, the Company will deliver to each Investor participating in such closing a Warrant representing the right to purchase that number of shares of the common stock of the Company to be determined at the time of conversion of the Preferred Stock, dated such Closing date and will deliver to each such Investor a certificate representing the number of shares of Preferred Stock set forth above such Investor's name on Schedule A and each such Investor shall cause to be delivered to the Company a wire transfer or check payable to the Company in the amount set forth opposite such Investor's name on Schedule A. 3. Representations and Warranties by the Company. To induce the Investors to enter into this Agreement and to purchase the Securities, the Company hereby represents and warrants to the Investors as follows: (a) Disclosure. The Company has provided each Investor with all the information such Investor has requested in deciding whether to purchase the Securities and all information the Company believes is necessary or appropriate relating to an investment in the Company, including, without limitation, the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997, Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30, 1998, the Company's Proxy Statement for its 1998 Annual Meeting of Shareholders and its 1997 Annual Report to Shareholders (collectively, the "SEC Filings") press releases issued by the Company since June 30, 1998 and a Term Sheet describing the terms of this offering and the Securities (such documents and the SEC Filings referred to collectively as the "Disclosed Information"). There are no facts known to the Company which individually or in the aggregate materially adversely affect the business, assets, financial condition or prospects of the Company, except as set forth in the Disclosed Information. The Disclosed Information fairly presents all material information regarding the Company as of the date hereof and, as of the date of the Closing, the Disclosed Information will (i) fairly present all material information regarding the Company, and (ii) not include 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. The SEC Filings comply in all material respects with the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and all applicable rules and regulations of the Securities Exchange Commission (the "Commission"). (b) Organization, Good Standing, Etc. The Company is duly incorporated and validly existing as a corporation in good standing under the laws of the State of Minnesota, with power and authority to own its properties and conduct its business as now conducted and proposed to be conducted. The Company is duly qualified to do business as a foreign corporation and is in good standing in all states or jurisdictions in which the ownership or lease of its property or the conduct of its business requires such qualification and the failure to be so qualified would have a material adverse effect on the Company's business. The Company has one active subsidiary, Global MAINTECH, Inc. (c) Financial Statements. The financial statements (including all related schedules and notes) included in the Disclosed Information fairly represent the financial condition and results of operations of the Company as of the dates and for the periods indicated; such statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods indicated; and the report of the public accountant included in the Disclosed Information is issued by an independent public accountant within the meaning of the Exchange Act, and the rules and regulations thereunder. (d) Authorization and Enforceability. The Company has full legal power, right and authority to enter into this Agreement and the Registration Rights Agreement among the Company and the Investors, the form of which is attached hereto as Exhibit E (the "Registration Rights Agreement") and to issue the Securities and to carry out and perform its obligations under this Agreement and the Registration Rights Agreement. This Agreement, the 2 Registration Rights Agreement and the Securities, have been duly authorized, executed and delivered on behalf of the Company and are the valid and binding obligations of the Company, enforceable in accordance with their respective terms and subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally, to the exercise of judicial discretion as to the availability of equitable remedies such as specific performance and injunction and, as to enforcement of the indemnification provisions, to limitations under applicable securities laws. The Securities when delivered pursuant to the terms of this Agreement will be validly issued, fully paid and nonassessable. (e) License and Approvals. The Company has all licenses, certificates, permits and other approvals from governmental and regulatory authorities necessary for the conduct of its business as it is currently being conducted and as proposed to be conducted except those which would not have a material adverse effect on the Company if not obtained. (f) Intellectual Property. The Company owns or possesses all assets, patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and rights necessary for the conduct of its business as it is currently being conducted and as proposed to be conducted and has not received any notice of conflict with the asserted rights of others in respect thereof. To the best of the Company's knowledge, no name which the Company uses and no other aspect of the business of the Company involves or gives rise to any infringement of, or license or similar fees for, any patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets or other similar rights of others, except for license fees payable by the Company to Circle X Corp. of Japan for the Company's use of certain intellectual property rights used by the Company in its VCC product, which rights are licensed to it by Circle X Corp. of Japan. (g) Defaults. The Company is not in breach, default or violation of, and the execution of this Agreement and the Registration Rights Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in any breach of, any of the terms or conditions of, or constitute a default or violation under, (i) the Articles of Incorporation, as amended, or Bylaws, as amended, of the Company, (ii) any indenture, agreement or other instrument to which the Company is now a party, or (iii) any law or any order, rule or regulation applicable to the Company of any court or of any federal or state regulatory body or administrative agency having jurisdiction over the Company or its property. (h) Consents. No consent, authorization, approval, permit or order of or filing with any governmental or regulatory authority is required under current laws and regulations in connection with the execution and delivery of this Agreement or the Registration Rights Agreement or the offer, issuance, sale or delivery of the Securities, other than the qualification thereof, if required, under applicable state securities laws, which qualification has been or will be effected as a condition of the sale of the Securities to the Investors. The Company has not, directly or through any agent other than Miller, Johnson & Kuehn Incorporated, offered the Securities or any similar securities for sale to, or solicited any offers to acquire such securities from, persons other than the Investors. Under the circumstances contemplated by this 3 Agreement, the offer, issuance, sale and delivery of the Securities will not, under current laws and regulations, require compliance with the prospectus delivery or registration requirements of the Securities Act of 1933, as amended (the "Securities Act"). The Company has filed all reports or other documentation that it is required to file under the Exchange Act, any rules or regulations promulgated thereunder, the applicable rules and regulations of the National Association of Securities Dealers ("NASD") and all applicable state securities laws, and the information contained in such reports or other documents did not make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein made, in the light of the circumstances under which they were made, not misleading. (i) Valid Issuance of Preferred Stock. The Preferred Stock, when authorized, issued, sold and delivered in accordance with the terms hereof will be duly authorized, validly issued, fully paid and nonassessable and after registration under applicable securities laws as contemplated by this Agreement will be free of restrictions on transfer and, based in part upon the representations of the Investors in this Agreement, will be issued in compliance with applicable securities laws. (j) Valid Issuance of Common Stock. The shares of the Company's common stock issuable upon conversion of the Preferred Stock and upon exercise of the Warrant have been reserved for issuance and, when issued and delivered in accordance with the terms thereof, will be duly authorized, validly issued, fully paid and non-assessable, shall be free of any pledges, liens, encumbrances and restrictions, and will be issued in compliance with all applicable securities laws. (k) Litigation/Proceedings. There are no pending, threatened or, to the Company's knowledge, contemplated actions, suits, proceedings or investigations before or by any court or governmental agency, authority or body, or any arbitrator, which are not ordinary, routine and incidental to the business of the Company or which might result in any material adverse change in the business condition (financial and other) or properties of the Company. (l) Capital Stock. The authorized capital stock of the Company consists of 50,000,000 shares, including the following: (a) 48,496,635 shares of common stock, of which 17,549,758 shares are issued and outstanding; (b) 887,980 shares of Series A Convertible Preferred Stock, of which 244,113 shares are issued and outstanding; and (c) 615,385 shares of Series B Convertible Preferred Stock. Except for an aggregate of 4,944,593 shares of the Company's common stock which are subject to outstanding options to employees under the Company's various stock option plans, or reserved for issuance under such plans, 1,773,398 shares of the Company's common stock which are subject to outstanding warrants and 147,868 shares of the Company's common stock into which the Company's outstanding Series A Convertible Preferred Stock is convertible, there are no outstanding rights to acquire from the Company any shares of its capital stock. All outstanding shares of the Company's capital stock have been duly authorized, validly issued, fully paid and nonassessable and, to the Company's knowledge, have been issued pursuant to valid registrations under, or valid exemptions from, the registration requirements of the Securities Act and appropriate state blue sky laws. There are no voting agreements, voting trusts, calls, pledges, transfer restrictions (other than those imposed by federal and state securities laws and, with respect to outstanding options or warrants, those 4 imposed by the Company's stock option plans or by applicable option or warrant agreements), liens, rights of first refusal, rights of first offer, anti-dilution provisions or commitments of any kind relating to the issued or unissued capital stock of the Company. (m) Title to Properties. The Company has good and marketable title, free and clear of all liens, encumbrances and equities, and of all charges or claims, to all of the real and personal property owned by it, except liens, encumbrances and equities, and charges or claims, which are not material and do not materially affect the value of such property or interfere with the conduct of the Company's business. The Company has valid and binding leases to all of the real and personal property necessary for the conduct of its business with such exceptions as do not materially interfere with the conduct of its business. (n) Tax Returns. The Company has filed all necessary federal, state and foreign income, franchise and other tax returns and has paid all taxes shown as due thereon, and the Company has received no notice of any tax deficiency which has been asserted against the Company. (o) Authority. The Company has all requisite power and authority to issue, sell and deliver the Preferred Stock and Warrants in accordance with and upon the terms set forth in this Agreement. The Company has duly taken all required action for the due and proper authorization, issuance, sale and delivery of the Preferred Stock and Warrants. No preemptive rights or other rights of subscription, first refusal or similar rights of security holders of the Company exist with respect to the issuance and sale of the Preferred Stock and Warrants by the Company or the shares of the Company's common stock issuable upon conversion and exercise, respectively, thereof. No security holder of the Company possesses any registration rights. The issuance of the Securities and the shares of the Company's common stock underlying the Securities will not result in the issuance of any additional shares of the Company's common stock or the triggering of other anti-dilution or similar rights contained in any options, warrants or other securities issued by, or agreements of, the Company. (p) Investment Company. In retaining and using the proceeds from the sale of the Securities, the Company will not be required to register as an "Investment Company" under the Investment Company Act of 1940, as amended. (q) Bad Boy Certification. Neither the Company, any of its predecessors, any affiliated issuer nor any of the Company's directors, officers, beneficial owners of 10% or more of any class of its equity securities or other affiliates nor any promoter of the Company is subject to any of the disabilities enumerated in Exhibit C hereto and the representations and warranties contained therein are true and correct. (r) Fees and Commissions. Other than pursuant to agreements with Miller, Johnson & Kuehn, Incorporated, the Company has not incurred any liability for any finder's or broker's fee or agent's commission in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 5 (s) Changes, Dividends, Etc. Except for the transactions contemplated by this Agreement, since the date of the most recent financial statements of the Company provided to Investors, the Company has not: (i) incurred any debts, obligations or liabilities, absolute, accrued or contingent and whether due or to become due, except current liabilities incurred in the ordinary course of business which (individually or in the aggregate) will not materially and adversely affect the business, properties or prospects of the Company; (ii) paid any obligation or liability other than, or discharged or satisfied any liens or encumbrances other than those securing, current liabilities, in each case in the ordinary course of business; (iii) declared or made any payment to or distribution to its shareholders as such, or used or redeemed any of its shares of capital stock, or obligated itself to do so; (iv) mortgaged, pledged or subjected to lien, charge, security interest or other encumbrance any of its assets, tangible or intangible, except in the ordinary course of business; (v) sold, transferred or leased any of its assets except in the ordinary course of business; (vi) suffered any physical damage, destruction or loss (whether or not covered by insurance) materially and adversely affecting the tangible properties, business or prospects of the Company; (vii) encountered any labor difficulties or labor union organizing activities; (viii) except as set forth on Schedule 3(n), issued or sold any shares of capital stock or other securities or granted any options other than to employees, warrants, or other purchase rights with respect thereto other than pursuant to this Agreement; (ix) made any acquisition or disposition of any material assets or became involved in any other material transaction, other than for fair value in the ordinary course of business; or (x) agreed to do any of the foregoing other than pursuant hereto. There has been no material adverse change in the financial condition, operations, results of operations or business of the Company since the date of the most recent financial statements of the Company provided to the Investors. (t) Reporting. The Company is subject to the reporting requirements of the Securities Act and the Exchange Act and (i) has timely filed all reports and statements required to be filed thereunder in the 12-month period prior to the date hereof, and (ii) to the Company's knowledge, each report and statement was true and complete in all material respects when filed. 