<PAGE>
As filed with the Securities and Exchange Commission on March 3, 2000
Registration No. _________
================================================================================
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under the Securities Act of 1933
Global MAINTECH Corporation
(Name of registrant as specified in its charter)
Minnesota 3571 41-1523657
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
7578 Market Place Drive
Eden Prairie, Minnesota 55344
(612) 944-0400
(Address and telephone number of registrant's principal executive offices)
Trent Wong
Chief Executive Officer
Global MAINTECH Corporation
7578 Market Place Drive
Eden Prairie, Minnesota 55344
(612) 944-0400
(Name, address and telephone number of agent for service)
Copies to:
Kenneth L. Cutler, Esq. Wendy Skjerven, Esq.
Dorsey & Whitney LLP Leonard Street & Deinard, P.A.
Pillsbury Center South Suite 2300
220 South Sixth Street 150 South Fifth Street
Minneapolis, Minnesota 55402 Minneapolis, Minnesota 55402
(612) 340-2600 (612) 335-1500
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_] _______
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================================
Proposed
Proposed Maximum
Title of Each Class of Proposed Amount Maximum Offering Aggregate Amount of
Securities to be Registered to be Registered Price per Unit (1) Offering Price (1) Registration Fee
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value 3,074,726 shares (2) $9.375 $28,825,556 $7,610
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee based
upon the average of the high and low sales prices for the common stock on
February 25, 2000 as reported on the over-the-counter bulletin board.
(2) Pursuant to Rule 416 under the Securities Act, includes additional shares
of common stock that may be issued as a result of the anti-dilution
provisions of the Series B, D, E and F convertible preferred stock and
warrants.
The Registrant hereby amends this registration statement on the date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 (the "Securities Act"), or until the registration
statement shall become effective on the date the Securities and Exchange
Commission, acting pursuant to said Section 8(a), determines.
<PAGE>
PROSPECTUS
Global MAINTECH Corporation
--------------------------------
3,074,726 shares of common stock
--------------------------------
This prospectus relates to shares of common stock of Global MAINTECH
Corporation that may be offered for resale by the selling shareholders. We will
not receive any proceeds from the sale of the shares.
These securities may be sold from time to time by the selling shareholders
listed on page 11 through public or private transactions at prevailing market
prices or at privately negotiated prices.
Symbol: GLBM
Market: Over-the-Counter Bulletin Board
Closing sale price on March 2, 2000: $8.75
---------------------
Consider carefully the Risk Factors beginning on page 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed. The
selling shareholders identified in this prospectus may not sell these securities
until the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
The date of this prospectus is ____________________, 2000.
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary...........................................................2
Risk Factors.................................................................8
Use of Proceeds.............................................................11
Selling Shareholders........................................................12
Plan of Distribution........................................................13
Business....................................................................13
Management..................................................................18
Management's Discussion And Analysis of Financial
Condition And Results of Operations.....................................20
Security Ownership of Certain Beneficial
Owners And Management...................................................26
Executive Compensation......................................................28
Market For Common Equity And Related Stockholder Matters....................30
Dividend Policy.............................................................30
Description of Capital Stock................................................30
Certain Transactions........................................................32
Recent Developments.........................................................33
Legal Proceedings...........................................................34
Description of Property.....................................................34
Experts.....................................................................35
Legal Matters...............................................................35
Where You Can Find More Information.........................................35
Financial Statements.......................................................F-1
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer to sell these securities in any jurisdiction where the offer or
sale is not permitted. You should assume that the information appearing in the
prospectus is accurate as of the date on the front cover of this prospectus
only. Our business, financial condition, results of operations and prospects may
have changed since that date.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements of Global MAINTECH Corporation, including
the notes to the financial statements, appearing elsewhere in this prospectus.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. Investors should carefully consider
the information under the section entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Forward Looking Statements."
About Global MAINTECH Corporation
We are engaged in the business of providing systems and network management
products and services primarily to computer data centers located in the United
States. Computer data centers, in general, operate a wide range of computer
devices that are used to perform automated tasks such as monitoring and
controlling external equipment and data manipulation, storage and retrieval. In
recent years, systems and network management products have become increasingly
important to the efficient operation of computer data centers because these
centers generally have evolved to perform increasingly complex and diverse
tasks. This growing complexity and diversity is partly due to the shift with
respect to computer functionality from an emphasis on centralized computer
centers, many of which were based upon mainframe technology, to local area
networks, or LANs, and wide area networks, or WANs, that connect computer
workstations to each other in one location or in numerous locations across a
wide geographic area. Different devices, operating systems, configurations and
applications are used for centralized computer centers than LAN and WAN systems,
which typically use only one of two operating systems, UNIX or Windows NT.
The systems and network management tools perform one or more of the
following eight primary functions:
o event management
o problem or fault management
o performance management
o capacity management
o storage management
o enterprise scheduling
o change management
o security management
Our primary product, the Virtual Command Center, or VCC(TM), is designed to
connect and control systems and network management tools that collectively
perform all of these functions and this connection and control can be exercised
simultaneously at one or more sites anywhere in the world. The VCC provides a
centralized location from which to provide systems and network management
functions on an enterprise-wide basis, a process commonly referred to as
computer console consolidation.
Monitoring Products and Services
- --------------------------------
VCC. This product is a computer system, consisting of hardware and
software, which monitors and controls diverse computers in a data center from a
single, master console. A console is a computer terminal with access to the
internal operation of other computers. The VCC can simultaneously manage
servers, networks, mainframes and mid-range computers such as those with UNIX,
Microsoft and Windows NT platforms.
Global Watch MVS/SNA. This product can operate on a stand-alone or fully
integrated basis with the VCC to manage a customer's networked environment for
IBM's mainframe-based Net View application and customers have confirmed it uses
only approximately 5% of the processing capacity required by Net View. In
addition, it reduces exposure to network outages, improves average repair times
on network problems and provides many analytic problem-solving tools.
Alarm Point(TM). This product can operate on a stand-alone or fully
integrated basis with the VCC. It is an intelligent event notification system
designed to receive status messages from event and system management tools,
2
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including the VCC, Hewlett-Packard's Open View, IBM's Tivoli TME, Computer
Associates' Unicenter, and Cabletron's SPECTRUM, to alert the proper people of
critical alarms. Alarm Point makes note of an appropriate "event" by making
calls to all types of phones, digital and alphanumeric pagers, faxes and e-mail.
Professional Services. We also provide systems management consulting
services. Our goal is to train people in data center operations regarding the
proper installation and optimal use of our systems management products, as well
as those of other manufacturers. We also install the industry's leading systems
management products, including our own.
Tape Library Storage Products
- -----------------------------
Through our acquisition of Breece Hill Technologies, Inc., effective on
April 1, 1999, we supplied automated tape libraries used to backup, restore and
archive information stored in networks on servers, PC's and workstations, and
on-line data storage subsystems. On February 3, 2000, we entered into an
agreement relating to the sale of Breece Hill to Tandberg Data ASA of Oslo,
Norway. The sale is subject to shareholder approval. See "Recent Developments."
About the Offering
The selling shareholders named on page 12 are offering 3,074,726 shares of
Global MAINTECH's common stock for resale. Global MAINTECH will not receive any
proceeds from the sale of these shares.
Dilution
The shares of common stock offered by this prospectus are shares issued or
issuable to holders of four types of our convertible preferred stock that we
recently sold to these holders: Series B, Series D, Series E and Series F.
Series B Stock
--------------
From August 15, 1998 to December 31, 1998, we sold 67,192 units in a
private placement at a purchase price per unit of $32.50, as adjusted for our
reverse stock split. Each unit consisted of one share of Series B convertible
preferred stock and one warrant to purchase shares of common stock. Each share
of Series B stock is convertible into the number of shares calculated by
dividing the per unit purchase price of $32.50 by the conversion price. The
conversion price is based on 80% of the average closing bid price of the common
stock for the 20 consecutive trading days immediately before the conversion date
but may not be more than $12.50 or less than $3.75. The warrants entitle the
holder to purchase common stock at $16.25 per share at any time before five
years after the date the warrants were issued, unless we previously redeem them.