4. Representations of the Investors. Each Investor represents for itself that: (a) Investment Intent. The Securities being acquired by the Investor are being purchased for investment for the Investor's own account and not with the view to, or for resale in connection with, any distribution or public offering thereof. The Investor understands that the Securities have not been registered under the Securities Act or any state securities laws by reason of their contemplated issuance in a transaction exempt from the registration requirements of the Securities Act and applicable state securities laws, and that the reliance of the Company upon these exemptions is predicated in part upon this representation by the Investor. The Investor further understands that the Securities, and the shares of the Company's common stock issuable upon conversion or exercise thereof, may not be transferred or resold without (i) registration under the Securities Act and applicable state securities laws, or (ii) an exemption from the requirements of the Securities Act and applicable state securities laws. (b) Location of Principal Office, Qualification as an Accredited Investor, Etc. The state in which the Investor's principal office is located is the state set forth in the Investor's address on Schedule A. The Investor qualifies as an accredited investor for purposes of Regulation 6 D promulgated under the Securities Act. The Investor acknowledges receipt of the Disclosed Information and that the Company has made available to the Investor at a reasonable time prior to the execution of this Agreement the opportunity to ask questions and receive answers concerning the business and affairs of the Company and the terms and conditions of the sale of Securities contemplated by this Agreement and to obtain any additional information (which the Company possessed or could acquire without unreasonable effort or expense) to verify the accuracy of information furnished to the Investor. The Investor (i) is able to bear the loss of the Investor's entire investment in the Securities without any material adverse effect on such Investor's business, operations or prospects, and (ii) has such knowledge and experience in financial and business matters that such Investor is capable of evaluating the merits and risks of the investment to be made pursuant to this Agreement. (c) Acts and Proceedings. This Agreement has been duly authorized by all necessary action on the part of the Investor, has been duly executed and delivered by the Investor, and is a valid and binding agreement of the Investor. 5. Conditions of the Investors' Obligation. The obligation to purchase and pay for the Securities at the Closing is subject to the fulfillment prior to or on the Closing date of the conditions set forth in this Section 5. In the event that any such condition is not satisfied to the satisfaction of each Investor, then the Investors shall not be obligated to proceed with the purchase of the Securities at the Closing. (a) Representations and Warranties. The representations and warranties of the Company under this Agreement shall be true on and as of the Closing date with the same effect as though made on and as of the Closing date. (b) Compliance with Agreement. The Company shall have performed and complied with all agreements or conditions required by this Agreement to be performed and complied with by it prior to or as of the Closing date. (c) Certificate of Officers. The Company shall have delivered to the Investors a certificate, dated the Closing date, executed by the Chief Executive Officer and the Chief Financial Officer of the Company, and certifying to the satisfaction of the conditions specified in Sections 5(a) and 5(b). (d) Opinion of the Company's Counsel. The Investors shall have received from Dorsey & Whitney LLP, counsel for the Company, an opinion, dated the Closing date, in the form attached hereto as Exhibit D. (e) Supporting Documents. The Investors shall have received the following: (i) A copy of the resolutions of the Board of Directors of the Company certified by the Secretary of the Company authorizing and approving the execution, delivery and performance of this Agreement and issuance of the Securities; (ii) A certificate of incumbency executed by the Secretary of the Company certifying the names, titles and signatures of the officers of the Company authorized to 7 execute this Agreement and further certifying that the Articles of Incorporation and Bylaws of the Company delivered to the Investors at the time of the execution of this Agreement have been validly adopted and have not been amended or modified; and (iii) A copy of the Articles of Incorporation and Bylaws of the Company as of such date and such additional supporting documentation and other information with respect to the transactions contemplated hereby as the Investors may reasonably request. (f) Qualification Under State Securities Laws. All registrations, qualifications, permits and approvals required under applicable state securities laws for the lawful execution and delivery of this Agreement and the offer, sale, issuance and delivery of the Securities to the Investors at the Closing shall have been obtained. (g) Proceeding and Documents. All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments and documents mentioned herein or incident to any such transaction shall be reasonably satisfactory in form and substance to the Investors. (h) File Certificate of Designation. It shall be a condition to the Investors' obligation to close the transactions contemplated hereby that the Company have filed the Certificate of Designation with the Secretary of State of the State of Minnesota and that such certificate be accepted and duly filed by such Secretary's office. (i) Execution of Registration Rights Agreement. It shall be a condition to the Investors' obligation to close the transactions contemplated hereby that the Company execute and deliver to the Investors the Registration Rights Agreement attached hereto as Exhibit E. 6. Affirmative Covenants of the Company. The Company covenants and agrees as follows: (a) Corporate Existence. The Company will maintain its corporate existence in good standing. (b) Books of Accounts. The Company will keep books of record and account in which correct and complete entries are made of all of its respective dealings, business and affairs, in accordance with generally accepted accounting principles. The Company will employ certified public accountants who are "independent" within the meaning of the accounting regulations of the Commission. (c) Patents and Other Intangible Rights. The Company will apply for, or obtain assignments of, or licenses to use, all patents, trademarks, trade names and copyrights which in the opinion of a prudent and experienced businessperson operating in the industry in which the Company is operating are desirable or necessary for the conduct and protection of the business of the Company. (d) Fees of Counsel. At the Closing, the Company shall pay all reasonable fees and expenses of legal counsel to 8 the Investors as well as the fees and expenses of counsel to Miller, Johnson & Kuehn, Incorporated ("MJK") incurred through the date of the Closing. In addition, at the Closing, the Company shall pay MJK 8% of the Purchase Price and shall issue MJK a warrant, in the form attached hereto as Exhibit F (the "Agent's Warrant"), to purchase that number of shares of the Company's common stock equal to 10% of the number of shares of the Company's common stock issuable upon conversion of the Preferred Stock sold by the Company to the Investors at the Closing, assuming the conversion of the Preferred Stock on the date of Closing. The exercise price of MJK's warrant shall be 110% of the average closing bid price of the Company's common stock for the 20 trading days immediately prior to the date of Closing. (e) Reservation of Shares. The Company will, at all times on and after the Closing, reserve and keep available (i) authorized and unissued shares of Preferred Stock sufficient for issuance pursuant to the terms of Section 4(c) of Exhibit A attached hereto, and (ii) authorized and unissued shares of its common stock sufficient for issuance upon conversion of the Preferred Stock and exercise of each Warrant and the Agent's Warrant. (f) Nasdaq Listing. The Company will use its best efforts to have its common stock included on the Nasdaq Stock Market (either Nasdaq Small Cap Market or Nasdaq National Market) on or before December 31, 1998. 7. Restriction on Transfer of Preferred Stock, Warrant and Shares. (a) Legend. Each share of Preferred Stock, each Warrant, the Agent's Warrant, and each certificate representing shares of the Company's common stock issued pursuant to the transactions contemplated hereby shall be endorsed with a legend in substantially the form which follows: "The securities represented by this certificate may not be transferred without (i) the opinion of counsel satisfactory to this corporation that such transfer may lawfully be made without registration under the Securities Act of 1933, as amended, and all applicable state securities laws, or (ii) such registration." (b) Removal of Legend. Any legend endorsed on a certificate evidencing a security pursuant to Section 7(a) hereof shall be removed, and the Company promptly shall issue a certificate without such legend to the holder of such security, if such security is properly being transferred pursuant to a registration under the Securities Act or pursuant to Rule 144 or any similar rule then in effect or if such holder provides the Company with an opinion of counsel satisfactory to the Company to the effect that a transfer of such security may be made without registration. In addition, if the holder of such security delivers to the Company an opinion of counsel satisfactory to the Company to the effect that no subsequent transfer of such security will require registration under the Securities Act, the Company will promptly upon such contemplated transfer deliver new certificates evidencing such security that do not bear the legend set forth in Section 7(a). 9 8. Miscellaneous. (a) Changes, Waivers, Etc. Neither this Agreement nor any provisions hereof may be changed, waived, discharged or terminated orally, but only by a statement in writing, signed by the party against which enforcement of the change, waiver, discharge or termination is sought. (b) Notices. All notices, requests, consents and other communications required or permitted hereunder shall be in writing and shall be delivered, or mailed first-class postage prepaid, registered or certified mail or shall be sent by facsimile transmission followed by mailed copy: if to the Investors at their respective addresses set forth on Schedule A, or at such other address or facsimile number as any Investor may specify in writing to the Company; or if to the Company at Global MAINTECH Corporation, 7578 Market Place Drive, Eden Prairie, Minnesota 55344, Attention: CEO, facsimile number (612) 944-0400; or at such other address or facsimile number as the Company may specify by written notice to the Investors; and such notices and other communications shall for all purposes of this Agreement be treated as being effective or having been given if delivered personally, if sent by mail, when received, or, if sent by facsimile, upon the sender's receipt of confirmation from its facsimile machine of transmission. (c) Survival of Representations and Warranties. All representations and warranties and agreements contained herein shall survive the execution and delivery of this Agreement, any investigation at any time made by the Investors or on their behalf and the sale and purchase of the Securities and payment therefor. All statements contained in any certificate, instrument or other writing delivered by or on behalf of the Company pursuant to this Agreement (other than legal opinions) at the Closing shall constitute representations and warranties by the Company hereunder. (d) Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. (e) Choice of Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Minnesota without regard to the principles of conflicts of law thereof. (f) Counterparts. This Agreement may be executed at different times and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (g) Parties in Interest. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and 10 assigns of the parties hereto, whether so expressed or not, and, in particular, shall inure to the benefit of and be enforceable by the holder or holders from time to time of any of the Securities. (h) Entire Agreement. This Agreement, including and incorporating all Exhibits and Schedules hereto, constitutes and contains the entire agreement and understanding of the parties regarding the subject matter of this Agreement and supersedes any and all prior negotiations, correspondence, understandings and agreements, written or oral, among the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed personally or by their duly authorized representatives as of the date indicated above. GLOBAL MAINTECH CORPORATION By:_________________________________ Its:_________________________________ INVESTOR: [See Attached Acceptance on Schedule A] 11 EXHIBIT B TO PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT THIS WARRANT REPRESENTS ALL WARRANTS ISSUED AS PART OF UNITS OFFERED TO INVESTORS PURSUANT TO THE TERMS OF A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT DATED ________ __, 1998 (THE "PURCHASE AGREEMENT"). EACH UNIT CONSISTS OF ONE SHARE OF SERIES B PREFERRED STOCK OF THE COMPANY AND A WARRANT TO PURCHASE COMMON STOCK. SUCH SERIES B PREFERRED STOCK AND THIS WARRANT CANNOT BE TRANSFERRED SEPARATELY UNTIL THE DATE ON WHICH THE SERIES B PREFERRED STOCK INCLUDED IN SUCH UNIT IS CONVERTED INTO COMMON STOCK OF THE COMPANY. NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE AND HAVE BEEN ISSUED 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 THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. GLOBAL MAINTECH CORPORATION FORM OF WARRANT Warrant No. _____________, 1998 GLOBAL MAINTECH CORPORATION, a Minnesota corporation (the "Company"), hereby certifies that, for value received, , or his registered assigns ("Holder"), is entitled, subject to the terms set forth below, to purchase from the Company a number of shares of common stock, no par value per share ("Common Stock"), of the Company (each such share, a "Warrant Share" and all such shares, the "Warrant Shares") equal to the number of shares of Common Stock into which the shares of Series B Preferred Stock issued to the Holder concurrently with this Warrant are converted, at an exercise price equal to $3.25 per Warrant Share (as adjusted from time to time as provided in Section 8 hereof, the "Exercise Price"), at any time and from time to time from and after the date hereof and through and including , 2003 (the "Expiration Date"). If a Holder converts less than all of such Holder's Series B Preferred Stock at any given time, the Conversion Price for the Warrants associated with such converted shares will have been determined but the Conversion Price for the remainder of the Warrants will not have been determined. Therefor, in such event, the Warrants associated with such converted shares must be certificated separately and, upon surrender of this Warrant by the Holder to the Company, two new Warrants will be issued to the Holder, one of which will represent the Warrants for which the Conversion Price has been determined and one of which will represent the remainder of the Warrants. 1. Registration of Warrant. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, and the Company shall not be affected by notice to the contrary. 2. Registration of Transfers and Exchanges. (a) Subject to the provisions of (b) below, the Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Company at the office specified in or pursuant to the terms hereof. Upon any such registration or transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a Holder of this Warrant. (b) This Warrant represents all Warrants issued as part of Units offered to investors pursuant to the terms of a Preferred Stock and Warrant Purchase Agreement dated , 1998 (the "Purchase Agreement"). Each Unit consists of one share of Series B Preferred Stock of the Company and a Warrant to purchase Common Stock. Such Series B Preferred Stock and this Warrant cannot be transferred separately until the date on which the Series B Preferred Stock included in such unit is converted into Common Stock of the Company. In the event the Holder of this Warrant desires to transfer this Warrant, or any Warrant Shares issued upon the exercise hereof prior to the registration thereof pursuant to Section 4, the Holder shall provide the Company with a written notice describing the manner of such transfer and an opinion of counsel (reasonably acceptable to the Company) that the proposed transfer may be effected without registration or qualification (under any applicable federal or state law), whereupon such Holder shall be entitled to transfer this Warrant or to dispose of any Warrant Shares in accordance with the notice delivered by such Holder to the Company; provided, however, that an appropriate legend may be endorsed on this Warrant or the certificates for such Warrant Shares respecting restrictions upon transfer thereof necessary or advisable in the opinion of counsel satisfactory to the Company to prevent further transfers which would be in violation of Section 5 of the Securities Act or applicable state securities laws. 2 (c) This Warrant is exchangeable, upon the surrender hereof by the Holder to the office of the Company specified in or pursuant to the terms hereof for one or more New Warrants, evidencing in the aggregate the right to purchase the number of Warrant Shares which may then be purchased hereunder. Any such New Warrants will be dated the date of such exchange. 