Each warrant entitles the holder to purchase the same number of shares of common
stock into which the share of Series B stock to which the warrant was attached
shall have been converted. The holders of Series B stock also are entitled to
receive dividends at the annual rate of 8% of the per unit purchase price, which
is payable upon conversion of the Series B stock. Global MAINTECH may pay this
in cash or as shares of common stock. The number of shares of common stock
issuable as a dividend payment will be equal to the total dividend payment then
due divided by the average closing bid price for one share of common stock for
the 10 consecutive trading days immediately before the payment of the dividends.
Series C Stock
--------------
On March 25, 1999, we sold 1,600 shares of Series C convertible preferred
stock and warrants to purchase 20,000 shares of common stock in a private
placement, as adjusted for the reverse stock split. In addition, the placement
agent for this sale received 75 shares of Series C stock and a warrant to
purchase an aggregate of 20,000 shares of common stock. On January 19, 2000, the
holders of Series C stock and warrants to purchase shares of common stock
exchanged their Series C shares and those warrants for shares of Series D stock
and new warrants, adjusted for our reverse stock split, as described below under
"Series D Stock."
3
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Series D Stock
--------------
On January 19, 2000, we issued 2,725 shares of Series D Convertible
Preferred Stock in a private placement. The shares were issued as follows: (1)
700 shares to new investors for $700,000 in the aggregate; (2) 300 shares to
certain investors upon conversion of $300,000 of convertible promissory notes
issued by Global MAINTECH, (3) 1,600 shares to the holders of Global MAINTECH's
then outstanding Series C Convertible Preferred Stock in exchange for all of
their Series C shares; and (4) 125 shares to the placement agent as compensation
for placement agent services. In addition, in connection with the Series D Stock
offering (1) the holders of warrants issued in the Series C offering were issued
warrants to purchase 20,000 shares of common stock in exchange for the warrants
issued to them in the Series C offering. We also issued 30,000 shares of common
stock to the new investors and 120,000 shares of common stock to the holders of
the Series C shares. Each share of Series D Stock is convertible into the number
of shares of common stock calculated by dividing the per share purchase price of
$1,000 by the conversion price. The conversion price equals the lesser of 75% of
the average of the three lowest closing bid prices of the common stock during
the 15 trading days immediately before the conversion date or $5.4375. Holders
of Series D Stock are entitled to receive dividends at an annual rate of 8% of
the per share purchase price. The dividends are payable, upon conversion of the
Series D Stock, in either cash or shares of common stock, at the option of the
Global MAINTECH. The number of shares of common stock issuable as a dividend
payment will equal the total dividend payment then due divided by the conversion
price calculated as of the date that the dividend payment is due. Each warrant
entitles its holder to purchase common stock at $8.30 per share at any time
before the fifth anniversary of the date of issuance of the warrant.
Series E Stock
--------------
On December 30, 1999, we issued 2,650 shares of Series E Convertible
Preferred Stock and warrants to purchase 51,000 shares of common stock in a
private placement for consideration totaling $2,650,000. Each share of Series E
Stock is convertible into the number of shares of common stock calculated by
dividing the per share purchase price of $1,000 by the conversion price. The
conversion price equals the lesser of 75% of the average of the three lowest
closing bid prices of the common stock during the 15 trading days immediately
before the conversion date or $5.125. The holders of Series E Stock are also
entitled to receive dividends at the annual rate of 8% of the per share purchase
price. The dividends are payable upon conversion of the Series E Stock, in
either cash or shares of common stock, at the option of Global MAINTECH. The
number of shares of common stock issuable as a dividend payment will equal the
total dividend payment then due divided by the conversion price calculated as of
the date that the dividend payment is due. Each warrant entitles its holder to
purchase common stock at $5.125 per share at any time before the fifth
anniversary of the date of issuance of the warrant.