3. Duration and Exercise of Warrants. (a) This Warrant (or the applicable portion thereof if the Holder converts less than all of such Holder's shares of Series B Preferred Stock) shall be exercisable by the registered Holder on any business day before 5:00 P.M., Minneapolis, Minnesota time, at any time and from time to time on or after the date the Holder converts all (or a portion, as applicable) of such Holder's Series B Preferred Stock issued in connection with this Warrant, to and including the Expiration Date. At 5:00 P.M., Minneapolis, Minnesota time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value. Except as set forth in Section 13 hereof, this Warrant may not be redeemed by the Company. (b) Subject to provisions elsewhere contained in this Warrant, upon surrender of this Warrant, with the Form of Election to Purchase attached hereto duly completed and signed, to the Company at its address for notice as set forth in Section 11 hereof, and upon payment of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, in lawful money of the United States of America, in cash or by certified or official bank check or checks, all as specified by the Holder in the Form of Election to Purchase, the Company shall promptly (but in no event later than five business days after the Date of Exercise (as defined herein)) issue or cause to be issued and cause to be delivered to the Holder and in such name or names as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise. Any person so designated by the Holder to receive Warrant Shares shall be deemed to have become holder of record of such Warrant Shares as of the Date of Exercise of this Warrant. A "Date of Exercise" means the date on which the Company shall have received (i) this Warrant (or any New Warrant, as applicable), with the Form of Election to Purchase attached hereto (or attached to such New Warrant) appropriately completed and duly signed, and (ii) payment of the Exercise Price for the number of Warrant Shares so indicated by the Holder hereof to be purchased. (c) This Warrant shall be exercisable either in its entirety or for a portion of the number of Warrant Shares. If this Warrant is exercised for a number of Warrant Shares which is less than all of the Warrant Shares which may be purchased under this Warrant, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares for which no exercise has been evidenced by this Warrant. 4. Registration Provisions. The shares of Common Stock underlying this Warrant shall be registered by the Company under the Securities Act pursuant to the terms of that 3 Registration Rights Agreement, dated ________, 1998, by and between the Company, Holder and certain other investors. 5. Payment of Taxes. The Company will pay all taxes attributable to the transfer of this Warrant or the issuance of Warrant Shares upon the exercise of this Warrant. 6. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and indemnity of the Company by the Holder relating to such lost Warrant as the Company may reasonably require. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable charges as the Company may reasonably prescribe. 7. Reservation of Warrant Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued shares of Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 8). The Company covenants that all Warrant Shares that shall be so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly authorized, validly issued, fully paid and nonassessable. 8. Certain Adjustments. Until the Holder converts such Holder's Series B Preferred Stock issued in connection with this Warrant, the Exercise Price and the number of Warrant Shares purchasable upon the exercise of this Warrant shall not be subject to adjustment. Thereafter, the Exercise Price and the number of Warrant Shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of any of the following events: (a) In case the Company shall at any time hereafter subdivide or combine its outstanding shares of Common Stock or declare a dividend payable in Common Stock, the Exercise Price in effect immediately prior to the subdivision, combination or record date for such dividend shall be proportionately increased, in the case of a combination, or decreased, in the case of subdivision or dividend payable in Common Stock. Upon each adjustment of the Exercise Price, the Holder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares obtained by multiplying the Exercise Price immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (b) No fractional shares of common stock are to be issued upon the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any fraction of a share 4 which would otherwise be issuable in an amount equal to the same fraction of the market price per share of common stock on the day of exercise as determined in good faith by the Company. (c) The Company shall provide the Holder with at least ten days prior written notice of any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of the Company's assets to another corporation. Further, if any of the foregoing events shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby the Holder hereof shall thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in this Warrant and in lieu of the shares of Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, 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 purchasable and receivable upon the exercise of the rights represented hereby 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 Holder of this Warrant to the end that the provisions hereof (including provisions for adjustments of the Warrant purchase price and of the number of shares of Common Stock purchasable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company shall not effect any such consolidation, merger or sale unless prior to the consummation thereof the successor corporation (if other than the Company) 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 Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. Notice of such assumption shall be promptly mailed to the registered Holder hereof at the last address of such holder appearing on the books of the Company. Notwithstanding any language to the contrary set forth in this paragraph 8(c), if an occurrence or event described herein shall take place in which the shareholders of the Company receive cash for their shares of Common Stock of the Company and a successor corporation shall survive the transaction then, at the election of the Holder hereof, such corporation shall purchase this Warrant (or the unexercised part hereof) from the Holder without requiring the Holder to exercise all or part of the Warrant. If such corporation refuses to so purchase this Warrant then the Company shall purchase the Warrant for cash. In either case the purchase price shall be the amount per share that shareholders of the outstanding Common Stock of the Company shall receive as a result of the transaction multiplied by the number of shares covered by the Warrant, minus the aggregate Exercise Price of the Warrant. Such purchase shall be closed within 60 days following the election of the holder to sell this Warrant. (d) Upon any adjustment of the Exercise Price, then, and in each such case, the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the registered holder of this Warrant at the address of such holder as shown on the books of the 5 Company, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (e) If any event occurs as to which in the good faith determination of the Board of Directors of the Company the other provisions of this paragraph 8 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the holder of this Warrant 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. 9. Payment of Exercise Price. The Holder must pay the Exercise Price in cash or immediately available funds. 10. Notices. Any and all notices or other communications or deliveries hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section, (ii) the business day following the date of mailing, if sent by a nationally recognized overnight courier service, or (iii) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be: (1) if to the Company, to 7578 Market Place Drive, Eden Prairie, Minnesota 55344, Attention: Chief Executive Officer, facsimile number (612) 944-0400, or (ii) if to the Holder, to the Holder at the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section 11. 11. Warrant Agent. (a) The Company shall serve as warrant agent under this Warrant. Upon 30 days' notice to the Holder, Company may appoint a new warrant agent. (b) Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register. 12. Call of Warrant. Subject to the conditions set forth below, the Company shall be permitted to call this Warrant from the Holder in the event that the Company's Common Stock has not traded below $4.375 per share for 20 consecutive trading days prior to the Expiration Date of this Warrant. Notwithstanding the foregoing, the Company may only exercise its right to call this Warrant from the Holder if at the time of such call (i) all Warrant Shares may be sold pursuant to an effective registration statement under the Securities Act, (ii) the Common Stock is 6 listed and trading on either the Nasdaq Small Cap Market or the Nasdaq National Market, and (iii) the Company has reserved and available for issuance a number of shares of its Common Stock sufficient to cover the exercise of this Warrant in full. The Company must provide the Holder with at least 20 days advance written notice (the "Warrant Notice") of its intent to call this Warrant pursuant to the terms hereof and the Holder shall have 20 business days from the date of receipt of the Warrant Notice to exercise this Warrant (the "Sale Period"). If the Holder does not exercise this Warrant during the Sale Period, the Holder shall surrender this Warrant to the Company at the end of the Sale Period for cancellation by the Company, and the Company shall transfer to the Holder, via wire transfer of immediately available funds or by Company check, an amount equal to $.10 multiplied by the number of shares of Common Stock subject to exercise of this Warrant. Notwithstanding the foregoing, the Sale Period shall be extended by that number of days during such period for which the registration, listing and reservation requirements set forth in clauses (i)-(iii) of this Section 12 shall not be satisfied. In the event that the Company calls this Warrant pursuant to this Section 12 before the number of shares of Common Stock subject to this Warrant has been determined (because the Series B Preferred Stock issued to Holders with this Warrant has not yet been exercised), this Warrant shall be deemed to represent the right to purchase a number of shares of Common Stock determined as if the Series B Preferred Stock had been converted at the "Maximum Price," as defined in the Certificate of Designation defining the rights and preferences of the Series B Preferred Stock. 13. Miscellaneous. (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Warrant may be amended only in writing signed by the Company and the Holder. (b) Subject to Section 13(a), above, nothing in this Warrant shall be construed to give to any person or corporation other than the Company and the Holder any legal or equitable right, remedy or cause under this Warrant; this Warrant shall be for the sole and exclusive benefit of the Company and the Holder. (c) This Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of Minnesota without regard to the principles of conflicts of law thereof. (d) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof. (e) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant. IN WITNESS WHEREOF, Global MAINTECH Corporation has caused this Warrant to be executed by its duly authorized officer and this Warrant to be dated as of ________ __, 1998. 7 GLOBAL MAINTECH CORPORATION By ________________________________ Its: ________________________________ 8 FORM OF ELECTION TO PURCHASE (To be executed by the Holder to exercise the right to purchase shares of Common Stock under the foregoing Warrant) To GLOBAL MAINTECH CORPORATION In accordance with the Warrant enclosed with this Form of Election to Purchase, the undersigned hereby irrevocably elects to purchase __________ shares of Common Stock, no par value per share, of Global MAINTECH Corporation and encloses herewith $_________________ in cash or certified or official bank check or checks, which sum represents the aggregate Exercise Price (as defined in the Warrant) for the number of shares of Common Stock to which this Form of Election to Purchase relates, together with any applicable taxes payable by the undersigned pursuant to the Warrant. The undersigned requests that certificates for the shares of Common Stock issuable upon this exercise be issued in the name of PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER ------------------------------------ - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- If the number of shares of Common Stock issuable upon this exercise shall not be all of the shares of Common Stock which the undersigned is entitled to purchase in accordance with the enclosed Warrant, the undersigned requests that a New Warrant (as defined in the Warrant) evidencing the right to purchase the shares of Common Stock not issuable pursuant to the exercise evidenced hereby be issued in the name of and delivered to: - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Dated: ______________________ Name of Holder: (Print)__________________________________ (By:)____________________________________ (Name:)__________________________________ (Title:)_________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) 9 FORM OF ASSIGNMENT (To be completed and signed only upon transfer of Warrant) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ____________________________ the right represented by the within Warrant to purchase ______ shares of Common Stock of Global MAINTECH Corporation to which the within Warrant relates and appoints ________________ attorney to transfer said right on the books of Global MAINTECH Corporation with full power of substitution in the premises. Dated: - ------------------- ----------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant) ----------------------------------- Address of Transferee ----------------------------------- ----------------------------------- 10 EXHIBIT E TO PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT REGISTRATION RIGHTS AGREEMENT ----------------------------- This Registration Rights Agreement is made and entered into as of the ____ day of _________, 1998, by and among Global MAINTECH Corporation, a Minnesota corporation (the "Company") and the Investors listed on Schedule A attached hereto (individually, an "Investor" and collectively, the "Investors"). RECITALS A. The Investors and the Company have entered into that certain Preferred Stock and Warrant Purchase Agreement, dated _________ __, 1998 (the "Purchase Agreement"). B. It is a condition to the transactions contemplated in the Purchase Agreement that the Company provide the registration and other rights provided herein and the parties hereto desire to provide for such rights on the terms and conditions contained herein. NOW, THEREFORE, in consideration of the premises and covenants contained herein, the parties hereto agree as follows: 1. Defined Terms. Unless otherwise noted, all capitalized terms used ------------- herein shall have the meanings afforded them in the Purchase Agreement and the Exhibits attached thereto. 2. Required Registration. Within 30 days of the date hereof (the "File --------------------- Date"), the Company shall file a Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), in accordance with the provisions of either Form SB-1, Form SB-2 or Form S-3, as required by the Securities and Exchange Commission (the "Commission") covering the resale of the shares of the Company's common stock (i) underlying the Preferred Stock, (ii) underlying the Warrants issued by the Company to Investors of even date herewith (collectively, the "Warrants"), and (iii) issuable by the Company in payment of the dividends on the shares of the Preferred Stock (the "Dividends") and will use its best efforts to have such Registration Statement become effective with the Commission as soon as possible thereafter, and in any event, by December 31, 1998. The shares of the Company's common stock underlying the Preferred Stock and the Warrants and issuable in payment of the Dividends is referred to herein as the "Registrable Stock." 