Series F Stock
--------------
On February 17, 2000, we issued 2,000 shares of Series F Convertible
Preferred Stock and warrants to purchase 50,000 shares of common stock in a
private placement for consideration totaling $2,000,000. Each share of Series F
Stock is convertible into the number of shares of common stock calculated by
dividing the per share purchase price of $1,000 by the conversion price. The
conversion price equals the lesser of 75% of the average of the three lowest
closing bid prices of the common stock during the 15 trading days immediately
before the conversion date or $6.75. The holders of Series F Stock are also
entitled to receive dividends at the annual rate of 8% of the per share purchase
price. The dividends are payable upon conversion of the Series F Stock, in
either cash or shares of common stock, at the option of Global MAINTECH. The
number of shares of common stock issuable as a dividend payment will equal the
total dividend payment then due divided by the conversion price calculated as of
the date that the dividend payment is due. Each warrant entitles its holder to
purchase common stock at $11.00 per share at any time before the fifth
anniversary of the date of issuance of the warrant.
4
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Conversion
----------
The tables below show the total number and the percentage amounts of common
shares issuable upon conversion of the Series B stock (and related warrants)
based on the minimum and maximum conversion prices described above, and the same
information for the Series D stock, Series E stock and Series F stock (and
related warrants) based on the maximum conversion price described above. The
tables also include the maximum number of shares of common stock that may be
issued to the holders as dividends during the three years following the issuance
of the preferred stock.
<TABLE>
<CAPTION>
Approximate
percentage of
Common shares Common shares common stock
Conversion issuable upon issuable upon Common shares outstanding as
price of conversion of conversion of issuable as of February 23,
Series B Stock Series B Stock warrants dividends 2000
- ----------------- ------------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C>
$12.50 per share 134,660 -- -- 2.3%
$3.75 per share 448,865 -- -- 7.6%
</TABLE>
<TABLE>
<CAPTION>
Approximate
percentage of
Common shares Common shares common stock
Conversion issuable upon issuable upon Common shares outstanding as
price of conversion of conversion of issuable as of February 23,
Series D Stock Series D Stock warrants dividends 2000
- ----------------- ------------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C>
$5.4375 per share 651,149 20,000 -- 8.5%
</TABLE>
<TABLE>
<CAPTION>
Approximate
percentage of
Common shares Common shares common stock
Conversion issuable upon issuable upon Common shares outstanding as
price of conversion of conversion of issuable as of February 23,
Series E Stock Series E Stock warrants dividends 2000
- ----------------- ------------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C>
$5.125 per share 517,073 51,000 -- 9.6%
</TABLE>
<TABLE>
<CAPTION>
Approximate
percentage of
Common shares Common shares common stock
Conversion issuable upon issuable upon Common shares outstanding as
price of conversion of conversion of issuable as of February 23,
Series F Stock Series F Stock warrants dividends 2000
- ----------------- ------------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C>
$6.75 per share 296,296 50,000 -- 5.8%
</TABLE>
5
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The tables below show the total number and the percentage amounts of common
shares issuable upon conversion of the preferred stock and warrants as if such
preferred stock and warrants were converted as of February 23, 2000. The
conversion of the Series B stock (and related warrants) is based on a conversion
price of $7.11, which is 80% of the closing bid price for the common stock for
the 20-day period ending on February 23, 2000. The conversion of the Series D
stock, Series E stock and Series F stock is based on a conversion price of
$7.04, which is 75% of the average of the three lowest closing bid prices of the
common stock for the 15-day period ending on January 24, 2000. The following
tables exclude shares of common stock that may be issued as dividends on the
Series B stock, Series D stock, Series E stock and Series F stock.