3. Registration--General Provisions. In connection with the registration -------------------------------- of the Registrable Stock under the Securities Act, the Company will: (a) prepare and file with the Commission a registration statement with respect to such securities, within 30 days of the date hereof, and use its best efforts to cause such registration statement to become effective as soon as possible after the date it is filed and keep E-1 the prospectus which is a part of such Registration Statement current until the earlier of the date on which: (i) all such shares have been sold, or (ii) five years after the date it is declared effective by the Commission (the "Effectiveness Period"); (b) prepare and file with the Commission such amendments to such Registration Statement and supplements to the prospectus contained therein as may be necessary to keep such Registration Statement effective for the Effectiveness Period referred to in Section 3(a) above; (c) at the request of an Investor, provide such Investor's counsel (referred to herein as "Investor's Counsel") with reasonable opportunities to review and comment on, and otherwise participate in, the preparation of such Registration Statement; (d) furnish to the Investors participating in such registration and to the underwriters of the securities being registered, if any, such reasonable number of copies of the Registration Statement, preliminary prospectus, final prospectus and such other documents as the Investors and underwriters may reasonably request in order to facilitate the public offering of such securities; (e) use its diligent, good-faith efforts to register or qualify the securities covered by such Registration Statement under such state securities or blue sky laws of such jurisdictions as the Investors may reasonably request in writing within 30 days following the original filing of such Registration Statement, except that the Company shall not for any purpose be required to execute a general consent to service of process (which shall not include a "Uniform Consent to Service of Process" or other similar consent to service of process which relates only to actions or proceedings arising out of or in connection with the sale of securities, or out of a violation of the laws of the jurisdiction requesting such consent) or to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified; (f) notify the Investors, promptly after it shall receive notice thereof, of the time when such Registration Statement has become effective or a supplement to any prospectus forming a part of such Registration Statement has been filed with the Commission; (g) notify the Investors promptly of any request by the Commission for the amending or supplementing of such Registration Statement or prospectus or for additional information; (h) prepare and file with the Commission, promptly upon the request of the Investors, any amendments or supplements to such Registration Statement or prospectus which, in the opinion of Investor's Counsel, if any (and concurred in by counsel for the Company), is required under the Securities Act or the rules and regulations promulgated thereunder in connection with the distribution of the shares of the Company's common stock by the Investors; (i) prepare and promptly file with the Commission and promptly notify the Investors of the filing of such amendment or supplement to such Registration Statement or E-2 prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such securities is required to be delivered under the Securities Act, any event shall have occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading; (j) advise the Investors, and the Investor's Counsel, if any, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; (k) not file any amendment or supplement to such Registration Statement or prospectus to which the Investors shall have reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or the rules and regulations promulgated thereunder, after having been furnished with a copy thereof at least five business days prior to the filing thereof, unless in the opinion of counsel for the Company the filing of such amendment or supplement is reasonably necessary to protect the Company from any liabilities under any applicable federal or state law and such filing will not violate applicable law; and (l) at the request of the Investors, furnish on the effective date of the Registration Statement and, if such registration includes an underwritten public offering, at the closing provided for in the underwriting agreement: (i) opinions, dated such respective dates, of the counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and to the Investors making such request, covering such matters as such underwriters or Investors may reasonably request, and (ii) letters, dated such respective dates, from the independent certified public accountants of the Company, addressed to the underwriters, if any, and to the Investors, covering such matters as such underwriters or Investors may reasonably request. (m) Notwithstanding the foregoing, following the effectiveness of such Registration Statement, the Company may, at any time, suspend the effectiveness of such Registration Statement for up to no longer than ninety (90) days, as appropriate (a "Suspension Period"), by giving notice to the Investors, if (i) the Company, with the advice of its counsel, shall have determined that the Company may be required to disclose any material corporate development or (ii) the Company shall be involved in an underwritten public offering of its securities. The Company will use its best efforts to minimize the length of any Suspension Period. Further, no more than one 90-day Suspension Period or multiple Suspension Periods which do not exceed 90 days in the aggregate may occur in any 12-month period and the Effectiveness Period referred to in Section 3(a) shall be extended by the number of days such registration is subject to any Suspension Period. Each Investor agrees that, upon receipt of any notice from the Company of a Suspension Period, it will not sell (subject to the limitations on the Company set forth above) any Registrable Stock pursuant to such Registration Statement until (i) E-3 such Investor is advised in writing by the Company that the use of the applicable prospectus may be resumed, (ii) such Investor has received copies of any additional or supplemental or amended prospectus, if applicable, and (iii) such Investor has received copies of any additional or supplemental filings which are incorporated or deemed to be incorporated by reference in such prospectus. 4. Registration Expenses. The Company shall pay all Registration --------------------- Expenses (as defined below) in connection with the inclusion of shares of the Company's common stock in any Registration Statement, or application to register or qualify such shares under state securities laws, filed by the Company hereunder, other than as set forth herein. For purposes of this Agreement, the term "Registration Expenses" means the filing fees payable to the Commission, any state agency and the NASD; the fees and expenses of the Company's legal counsel and independent certified public accountants in connection with the preparation and filing of the Registration Statement (and all amendments and supplements thereto) with the Commission; and all expenses relating to the printing of the Registration Statement, prospectuses and various agreements executed in connection with the Registration Statement. Notwithstanding the foregoing, the Investors will pay the fees and expenses of any legal counsel the Investors may engage, as well as the Investors' proportionate share of any custodian fees or commission or discounts or transfer taxes which may be payable to any underwriter and any other expenses incurred by the Investors not expressly included herein. 5. Penalty Payments. In the event that the Registration Statement ---------------- relating to the resale of the Registrable Stock is not (i) filed with the Commission by the Company on or before the File Date and/or the Company has not exercised its best efforts to facilitate the Registration Statement being declared effective within 90 days of the date hereof, or (ii) declared effective by the Commission by December 31, 1998, then, the Company shall pay the Investors the following amounts ("Penalty Payments"): (i) 1% of the purchase price of the Preferred Stock and Warrants (the "Purchase Price") paid by the Investors to the Company for the first 30-day period in which the Company is not in compliance with any of the above provisions; (ii) an additional 1% of the Purchase Price for the next 30-day period in which the Company is not in compliance with any of the above provisions; and (iii) 3% of the Purchase Price for each 30-day period thereafter in which the Registration Statement is not declared effective by the Commission. Penalties for failure to file and/or to obtain effectiveness shall be cumulative, but in no event shall the aggregate of all such Penalty Payments paid hereunder exceed 100% of the Purchase Price . The Company shall be liable to the Investor for a full 30-day period, determined in accordance with the above schedule, regardless of by how many days it misses one of the targeted filing or effective dates set forth above. All such Penalty Payments shall be immediately payable by the Company to the Investors (on a pro rata basis based on the number of shares of Preferred Stock purchased by each under the Purchase Agreement) via wire transfer or Company check by the close of business on last day of each respective period set forth above. 6. Indemnification. With respect to the registration of the resale of the --------------- shares of Registrable Stock: E-4 (a) to the extent permitted by law, the Company will indemnify and hold harmless each Investor, the trustees, partners, officers and directors of each Investor, any underwriter (as defined in the Securities Act) for such Investor and each person, if any, who controls such Investor or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation") by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by the Registration Statement; and the Company will reimburse each such Investor, trustee, partner, officer, director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished to it expressly for use in connection with such registration by an Investor, trustee, partner, officer, director, underwriter or controlling person of an Investor. (b) to the extent permitted by law, each Investor will indemnify and hold harmless the Company, each of its directors, each of its officers, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Investor selling securities under the Registration Statement or any of such other Investor's, trustees, partners, directors or officers or any person who controls such Investor, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Investor, or trustee, partner, director, officer or controlling person of such other Investor may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Investor and stated to be specifically for use in connection with such registration; and each such Investor will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Investor, or trustee, partner, officer, director or controlling person of such other Investor in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, E-5 however, that the indemnity agreement contained in this Section 6(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Investor, which consent shall not be unreasonably withheld; provided further, that in no event shall any indemnity under this Section 6 exceed the gross proceeds from the offering received by such Investor unless the Violation is the result of fraud on the part of such Investor. (c) promptly after receipt by an indemnified party under this Section of notice of the commencement of any action (including any governmental action), such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party under this Section, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the reasonable fees and expenses to be paid by the indemnifying party; and provided further, that if there is more than one indemnified party, the indemnifying party shall pay for the reasonable fees and expenses of one counsel for any and all indemnified parties to be mutually agreed upon by such indemnified parties, unless representation of an indemnified party by the counsel retained by the other indemnified parties would be inappropriate due to actual or potential differing interests between such indemnified parties. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party other than under this Section. (d) if the indemnification provided for in this Section is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11 of the Securities Act) shall be entitled to contribution from any person or entity who shall not have been guilty of such fraudulent misrepresentation. E-6 (e) the obligation of the Company and the Investors under this Section shall survive the completion of any offering for resale of shares of the Registrable Stock in the Registration Statement, and otherwise. 7. Limitation on Subsequent Registration Rights. From and after the date -------------------------------------------- of this Agreement and until all the Securities have been registered under the Securities Act or become eligible for transfer under Rule 144(k) or similar rule under the Securities Act, the Company shall not, without the prior written consent of all of the Investors, enter into any agreement with any person or persons providing for the granting to such holder of registration rights pari passu or senior to those granted to Investors pursuant to this Agreement, or of registration rights which might cause a reduction in the number of shares includable by the Investors in any registration. 8. Miscellaneous. ------------- (a) The Company shall not hereafter enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Investors in this Agreement. (b) Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given or made unless the Company has obtained the written consent of the Investors. (c) All notices and other communications provided for or permitted hereunder shall be made by hand delivery, telex, facsimile, overnight courier or registered first-class mail: (i) if to an Investor, at the address set forth on Schedule A attached hereto; (ii) if to the Company, at the address set forth in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given: when delivered, if by hand, overnight courier or mail; when the appropriate answer back is received, if by telex; when transmission is confirmed by the sending unit, if by facsimile. (d) This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (e) The headings to this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (f) This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Minnesota without giving effect to the principles of conflicts of law thereof. E-7 (g) In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the Investors and the Company shall be enforceable to the fullest extent permitted by law. (h) The remedies provided for in this Agreement shall be cumulative and in addition to all other remedies available, at law or in equity, 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. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date indicated above. GLOBAL MAINTECH CORPORATION By:______________________________ Its:______________________________ E-8 ENTITY INVESTOR INDIVIDUAL INVESTOR - --------------- ------------------- __________________________ __________________________________ Name of Entity Signature By _______________________ __________________________________ * Signature Signature of Joint Holder, if any Its ______________________ Title __________________________ __________________________________ Name Typed or Printed Name Typed or Printed E-9 EX-4.7 5 FORM OF CERTIFICATE SERIES B CONV PREFERRED STOCK EXHIBIT 4.7 PLEASE SEE RESTRICTIVE LEGENDS ON REVERSE SIDE HEREOF INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA NUMBER SHARES 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 B 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 so be sealed with the seal of the corporation this __________________ day of ______________________ , _____, _________________________________ ____________________________________ Secretary President The shares represented by this certificate have not been registered or qualified under the Securities Act of 1933, as amended, or any state securities laws. Such shares of stock may not be sold, transferred or otherwise disposed of without either (i) an opinion of counsel satisfactory to the corporation that such transfer may lawfully be made without registration or qualification under the federal Securities Act of 1933, as amended, and all applicable state securities laws; or (ii) such registration or qualification. 