Common shares Approximate
issuable upon percentage of
Conversion conversion of common stock
price of Series B Stock outstanding as of
Series B Stock and warrants February 23, 2000
- --------------------- ------------------------- ---------------------
$7.11 per share 240,307 4.1%
Common shares Approximate
issuable upon percentage of
Conversion conversion of common stock
price of Series D Stock outstanding as of
Series D Stock and warrants February 23, 2000
- --------------------- ------------------------ ----------------------
$7.04 per share 537,039 9.1%
Common shares Approximate
issuable upon percentage of
Conversion conversion of common stock
price of Series E Stock outstanding as of
Series E Stock and warrants February 23, 2000
- --------------------- ------------------------ ----------------------
$7.04 per share 376,387 6.4%
Common shares Approximate
issuable upon percentage of
Conversion conversion of common stock
price of Series F Stock outstanding as of
Series F Stock and warrants February 23, 2000
- --------------------- ------------------------ ----------------------
$7.04 per share 334,066 5.6%
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Investors should be aware that as the common stock's market price
decreases, the number of common stock shares underlying the preferred stock
continues to increase. Therefore, the lower the common stock's market price at
the time of conversion of the preferred stock and exercise of the warrants
described above, the more common stock shares the holder is entitled to receive
upon conversion of preferred shares. If a holder of preferred stock converts and
then sells the common stock received upon conversion, the common stock's market
price may decrease due to the additional shares in the market, allowing the
selling holder to convert the preferred stock into greater amounts of common
stock shares, the sale of which could further depress the common stock's market
price. The significant downward pressure on the common stock's market price as a
holder of the preferred stock converts and sells material amounts of the common
stock shares could encourage short sales by other holders or others, placing
further downward pressure on the common stock's market price. The conversion of
the preferred stock may result in substantial dilution to the interests of other
common shareholders since each holder of the preferred stock may ultimately
convert and then sell the full amount of common stock shares issuable upon
conversion. Investors should consider carefully this potential dilutive effect
and the other risks described beginning on page 8 of this prospectus.
Summary Financial Data
The following table summarizes the financial data for our business. The
unaudited financial data for the nine months ended September 30, 1999 includes
Breece Hill Technologies, Inc.'s operating results for the nine month period
ended September 30, 1999 but does not include Breece Hill Technologies, Inc.'s
results of operations prior to April 1, 1999, which was the effective date of
our acquisition of Breece Hill. The nine months ended September 30, 1999 (giving
effect to discontinued operations) presents Breece Hill as a discontinued
operation as a result of actions taken by management in December 1999 to offer
Breece Hill for sale. Please see the financial information beginning on page
F-1.
<TABLE>
<CAPTION>
Nine Months
Ended September
Year Ended Nine Months Ended 30, 1999 (giving
December 31, September 30, effect to
-------------------- ----------------------- discontinued
1998 1997 1999 1998 operation)
--------- -------- ---------- --------- --------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales................................ $ 6,209 $ 3,002 $ 25,895 $ 5,132 $ 7,134
Cost of Sales............................ (2,323) (762) (16,310) (1,770) (2,169)
--------- -------- ---------- --------- --------------
Gross Profit............................. 3,886 2,240 9,585 3,362 4,965
Operating Expenses....................... (5,705) (1,969) (14,958) (2,926) (8,724)
Other Expense, Net....................... (184) (113) (2,171) (124) (1,678)
--------- -------- ---------- --------- --------------
Net Income (Loss) before cumulative
effect of accounting change............ (2,003) 158 (7,544) 312 (5,437)
Net Loss from Operations of
Discontinued Operation................ -- -- -- -- (2,107)
Gain from Discontinued Operations........ -- 70 -- -- --
Cumulative Effect of Change in
Accounting Principle.................. -- -- 100 -- 100
--------- -------- ---------- --------- --------------
Net Income (Loss)........................ $ (2,003) $ 228 $ (7,444) $ 312 $ (7,444)
========= ======== ========== ========= ==============
Basic Income (Loss) per Share:
Continuing Operations................. (0.55) 0.05 (2.013) 0.089 (1.468)
Operations of Discontinued Operation.. -- -- -- -- (0.545)
Net Income (Loss)..................... (0.55) 0.07 (1.987) 0.089 (1.987)
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Diluted Income (Loss) per Share:
Continuing Operations................. (0.55) 0.04 (2.013) 0.077 (1.468)
Operations of Discontinued Operations. -- -- -- -- (0.545)
Net Income (Loss)..................... (0.55) 0.06 (1.987) 0.077 (1.987)
Shares Used in Calculations (in thousands):
Basic................................. 3,670 3,184 3,868 3,522 3,868
Diluted............................... 3,670 3,911 3,868 4,061 3,868
Balance Sheet Data (as of period end):
Cash and Cash Equivalents................ $ 664 $ 1,727 $ 754 $ 300 $ 466
Working Capital (Deficit)................ 2,068 2,884 (4,319) 3,661 2,390
Total Assets............................. 9,133 5,863 42,300 8,424 28,534
Total Stockholders' Equity............... 5,443 3,281 16,702 5,701 16,702
</TABLE>
Anticipated Charges in the Fourth Quarter of 1999
Our independent auditor has not yet completed the audit of our financial
statements at and for the year ended December 31, 1999. Due to the asset sale to
MT Acquiring Corp., the proposed settlement with Infinite Graphics Incorporated,
the proposed sale of Breece Hill and re-evaluation of the recoverability of
certain tangible and intangible assets during the fourth quarter of 1999, we are
anticipating a charge of between $10 million to $12 million in December 1999
related to such items. See "Recent Developments." In addition, we are
anticipating other operating losses, exclusive of the items above between $9
million and $11 million for the fourth quarter of 1999, approximately $5 million
to $6 million of which are related to compensation paid to third parties through
grants of equity instruments. Based upon September 30, 1999 year-to-date net
loss of $7.4 million and upon consideration of the items above, we anticipate
fiscal year 1999 net loss to be between $26 million and $30 million.
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to purchase the securities offered. Any of
the following risks could have a material adverse effect on our business,
financial condition or results of operations or on the value of the securities
you purchase.
We have fewer resources than most of our competitors.
Our industry is characterized by rapidly evolving technology and intense
competition. We know of several other competitors that have substantially
greater resources and experience in research and development and marketing than
we do. These companies may represent significant competition for us because they
produce components that could be combined to form a system like ours. There is a
risk that competitors will develop or market technologies and products that are
more effective than ours or that would make our technology and products obsolete
or noncompetitive. If a product developed by a competitor is more effective than
our products, our business, financial condition and results of operations could
be materially and adversely affected.
Our success depends on our ability to sell our newly acquired products.
We recently purchased three new product lines:
o In September 1999, we acquired from Lavenir Technology, Inc., a
California corporation, a suite of CAD/CAM software products,
including the ability to design, test, verify and repair precision
graphics designs.
o In November 1998, we acquired from Enterprise Solutions, Inc., an Ohio
corporation, a suite of software products that notify a person by
telephone, pager or the Internet of critical data center events. We
also obtained Enterprise Solutions' short-term consulting business.
o In October 1998, we acquired from Asset Sentinel, Inc., a Minnesota
corporation, a suite of software products that provide updated mapping
of network, cable and telephone lines in buildings and computer
centers.
There is a risk that we will not be able to successfully integrate the employees
we hired from Lavenir, Enterprise Solutions and Asset Sentinel into our own
workforce. There is also a risk that we will not be able to market and sell
these newly acquired product lines on a profitable basis for the next several
years. If we are unable to integrate such employees or to market and sell these
products successfully, our business, financial condition and results of
operations could be materially and adversely affected.
8
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We have recently sold, or are currently negotiating the sale of some of our
businesses.
We have recently sold, or are currently in the process of negotiating the
sale of some of our businesses:
o In February 1998, we licensed the software and purchased the assets
relating to the system software business of Infinite Graphics
Incorporated, a Minnesota corporation. We are currently negotiating
the transfer to Infinite Graphics of the software operations related
to the printed circuit board business.
o In April 1999, we acquired all of the outstanding stock of Breece Hill
Technologies, Inc. As a result of this acquisition, we obtained all of
the assets and liabilities of Breece Hill, which is a supplier of
digital tape storage systems used to backup, restore and archive
information stored in networks on servers, PC's and workstations, and
stored via on-line data storage subsystems. On February 3, 2000, we
entered into a stock purchase agreement relating to the sale of Breece
Hill. The sale is subject to shareholder approval.
o On January 26, 2000, we sold all of the business and properties of
Magnum Technologies, Inc., which provided network monitoring and
analysis services, to the principals of Magnum.
These businesses provided additional sales and earnings to us. Following these
sales, we intend to re-focus on our software business, which is our core
competency. Without revenue from these lines of business, our business will be
adversely affected if we are unable to grow our proprietary products and
services. See "Recent Developments."
We will need additional capital to grow our business.