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. For Value Received _____________________ hereby sell, assign and transfer unto ______________________________________________________________________________ _______________________________________________________________________ Shares represented by the within Certificate, and do hereby irrevocably constitute and appoint ____________________________________________________________________ Attorney to transfer the said shares on the Books of the within named Corporation with full power of substitution in the premises. Dated ____________________, 19____ _______________________________ IN PRESENCE OF _____________________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. EX-4.8 6 FORM OF SERIES C CONV PREFERRED STOCK PURCHASE AGREEMENT Exhibit 4.8 SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT among the Investors listed on Schedule A and Settondown Capital International Ltd. and Global Maintech Corporation March 24, 1999 THE GOLDSTEIN LAW GROUP, P.C. 65 Broadway, 10/th/ Floor New York, N.Y. 10006 Telephone: (212) 809-4220 Facsimile: (212) 809-4228 SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT ------------------------------------------------------- THIS SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of March 24, 1999 (the "Agreement"), among the entities listed on Schedule A attached hereto (collectively referred to as the "Investors"), SETTONDOWN CAPITAL INTERNATIONAL LTD. a corporation organized under the laws of Bahamas, located at Charlotte House, Charlotte Street, P.O. Box N. 9204, Nassau, Bahamas, (the "Placement Agent"), 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 the Investors, and the Investors shall purchase up to (a) 1,600 shares of Preferred Stock (as defined below), and (b) Warrants to purchase up to 100,000 Warrant Shares; and WHEREAS, the Company shall issue to the Placement Agent (in addition to the fees set forth in Section 12.7 below), in return for services rendered, an aggregate of 75 shares of Preferred Stock, and a Warrant to purchase an aggregate of 100,000 Warrant Shares; 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 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 and 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 the following: (i) 200% of the Underlying Shares (as of the date the Registration Statement is filed) and 100% of the Warrant Shares, and (ii) 200% of that number of Underlying Shares (as of the date the Registration Statement is filed), and 100% of that number of Warrant Shares issued to the Placement Agent as set forth in Section 12.7 below. Section 1.12 "Escrow Agent" shall mean the law firm of The Goldstein Law Group, P.C., 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. 2 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 C 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 $1,600,000. Section 1.23 "Registrable Securities" shall mean the Underlying Shares, the Additional Shares, 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 sold under circumstances under which all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act ("Rule 144") are met, (iii) which have not been otherwise transferred to holders who may trade such shares without restriction under the Securities Act, or (iv) the sales of which, in the opinion of counsel to the Company, are subject to any time, volume or manner limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities Act. 3 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, the Placement Agent, and the Investors on the Subscription Date annexed hereto as Exhibit C. Section 1.25 "Registration Statement" shall mean a registration statement on Form S-3 or such other appropriate registration statement, for the registration of the resale by the Investors and the Placement Agent 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 Underlying Shares, the Additional Shares, 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 and Warrants shall have been fulfilled. Section 1.33 "Trading Day" shall mean any day during which the Principal Market shall be open for business. 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 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. 4 ARTICLE II ---------- Purchase and Sale of the Preferred Stock and Warrants ----------------------------------------------------- Section 2.1 Closing. On the Closing Date, the Company will sell, and the Investors will buy, and 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) an aggregate of up to 1,600 shares of Preferred Stock based on U.S.$1,000 per share, and Warrants to purchase that number of Warrant Shares as set forth in Section 2.4 below for the Purchase Price. 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, against delivery of the original Preferred Stock and Warrants. The parties have entered into an Escrow Agreement annexed hereto as Exhibit B. Section 2.3 [Intentionally Omitted] Section 2.4 Warrants. The Company will issue to the Investors (pro rata in proportion to the number of shares of Preferred Stock purchased) on the Closing Date Warrants exercisable beginning on the Closing Date and then exercisable any time over the five year period there following, to purchase an aggregate of up to 100,000 Warrant Shares per $1,600,000 funded to the Company pursuant to the terms hereunder (pro rata amongst the Investors based upon each Investor's portion of the Purchase Price). On the Subscription Date the Company shall issue to the Placement Agent a Warrant to purchase up to 100,000 Warrant Shares exercisable beginning on the Closing Date and then exercisable any time over the five year period there following. The Warrants shall be delivered by the Company to the Escrow Agent, and delivered to the Investors and Placement Agent pursuant to the terms of this Agreement and the Escrow Agreement. All of the aforementioned Warrant Shares shall be registered for resale pursuant to the Registration Rights Agreement. 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 and/or the Placement Agent 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 and/or the Placement Agent 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 and/or the Placement Agent during such "blackout period" that were not otherwise freely tradable during such Blackout Period. Section 2.6 Liquidated Damages. In addition to any other provisions for liquidated 5 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) and/or the Placement Agent 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 thereafter for the first ten days, 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 thereafter that the unlegended shares of Common Stock are not delivered, which liquidated damages shall accrue from the fourth Business Day after the Receipt Date. 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) and/or the Placement Agent as set forth in Article VIII below within six 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. (a) Conditions to the Company's Obligation to Sell. Each of the Investors understands that the Company's obligation to sell the Preferred Stock and Warrants is subject to the satisfaction (or written waiver) on the Closing Date, of each of the following conditions: 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; 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); all representations and warranties of the Investors contained herein shall remain true and correct in all material respects as of the Closing Date; (b) Conditions to Investors' Obligation to Purchase. The Company understands that the Investors' obligation to purchase the Preferred Stock, and Warrant is subject to the satisfaction 6 (or written waiver) on the Closing Date, of each of the following conditions: 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; all representations and warranties of the Company contained herein shall remain true and correct in all material respects as of the Closing Date; the Company shall have obtained all permits and qualifications required by any state for the offer and sale of the Preferred Stock and the Warrants, or shall have the availability of exemptions therefrom; the sale and issuance of the Preferred Stock, and the proposed issuance of the Additional Shares, Underlying Shares, Warrants and 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; delivery of the original Preferred Stock and 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. 7 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 Preferred Stock and 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 is a valid and binding agreement 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. This Agreement has been duly executed and delivered by 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 the Investors in accordance with its terms. 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 Absence of Conflicts. The execution and delivery of this Agreement and any 8 other document or instrument executed in connection herewith, and the consummation of the transactions contemplated hereby and thereby, and compliance with the requirements thereof, will not violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on Investors, or, to the Investors knowledge, (a) violate any provision of any indenture, instrument or agreement to which any of the Investors are a party or are subject, or by which any of the Investors or any of their assets is bound; (b) conflict with or constitute a material default thereunder; (c) result in the creation or imposition of any lien pursuant to the terms of any such indenture, instrument or agreement, or constitute a breach of any fiduciary duty owed by Investors to any third party; or (d) require the approval of any third-party (which has not been obtained) pursuant to any material contract, agreement, instrument, relationship or legal obligation to which any of the Investors is subject or to which any of their assets, operations or management may be subject. 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, 1997, Form 10-QSB's, and Form 8-K's filed for the twelve months prior to the Subscription Date. 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 Securities. Section 3.9 Registration or Exemption Requirements. Each of the Investors acknowledge and understand that the limited private offering and sale of Preferred Stock and 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 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 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 and 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 and Warrants. Section 3.11 No Violation. Each of the Investors, and the Placement Agent (including all 9 affiliates) agree 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, and the Placement Agent further agree 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. ARTICLE IV ---------- Representations and Warranties of the Company --------------------------------------------- The Company represents and warrants to the Investors and the Placement Agent 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, Warrants, Underlying Shares, Additional Shares, and the Warrant Shares, (ii) the execution, issuance and delivery 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 aforementioned 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 and/or the Placement Agent; 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 securities hereunder will not give rise to any preemptive right or right of first refusal or right of participation on behalf of any person. 10 Section 4.3 Capitalization. As of March 8, 1998, the authorized capital stock of the Company consists of 50,000,000 shares, no par value, of which 887,980 shares are designated as Series A Convertible Preferred Stock (the "Series A Stock"), 615,385 shares are designated as Series B Convertible Preferred Stock (the "Series B Stock") and 48,496,635 shares are divisible into such other classes and series as the Board of Directors may from time to time designate. As of March 8, 1998, there were 18,542,091 shares of Common Stock issued and outstanding; 129,176 shares of Series A Stock issued and outstanding; and 335,961 shares of Series B 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, 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 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. 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 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 11 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, Underlying Shares, Warrants, Warrant Shares, and Additional Shares, will be duly and validly issued, fully paid, and nonassessable. Neither the issuance of the Preferred Stock, Underlying Shares, Warrants, Warrant Shares, or 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, Preferred Stock, Warrant Shares, Additional Shares, or 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, Additional Shares, Underlying Shares, Warrants, or Warrant Shares, or (ii) has made any offers or sales of any security or solicited any offers to buy any security under any circumstances that would require registration of the Preferred Stock, Additional Shares, Underlying Shares, Warrants, or 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, Underlying Shares, Warrants, Warrant Shares, and 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 12 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, or 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 January 1, 1998, 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 January 1, 1998, and 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 January 1, 1998, 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 and 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, and except for the Company's proposed transaction with Breece Hill Technologies, Inc. Section 4.14 Litigation and Other Proceedings. Except as may be set forth in the SEC Documents, 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, 13 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 and 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 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 Additional Shares in accordance with the terms herein, Underlying Shares in accordance with the Certificate of Designation, and Warrant Shares in accordance with the Warrants is unconditional and absolute regardless of the effect of any such dilution. 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 notice 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. 14 Section 4.21 Integration. Except in connection with the Company's transaction with Breece Hill Technologies, Inc., 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 and Warrants in a manner that would require the registration under the Securities Act of the issue, offer or sale of the Preferred Stock and Warrants to the Investors. The Preferred Stock and 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 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 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 Underlying Shares, the Additional Shares, the Warrants, or the Warrant Shares. Section 4.26 No Brokers. Except for its arrangement with the 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. 15 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, 1998 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, 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 16 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 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 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 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) 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 and the Placement Agent 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, Preferred Stock and/or Warrants are owned by the Investors and/or Placement Agent. In addition, if at any time the number of shares of Common Stock issuable on conversion of all then outstanding shares of Preferred Stock, on account of accrued and unpaid dividends thereon and upon exercise in full of the Warrants 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, and (y) the number of Warrant Shares as would be issuable upon exercise in full of the Warrants. 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 17 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 the Placement Agent 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 said Act. 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 and the Placement Agent 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 make available to the Investors and the Placement Agent any such supplement or amendment to the related prospectus. 18 Section 6.8 Consolidation; Merger. For so long as the Preferred Stock, Warrants, and/or Registrable Securities are owned by any Investor and/or the Placement Agent, 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 and the Placement Agent such shares of stock and/or securities as the Investors and the Placement Agent are entitled to receive pursuant to this Agreement. Section 6.9 Issuance of Underlying Shares and Warrant Shares. The issuance of the Underlying Shares and the Warrant Shares pursuant to exercise of the Warrants, and the conversion of the Preferred Stock, shall be made in accordance 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 and the Placement Agent, 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 and the Placement Agent 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 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 and the Placement Agent 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 with 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 pay to the Investors and the Placement Agent the Redemption Price (as defined in the Certificate of Designation) for 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 19 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 any of the Company's securities for a total consideration of less than $5,000,000; 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. Section 6.13 Conversion of Preferred Stock. The Company will permit the Investors and the Placement Agent 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 and the Placement Agent to exercise their right to purchase shares of Common Stock upon exercise of the Warrants 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 the 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. 20 Section 6.17 Notice of Breaches. Each of the Company on the one hand, and the Investors on the other, shall give prompt written notice to the other 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 such party, as the case may be, contained in this Agreement or any Exhibit annexed hereto, to be incorrect or breached as of such Closing Date. However, no disclosure by either party pursuant to this Section shall be deemed to cure any breach of any representation, warranty or other agreement contained in this Agreement or any Exhibit annexed hereto. Notwithstanding the generality of the foregoing, the Company shall promptly notify each Investor and the Placement Agent 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 and the Placement Agent 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, 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 Preferred Stock and 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 21 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. (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. 22 ARTICLE VIII ------------ Legends ------- Section 8.1 Legends. The Investors and the Placement Agent 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) on the securities: [FOR PREFERRED STOCK AND WARRANTS] NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] 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. [ONLY FOR 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 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 Warrants or other issuances of Underlying Shares, Additional Shares, and/or 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 23 provide the Investors, upon request, with a certificate or certificates representing 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 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 or the Placement Agent 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, Preferred Stock, Underlying Shares or 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) and/or the Placement Agent 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) and/or Placement Agent confirm to the transfer agent that the Investor(s) and/or Placement Agent 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) and/or the Placement Agent 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) and/or Placement Agent 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. 24 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. 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 and/or the Placement Agent, or any person claimed to be affiliated or associated with such Investor and/or the Placement Agent 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 the Placement Agent and/or those claimed to be affiliated or associated with such Investor and/or the Placement Agent 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 that indemnity for such fees and expenses is contrary to law, or that such Investor and/or the Placement Agent is not the prevailing party then in that event, such Investor and/or the Placement Agent and/or any other person having received such advances of fees and/or expenses shall reimburse the Company in full for the sums advanced. 25 ARTICLE X --------- Assignment; Entire Agreement, Amendment; Termination ---------------------------------------------------- Section 10.1 Assignment. The Investor's interest in this Agreement and its ownership of Preferred Stock and Warrants may be assigned or transferred at any time, in whole or 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 Preferred Stock and/or 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; provided, however, that the provisions of Articles III, IV, V, VI, VII, VIII, IX, X, XI, and XII herein, and the registration rights provisions for the Registrable Securities held by the Investors and the Placement Agent set forth in this Agreement, and the Registration Rights Agreement, shall survive the termination of this Agreement. 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 26 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. If to the Placement Agent, at the address listed on the first page of this Agreement. with a copy to: The Goldstein Law Group, P.C. 65 Broadway, 10/th/ Floor New York, NY 10006 Attention: Scott H. Goldstein, Esq. Telephone: (212) 809-4220 Facsimile: (212) 809-4228 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. 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. 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 27 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. 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 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 28 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. 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 on the one hand, and all of the Investors, and the Placement Agent, on the other hand. 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 each 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. 29 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 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, Warrants, Underlying Shares, Additional Shares, or 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 (i) the sum of one percent of the Purchase Price, in cash, out of escrow, to The Goldstein Law Group, P.C. for legal, administrative, and escrow fees, and (ii) to the Placement Agent (A) the sum equal to five percent of the Purchase Price payable in cash out of escrow, (B) 75 shares of Preferred Stock, and (C) Warrants to purchase 100,000 Warrant Shares, for Placement Agent fees. Section 12.8 Noncircumvention. The Company and the Investors agree that they shall not circumvent this Agreement and the Company's obligation to pay fees to the Placement Agent, and the Company, the Investors and the Placement Agent 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 30 each Investor is acting individually and for its own account in purchasing the Preferred Stock and Warrants, with no agreement to act together for the purpose of acquiring, holding, voting or disposing of any equity securities or otherwise. SCHEDULES: - --------- A: List of Investors 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 G: Notice of Conversion [Remainder of page intentionally left blank] [Signature page follows] 31 IN WITNESS WHEREOF, the parties hereto have caused this Series C 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: ____________________________ James Geiser Chief Financial Officer and Secretary ESQUIRE TRADE & FINANCE INC. By:____________________________ Roland Winiger, Director AUSTINVEST ANSTALT BALZERS By: ____________________________ Dr. Walter Grill, Director HEADWATERS CAPITAL, a California General Partnership By: ____________________________ NESHER INC. By: ____________________________ SETTONDOWN CAPITAL INTER- -NATIONAL LTD., Placement Agent By: _____________________________ SCHEDULE A ---------- 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 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 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 4. Headwaters Capital 220 Montgomery Street, Suite 500 San Francisco, CA 94101 Phone: (415) 397-5041 Attention: Timothy J. Keating Facsimile: (415) 398-8204 Initial Investment Amount: $500,000 No. of Shares of Preferred Stock: 500 EXHIBIT C FORM OF REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated the 24/th/ day of March, 1999, between the entities listed on Schedule A attached hereto (referred to as a the "Investors"), SETTONDOWN CAPITAL INTERNATIONAL LTD. ") a corporation organized under the laws of Bahamas, located at Charlotte House, Charlotte Street, P.O. Box N. 9204, Nassau, Bahamas, (the "Placement Agent", and together with the Investors is also hereinafter referred to as the "Holder" or "Holders") and GLOBAL MAINTECH CORPORATION, a corporation incorporated under the laws of the State of Minnesota, and having its principle place of business at 7578 Market Place Drive, Eden Prairie, MN 55344 (the "Company"). WHEREAS, simultaneously with the execution and delivery of this Agreement, the Investors are purchasing from the Company, pursuant to the Series C Convertible Preferred Stock Purchase Agreement dated the date hereof (the "Purchase Agreement"), shares of Preferred Stock and Warrants (hereinafter collectively referred to as the "Securities" of the Company); All capitalized terms not hereinafter defined shall have that meaning assigned to them in the Purchase Agreement; and WHEREAS, simultaneously with the execution and delivery of this Agreement, the Company shall issue Securities to the Placement Agent, in return for services rendered, as provided in the Purchase Agreement; and WHEREAS, the Company desires to grant to the Holders the registration rights set forth herein with respect to the securities set forth in the Purchase Agreement. NOW, THEREFORE, the parties hereto mutually agree as follows: Section 1. Registrable Securities. As used herein the term "Registrable Security" means the Underlying Shares, the Additional Shares, and the Warrant Shares; provided, however, that with respect to any particular Registrable Security, such security shall cease to be a Registrable Security when, as of the date of determination, (i) it has been effectively registered under the Securities Act of 1933, as amended (the "1933 Act") and disposed of pursuant thereto, (ii) registration under the 1933 Act is no longer required for the immediate public distribution of such security as a result of the provisions of Rule 144 promulgated under the 1933 Act, or (iii) it has ceased to be outstanding. The term "Registrable Securities" means any and/or all of the securities falling within the foregoing definition of a Registrable Security. In the event of any merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the Common Stock, such adjustment shall be made in the definition of Registrable Security as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this Section. 2 Section 2. Restrictions on Transfer. The Holders acknowledge and understand that prior to the registration of the Registrable Securities as provided herein, the Registrable Securities and the Securities are "restricted securities" as defined in Rule 144 promulgated under the Act. The Holders understand that no disposition or transfer of the Registrable Securities or the Securities may be made by the Holders in the absence of (i) an opinion of counsel to the Holders that such transfer may be made without registration under the 1933 Act or (ii) such registration. Section 3. Registration Rights. (a) The Company agrees that it will prepare and file with the Securities and Exchange Commission ("SEC"), as soon as possible after the Closing Date but not later than 90 calendar days after the Closing Date, a registration statement under the 1933 Act (the "Registration Statement"), at the sole expense of the Company (except as provided in Section 3(c) hereof), in respect of all holders of Registrable Securities, so as to permit a public offering and sale of the Registrable Securities under the Act. The Company shall use its best efforts to cause the Registration Statement to become effective within 120 calendar days from the Closing Date. The number of shares of Common Stock designated in the Registration Statement to be registered shall be (i) 200% of the number of Underlying Shares that would be required if the Preferred Stock were converted on the Trading Day immediately preceding the filing of the Registration Statement, plus (ii) 100% of the number of Warrant Shares. In the event the number of shares of Common Stock included in the registration Statement shall be insufficient to cover the number of Registrable Securities due to the Holders via conversion and/or exercise the Company agrees that it shall file either a new Registration Statement including such additional shares or amend the then existing Registration Statement. The Company agrees that it such event it will file with the SEC either an amendment to the then existing registration Statement or a new Registration Statement within 60 days of when required hereunder, and use its best efforts to cause either the amendment or such Registration Statement to become effective within 90 calendar days from when required. If such amendment or new Registration Statement is not filed and/or declared effective in a timely manner as set forth herein, the Company shall be subject to liquidated damages as pursuant to the provisions of Section 3(e) below. (b) The Company will maintain the Registration Statement, or post- effective amendment filed under this Section 3 hereof current under the 1933 Act until the earlier of (i) the date that all of the Registrable Securities have been sold pursuant to the applicable Registration Statement, (ii) the date the holders thereof receive an opinion of counsel that the Registrable Securities may be sold under the provisions of Rule 144, or other similar exemption (without volume limitation) or (iii) five years after the Closing Date. (c) All fees, disbursements and out-of-pocket expenses and costs incurred by the Company in connection with the preparation and filing of the Registration Statement under subparagraph 3(a) and in complying with applicable securities and blue sky laws (including, without 3 limitation, all attorneys' fees) shall be borne by the Company. The Holders shall bear the cost, pro rata, of underwriting discounts and commissions, if any, applicable to the Registrable Securities being registered and the fees and expenses of its counsel. The Company shall qualify any of the Registrable Securities for sale in such states as such Holder reasonably designates and shall furnish indemnification in the manner provided in Section 6 hereof. However, the Company shall not be required to qualify in any state which will require an escrow or other restriction relating to the Company and/or the sellers. The Company at its expense will supply the Holders with copies of the Registration Statement and the prospectus or offering circular included therein and other related documents in such quantities as may be reasonably requested by the Holders. (d) The Company shall not be required by this Section 3 to include a Holder's Registrable Securities in any Registration Statement which is to be filed if, in the opinion of counsel for both the Holder and the Company (or, should they not agree, in the opinion of another counsel experienced in securities law matters acceptable to counsel for the Holder and the Company) the proposed offering or other transfer as to which such registration is requested is exempt from applicable federal and state securities laws and would result in all purchasers or transferees obtaining securities which are not "restricted securities", as defined in Rule 144 under the 1933 Act. (e) In the event the Registration Statement to be filed by the Company pursuant to Section 3(a) above is not filed with the SEC on or before the 90/th/ calendar day after the Closing Date and/or the Registration Statement is not declared effective by the SEC within 120 calendar days from the Closing Date, then the Company will pay the Holders (pro rated on a daily basis), as liquidated damages for such failure and not as a penalty, two percent (2%) of the Purchase Price of the then outstanding shares of Preferred Stock for the first 30 calendar day period until the Registration Statement has been filed and/or declared effective and 3% of the Purchase Price of the then outstanding shares of Preferred Stock for each additional 30 day period thereafter until the Registration Statement is filed and/or declared effective. Such payment of the liquidated damages shall be made to the Holders in cash, immediately upon demand, provided, however, that the payment of such liquidated damages shall not relieve the Company from its obligations to register the Registrable Securities pursuant to this Section. Such demand must be made by the Holders within 90 calendar days after the date in which the Company becomes liable for liquidated damages. If the Company does not remit the damages to the Holders as set forth above, the Company will pay the Holders' reasonable costs of collection, including attorneys fees, in addition to the liquidated damages. The registration of the Registrable Securities pursuant to this provision shall not affect or limit a Holder's other rights or remedies as set forth in this Agreement. The aforementioned liquidated damages shall be limited to a maximum amount of 100% of the Purchase Price (as defined in the Purchase Agreement). (f) No provision contained herein shall preclude the Company from selling securities pursuant to any registration statement in which it is required to include Registrable Securities pursuant to this Section 3. (g) The Company agrees that within five calendar days after receipt of a 4 no review letter from the SEC it will take all appropriate measures necessary to cause the Registration Statement to be declared effective. The Company also agrees that it shall respond to any questions and/or comments from the SEC which relate to the Registration Statement within five Business Days of receipt of such question or comment. Section 4. Cooperation with Company. Each of the Holders will cooperate with the Company in all respects in connection with this Agreement, including timely supplying all information reasonably requested by the Company and executing and returning all documents reasonably requested in connection with the registration and sale of the Registrable Securities. Section 5. Registration Procedures. Whenever the Company is required by any of the provisions of this Agreement to effect the registration of any of the Registrable Securities under the Act, the Company shall (except as otherwise provided in this Agreement), as expeditiously as possible: (a) prepare and file with the SEC such amendments and supplements to the registration statements and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the Holder of such securities shall desire to sell or otherwise dispose of the same (including prospectus supplements with respect to the sales of securities from time to time in connection with a registration statement pursuant to Rule 415 promulgated under the Act); (b) furnish to each Holder such numbers of copies of a summary prospectus or other prospectus, including a preliminary prospectus or any amendment or supplement to any prospectus, in conformity with the requirements of the Act, and such other documents, as such Holder may reasonably request in order to facilitate the public sale or other disposition of the securities owned by such Holder; (c) register and qualify the securities covered by the Registration Statement under such other securities or blue sky laws of such jurisdictions as the Holders shall reasonably request, and do any and all other acts and things which may be necessary or advisable to enable each Holder to consummate the public sale or other disposition in such jurisdiction of the securities owned by such Holder, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or to file therein any general consent to service of process; (d) list such securities on the NASD OTC Electronic Bulletin Board or other national securities exchange on which any securities of the Company are then listed, if the listing of such securities is then permitted under the rules of such market or exchange; (e) enter into and perform its obligations under an underwriting agreement, if the offering is an underwritten offering, in usual and customary form, with the 5 managing underwriter or underwriters of such underwritten offering; (f) notify each Holder of Registrable Securities covered by the Registration Statement any time when a prospectus relating thereto covered by the Registration Statement is required to be delivered under the Act, of the happening of any event of which it has knowledge as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. Section 6. Information by Holder. Each Holder of Registrable Securities included in any registration statement shall furnished to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section. Section 7. Assignment. The rights granted the Holders under this Agreement shall not be assigned without the written consent of the Company, which consent shall not be unreasonably withheld. This Agreement is binding upon and inures to the benefit of the parties hereto and their respective heirs, successors and permitted assigns. Section 8. Termination of Registration Rights. The rights granted pursuant to this Agreement shall terminate as to each Holder (and permitted transferee under Section 7 above) upon the occurrence of any of the following: (a) all such Holder's securities subject to this Agreement have been registered; (b) all of such Holder's securities subject to this Agreement may be sold without such registration pursuant to Rule 144 without volume limitation promulgated by the SEC pursuant to the Securities Act; (c) all of such Holder's securities subject to this Agreement can be sold pursuant to Rule 144(k) without volume limitation; or five years from the issuance of the Registrable Securities. Section 9. Indemnification. (a) In the event of the filing of any Registration Statement with respect to Registrable Securities pursuant to Section 3 hereof, the Company agrees to indemnify and hold harmless the Holders and each officer, and/or director of each of the Holders, and each person, if any, who controls the Holders within the meaning of the Securities Act ("Distributing Holders") 6 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 Distributing Holders may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any such Registration Statement or any related preliminary prospectus, final prospectus, offering circular, notification or amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Statement, preliminary prospectus, final prospectus, offering circular, notification or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by the Distributing Holders, specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Distributing Holder 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 any untrue statement or alleged untrue statement of any material fact contained in a Registration Statement, requested by such Distributing Holder, or any related preliminary prospectus, final prospectus, offering circular, notification or amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in such Registration Statement, preliminary prospectus, final prospectus, offering circular, notification or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by such Distributing Holder, specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which the Distributing Holders may otherwise have. (c) 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 7 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 the Distributing Holder, 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 indemnifying party, or (ii) the named parties to any such action (including any impleaded parties) include both the Distributing Holder and the indemnifying party and the Distributing Holder 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 Distributing Holder (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the Distributing Holder, 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 Distributing Holder, which firm shall be designated in writing by the Distributing Holder). 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 10. Contribution. In order to provide for just and equitable contribution under the Securities Act in any case in which (i) the Distributing Holder makes a claim for indemnification pursuant to Section 9 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 9 hereof provide for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any Distributing Holder, then the Company and the applicable Distributing Holder 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 relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the applicable Distributing Holder, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Distributing Holder agree that it would not be just and 8 equitable if contribution pursuant to this Section were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section. 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 this Section 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 contribution from any person who was not guilty of such fraudulent misrepresentation. Section 11. Notices. Any notice pursuant to this Agreement by the Company or by the Holder shall be in writing and shall be deemed to have been duly given if delivered by (i) 9 hand, (ii) by facsimile and followed by mail delivery or (iii) if mailed by certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If to the Company: Global Maintech Corporation 7578 Market Place Drive Eden Prairie, MN 55344 Attention: CEO Facsimile: (612) 944-3311 Telephone: (612) 944-0400 (b) If to the Placement Agent: Settondown Capital International Ltd. Charlotte House, Charlotte Street P.O. Box N. 9204 Nassau, Bahamas Attention: Anthony L. M. Inder Riden Telephone: (242) 325-1033 Facsimile: (242) 323-7918 (c) If to the Investors, to their address set forth on Schedule A annexed to the Purchase Agreement. Notices shall be deemed given at the time they are delivered personally or five calendar days after they are mailed in the manner set forth above. If notice is delivered by facsimile to the Company and followed by mail, delivery shall be deemed given two calendar days after such facsimile is sent. Section 12. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 13. Headings. The headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 14. Choice of Law; Venue; Jurisdiction. This Agreement will be construed and enforced in accordance with and governed by the laws of the State of New York, except for matters arising under 10 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. Section 15. Severability. If any provision of this Agreement shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof and this Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. 11 IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed, on the day and year first above written. GLOBAL MAINTECH CORPORATION By:____________________________ Name: James Geiser Title: Chief Financial Officer and Secretary ESQUIRE TRADE & FINANCE INC. By:____________________________ Roland Winiger, Director AUSTINVEST ANSTALT BALZERS By: ____________________________ Dr. Walter Grill, Director HEADWATERS CAPITAL, a California General Partnership By: ____________________________ NESHER INC. By: ____________________________ SETTONDOWN CAPITAL INTER- NATIONAL LTD., Placement Agent By: _____________________________ EXHIBIT D THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. FORM OF COMMON STOCK PURCHASE WARRANT No. __ To Purchase ______ Shares of Common Stock of GLOBAL MAINTECH CORPORATION THIS CERTIFIES that, for value received, ___________________ (the "Investor"), is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after the date hereof and on or prior to ____________ (the "Termination Date") but not thereafter, to subscribe for and purchase from GLOBAL MAINTECH CORPORATION, a Minnesota corporation (the "Company"), ( ) shares of Common Stock (the "Warrant Shares"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be _____ (which shall be equal to 110% of the closing bid price of the Common Stock on the Principal Market, on the Trading Day immediately preceding the Subscription Date, as defined in the Series C Convertible Preferred Stock Purchase Agreement). The Exercise Price and the number of shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. This Warrant is being issued in connection with the Series C Convertible Preferred Stock Purchase Agreement dated March , 1999 (the "Agreement") entered into between the Company, the Investor and other entities not a party to this Warrant. In the event of any conflict between the terms of this Warrant and the Agreement, the Agreement shall control. 1. Title of Warrant. Prior to the expiration hereof and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. 2. Authorization of Shares. The Company covenants that all shares of Common Stock which may be issued upon the exercise of rights represented by this Warrant will, upon exercise of the rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). 3. Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made at any time or times, in whole or in part, before the close of business on the Termination Date, or such earlier date on which this Warrant may terminate as provided in paragraph 11 below, by the surrender of this Warrant and the Subscription Form annexed hereto duly executed, to the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company) and upon payment of the Exercise Price of the shares thereby purchased; whereupon the holder of this Warrant shall be entitled to receive a certificate for the number of shares of Common Stock so purchased. Certificates for shares purchased hereunder shall be delivered to the holder hereof within three Business Days after the date on which this Warrant shall have been exercised as aforesaid. Payment of the Exercise Price of the shares may be by certified check or cashier's check or by wire transfer (of same day funds) to the Company in an amount equal to the Exercise Price multiplied by the number of shares being purchased. 4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of issuing fractional shares, the Company shall round up to the nearest whole share the number of Warrant Shares due upon exercise of this Warrant. 5. Charges, Taxes and Expenses. Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the holder of this Warrant or in such name or names as may be directed by the holder of this Warrant; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the holder hereof; and provided further, that upon any transfer involved in the issuance or delivery of any certificates for shares of Common Stock, the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. 6. Closing of Books. The Company will at no time close its shareholder books or records in any manner which interferes with the timely exercise of this Warrant. 7. No Rights as Shareholder until Exercise. This Warrant does not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise thereof. If, however, at the time of the surrender of this Warrant and purchase the holder hereof shall be entitled to exercise this Warrant, the shares so purchased shall be and be deemed to 2 be issued to such holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been exercised. 8. Assignment and Transfer of Warrant. This Warrant may be assigned by the surrender of this Warrant and the Assignment Form annexed hereto duly executed at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company); provided, however, that this Warrant may not be resold or otherwise transferred except (i) in a transaction registered under the Securities Act, or (ii) in a transaction pursuant to an exemption, if available, from such registration and whereby, if requested by the Company, an opinion of counsel reasonably satisfactory to the Company is obtained by the holder of this Warrant to the effect that the transaction is so exempt. 9. Loss, Theft, Destruction or Mutilation of Warrant. The Company represents and warrants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant or stock certificate, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of this Warrant or stock certificate. 10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday. 11. Effect of Certain Events. If at any time the Company proposes (i) to sell or otherwise convey all or substantially all of its assets or (ii) to effect a transaction (by merger or otherwise) in which more than 50% of the voting power of the Company is disposed of (collectively, a "Sale or Merger Transaction"), in which the consideration to be received by the Company or its shareholders consists solely of cash, and in case the Company shall at any time effect a Sale or Merger Transaction in which the consideration to be received by the Company or its shareholders consists in part of consideration other than cash, the holder of this Warrant shall have the right thereafter to purchase, by exercise of this Warrant and payment of the aggregate Exercise Price in effect immediately prior to such action, the kind and amount of shares and other securities and property which it would have owned or have been entitled to receive after the happening of such transaction had this Warrant been exercised immediately prior thereto. 12. Adjustments of Exercise Price and Number of Warrant Shares. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) declare or pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) 3 subdivide its outstanding shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the holder of this Warrant shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which he would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. 13. Voluntary Adjustment by the Company. The Company may at its option, at any time during the term of this Warrant, reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. 14. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall promptly mail by registered or certified mail, return receipt requested, to the holder of this Warrant notice of such adjustment or adjustments setting forth the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth computation by which such adjustment was made. Such notice, in absence of manifest error, shall be conclusive evidence of the correctness of such adjustment. 15. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of the Company's Common Stock upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the domestic securities exchange or market upon which the Common Stock may be listed. 16. 4.99% Limitation. The number of shares of Common Stock which may be acquired by the Investor 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 the Investor, would result in the Investor owning more than 4.99% of the then issued and outstanding Common Stock at any one time. The preceding shall not interfere with the Investor's right to this Warrant over time which in the aggregate totals more than 4.99% of the then outstanding shares of Common Stock so long as the Investor does not own more than 4.99% of the then outstanding Common Stock at any given time. 4 17. Miscellaneous. (a) Issue Date; Choice of Law; Venue; Jurisdiction. The provisions of this Warrant shall be construed and shall be given effect in all respects as if it had been issued and delivered by the Company on the date hereof. This Warrant shall be binding upon any successors or assigns of the Company. This Warrant will be construed and enforced in accordance with and governed 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. The parties consent to the exclusive jurisdiction of the U.S. District Court sitting in the Southern District of the State of New York in connection with any dispute arising under this Warrant 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 the other party to this Warrant 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 Warrant 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. (b) Restrictions. The holder hereof acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered (or if no exemption from registration exists), will have restrictions upon resale imposed by state and federal securities laws. Each certificate representing the Warrant Shares issued to the Holder upon exercise (if not registered or if no exemption from registration exists) will bear the following legend: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION". (c) Modification and Waiver. This Warrant and any provisions hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 5 (d) Notices. Any notice, request or other document required or permitted to be given or delivered to the holders hereof of the Company shall be delivered or shall be sent by certified or registered mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address set forth in the Agreement. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: GLOBAL MAINTECH CORPORATION By: ______________________________ Name: Title: NOTICE OF EXERCISE ------------------ To: GLOBAL MAINTECH CORPORATION (1) The undersigned hereby elects to purchase ________ shares of Common Stock of GLOBAL MAINTECH CORPORATION pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price in full, together with all applicable transfer taxes, if any. (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: _______________________________ (Name) _______________________________ (Address) _______________________________ Dated: ______________________________ Signature ASSIGNMENT FORM (To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to _______________________________________________ whose address is _______________________________________________________________. _______________________________________________________________ Dated: ______________, Holder's Signature: _____________________________ Holder's Address: _____________________________ _____________________________ Signature Guaranteed: ___________________________________________ NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in an fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. EX-4.9 7 FORM OF CERTIFICATE SERIES C CONV PREFERRED STOCK EXHIBIT 4.9 PLEASE SEE RESTRICTIVE LEGENDS ON REVERSE SIDE HEREOF INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA NUMBER SHARES 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 C 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 so be sealed with the seal of the corporation this __________________ day of ______________________ , _____, _________________________________ ____________________________________ Secretary President The shares represented by this certificate have not been registered or qualified under the Securities Act of 1933, as amended, or any state securities laws. Such shares of stock may not be sold, transferred or otherwise disposed of without either (i) an opinion of counsel satisfactory to the corporation that such transfer may lawfully be made without registration or qualification under the federal Securities Act of 1933, as amended, and all applicable state securities laws; or (ii) such registration or qualification. 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. For Value Received _____________________ hereby sell, assign and transfer unto ______________________________________________________________________________ _______________________________________________________________________ Shares represented by the within Certificate, and do hereby irrevocably constitute and appoint ____________________________________________________________________ Attorney to transfer the said shares on the Books of the within named Corporation with full power of substitution in the premises. Dated ____________________, 19____ _______________________________ IN PRESENCE OF _____________________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. EX-23 8 CONSENT OF KPMG PEAT MARWICK LLP EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors Global MAINTECH Corporation: We consent to incorporation by reference in the registration statement (No. 33-33576) on Form S-8 of Global MAINTECH Corporation of our report dated March 29, 1999, relating to the 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, which report appears in the December 31, 1998 annual report on Form 10-KSB of Global MAINTECH Corporation. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Minneapolis, Minnesota March 31,1999 EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR YEAR DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 DEC-31-1998 DEC-31-1997 664 1,727 0 0 2,596 618 300 15 996 797 4,057 3,566 1,042 308 0 0 9,133 5,863 1,990 683 1,700 1,900 0 0 2,244 114 7,068 5,001 (3,869) (1,835) 9,133 5,863 6,209 3,003 6,209 3,003 2,323 762 5,705 1,969 (103) (70) 0 0 286 183 (2,003) 158 0 0 (2,003) 158 0 70 0 0 0 0 (2,003) 228 (0.11) 0.014 (0.11) 0.012
EX-99 10 CAUTIONARY STATEMENT Exhibit 99 CAUTIONARY STATEMENT The Company, or persons acting on behalf of the Company, or outside reviewers retained by the Company making statements on behalf of the Company, or underwriters, from time to time, may make, in writing or orally, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in conjunction with an identified forward-looking statement, this Cautionary Statement is for the purpose of qualifying for the "safe harbor" provisions of such sections and is intended to be a readily available written document that contains factors which could cause results to differ materially from such forward-looking statements. These factors are in addition to any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statement. The following matters, among others, may have a material adverse effect on the business, financial condition, liquidity, results of operations or prospects, financial or otherwise, of the Company. Reference to this Cautionary Statement in the context of a forward-looking statement or statements shall be deemed to be a statement that any or more of the following factors may cause actual results to differ materially from those in such forward-looking statement or statements: Competition Our industry is characterized by rapidly evolving technology and intense competition. We know of several other competitors that have much greater resources and experience in research and development and marketing than we do. These companies may represent significant competition for us. However, none of these companies produces as complete an enterprise computing system as we do, but rather they only produce components that could be combined to form such a system. We believe that we have a competitive advantage because we can produce an integrated system. Nevertheless, we cannot predict whether our 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. New Product with Uncertain Demand Recently the Company revised aspects of the external control and monitoring systems to enhance its remote capabilities. Our VCC product provides customers with an economically feasible method of controlling and monitoring geographically dispersed computers and systems, particularly for systems that consist of many different locations with as few as one server per location, such as a retail organization. In such organizations, the local servers often upload data regarding product sales and inventory levels to a centralized data center. Our product allows the centralized data center to control these local servers (shutting down, starting-up, etc.) and operating systems for a price per server ranging from $3,000 to $8,000. 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. It is difficult to project the overall size of the future market for this product. We estimate that the current market size for internal systems is several billion dollars per year. 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 14 customers and we cannot assure you that additional customers will buy our products. Dependence on Limited Product Offerings and Customer Base We currently offer a limited number of products, primarily consisting of a base VCC unit and related software and accessories. Our existing customers are not required to buy additional hardware products or to renew their software license and maintenance agreements with us when such license and agreements expire. Therefore, a significant portion of our revenue is derived from non-recurring revenue sources. To succeed, we will need to develop a sustained demand for our current products and to develop and sell additional products. We cannot assure you that we will be successful in developing and maintaining demand or in developing and selling additional products. Product Under Development We are currently developing a set of software products that monitors networking and communication devices primarily for networks, Microsoft NT, midrange 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, we cannot assure you that they will do so or, even if they do, that the market will demand such products. Newly Acquired Businesses; Integration of Operations We purchased three new product lines during 1998. Effective November 1, 1998, we purchased substantially all of the assets of Enterprise Solutions, Inc., an Ohio corporation ("ESI"). As a result of this acquisition, we obtained substantially all of the assets and assumed certain liabilities of ESI, including a suite of software products that notify the proper person(s) by telephone, pager or the Internet of critical data center events. In addition, we obtained ESI's short-term consulting business, which assists companies to optimize their existing systems management and network management tools. Effective October 1, 1998, we purchased substantialy all of the assets of Asset Sentinel, Inc., a Minnesota Corporation ("ASI"). The primary assets acquired were a suite of software products that provide updated mapping of network, cable and telephone lines in buildings and computer centers. On February 27, 1998, we licensed certain software and purchased certain assets relating to the system software business of Infinite Graphics Incorporated, a Minnesota corporation ("IGI"). We will use 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. Although we believe we will be able to successfully integrate the employees we hired from IGI, ASI and ESI into our own workforce and that we will be able to market and sell the product lines purchased from ESI, ASI and IGI on a profitable basis for the next several years, we cannot assure you that this will happen. Fluctuations in Operating Results 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. For these reasons, the market price of our stock may be highly volatile. The price of our stock may also be affected by: the general state of the country's economy the conditions in the stock market the development of new products by us and our competitors public announcements by us or our competitors Future Capital Requirements; No Assurance Future Capital Will Be Available We expect that the proceeds of our recent equity and debt offerings will be enough to fund our operations through at least June 1999. Within the next 60 days, we expect to obtain an asset-based line of credit to finance our growth in receivables and to meet short-term working capital requirements. Thereafter, we may need additional funds to continue the marketing of our products and to meet our long-term growth needs. To meet our needs, we may have to obtain additional funding through public or private financings, including equity and debt financings. Any additional equity financings may be dilutive to our shareholders, and debt financing, if available, may have restrictive covenants. We are uncertain as to whether we will be able to obtain financing and, if we do, whether the financing will be available at reasonable rates and terms. Our business could be adversely affected if we do not secure such additional financing. Reliance on Key Personnel We rely heavily on three technicians, Jeff Jensen, Steve Vranyes and Norm Freedman, to further develop the VCC. In addition, we rely heavily on Trent Wong and Desmond DosSantos for technical or business development for products of Singlepoint Systems, Inc. Even though these five employees have incentive stock options and are subject to standard rules of confidentiality, we cannot guarantee that they will stay with the Company. If any of these individuals leave the Company, we would need to hire a comparable employee. We cannot assure you that we would be able to hire someone quickly and at an affordable salary. Intellectual Property 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. Although we have taken these precautions to protect our intellectual property rights, 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. We cannot assure you that the protection for our intellectual property rights is adequate or that our competitors will not 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. Based on these assurances and our relationships with our consultants and developers, we have no reason to believe that our products infringe on the proprietary rights of third parties. However, we have not commissioned an independent investigation to reaffirm the basis for our belief, and we cannot guarantee that our current or future products will infringe on their rights. We believe that developers of control systems increasingly may be subject to such claims as the number of products and competitors in the industry grows and the functionality of such products in the industry overlaps. Any such claim, with or without merit, could result in expensive litigation and could have a material adverse effect on our business. Lack of 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. We cannot assure you we could obtain insurance on commercially reasonable terms, or at all, or that even if we obtained insurance it would adequately cover a product liability claim. We are not aware of any pending or threatened product liability or other legal claim against us. Our business could be adversely affected if someone brings a product liability or other legal claim against us. Year 2000 Issue Many currently installed computer systems and software are coded to accept only two-digit entries in the date code fields. These date code fields will need to accept four-digit entries to distinguish 21st century dates from 20th century dates. This problem could result in system failures or miscalculations causing disruptions of business operations (including, among other things, a temporary inability to process transactions, send invoices or engage in other similar business activities). As a result, many companies' computer systems and software will need to be upgraded or replaced in order to comply with year 2000 requirements. The potential global impact of the year 2000 problem is not known, and, if not corrected in a timely manner, could affect the Company and the U.S. and world economies generally. Based on our assessments to date, we believe we will not experience any material disruption as a result of year 2000 problems with respect to our products and the third-party systems we use for our internal functions, and, in any event, we do not anticipate the year 2000 issues we will encounter will be significantly different than those encountered by other computer hardware and software manufacturers, including our competitors. For example, if certain critical third-party providers, such as those providers supplying electricity, water or telephone service, experience difficulties resulting in disruption of service to the Company, a shutdown of our operations at individual facilities could occur for the duration of the disruption. Assuming no major disruption in service from utility companies or other critical third-party providers, we believe that we will be able to manage our total year 2000 transition without any material effect on our results of operations or financial condition. For additional information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Year 2000 Issue." -----END PRIVACY-ENHANCED MESSAGE-----