We expect that the proceeds of our recent equity and debt offerings will be
enough to fund our operations through at least June 30, 2000. We may need
additional funds to continue the marketing of our products and to meet our
long-term growth needs. There is a risk that we will not be able to obtain
financing and, if we do, that the financing will not be available at reasonable
rates and terms. To meet our needs, we may have to obtain additional funding
through public or private financings, including equity and debt financings. If
we do not secure additional financing, our business, financial condition and
results of operations could be materially and adversely affected. For more
information, see the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" in this prospectus.
The products we are developing may not be successful.
We are currently developing a set of software products that monitors
networking, Internet and communication devices primarily for networks, Microsoft
NT, mid-range computers and mainframes. These products will perform capacity
tests to measure systems activity and hardware utilization and will correlate
measured trends with specific events or expected benchmarks. Although
preliminary tests indicate that these products will perform as intended and can
be integrated with the VCC, there is a risk that they will not do so or, even if
they do, that the market will not demand these products. If we are not
successful in developing these products or are unable to develop them on a
timely basis, our business, financial condition and results of operations could
be materially and adversely affected.
Our operating results may fluctuate significantly.
Our future operating results may vary substantially from quarter to
quarter. At our current stage of operations, the timing of the development and
market acceptance of our products may materially affect our quarterly revenues
and results of operations. Generally, our operating expenses are higher when we
are developing and marketing a product. There is always a risk that we will not
be successful in maintaining profitability and avoiding losses in any future
period. For these reasons, the market price of our stock may be highly volatile.
The price of our stock may also be affected by:
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<PAGE>
o the general state of the country's economy
o the conditions in the stock market
o the development of new products by us and our competitors
o public announcements by us or our competitors
We rely heavily on key technical personnel.
We rely heavily on our technician, Norm Freedman, to further develop the
VCC. We also rely heavily on Trent Wong and Desmond Dos Santos for technical
development of the products of our subsidiary SinglePoint Systems, Inc. There is
a risk that these employees will not stay with Global MAINTECH. If any of these
individuals left Global MAINTECH, we would need to hire a comparable employee.
In such event, there is a risk that we would not be able to hire someone quickly
and at an affordable salary.
Intellectual property protection may be difficult to obtain or ineffective. We
may not be able to protect adequately our patents and proprietary rights.
We protect our intellectual property rights through a combination of
statutory and common law patent, copyright, trademark and trade secret laws,
customer licensing agreements, employee and third-party non-disclosure
agreements and other methods. Although we do not own any patents, we believe the
VCC will be protected by two patents that are being reviewed by the U.S. Patent
and Trademark Office and by a patent for hardware that Circle Corporation, a
Japanese corporation, applied for on December 28, 1993. We license the hardware
from Circle Corporation and use it in the VCC. Under our license, we can
distribute the hardware worldwide, except in Japan. The initial term of this
license expires on December 20, 2004.
There is a risk that a third party may copy or otherwise obtain or use our
products or technology without our authorization, or develop similar products or
technology independently. Our business would be adversely affected if someone
used or copied our products to any substantial degree. There is a risk that the
protection for our intellectual property rights is not adequate or that our
competitors will independently develop similar products.
We require our consultants and developers to assign to us their rights in
any materials they provide to or make for us. We also ask their assurance that
if we use any of their materials in our products we will not violate the rights
of third parties. However, we have not commissioned an independent investigation
to reaffirm the basis for our belief, and there is a risk that our current or
future products will infringe on their rights. We believe that developers of
control systems increasingly may be subject to these claims as the number of
products and competitors in the industry grows and the functionality of these
products in the industry overlaps. Any claim, with or without merit, could
result in expensive litigation and could have a material adverse effect on our
business, financial condition and results of operations.
On February 15, 2000, we and GMI were named as defendants in a patent
infringement suit brought by K. Brent Johnson and I.D.G. Incorporated in federal
court for the Northern District of Oklahoma. The suit alleges, among other
things, that our VCC product, when monitoring a mainframe computer, infringes on
a patent held by the plaintiffs. We believe that the plaintiffs' claims are
without merit, but are attempting to settle the claims in order to avoid
protracted and costly litigation.
We do not have product liability insurance.
We may be liable for product liability claims if someone claims that our
products injured a person or business. We do not have product liability
insurance. There is a risk that we could not obtain insurance on commercially
reasonable terms, or at all, or that even if we obtained insurance it would not
adequately cover a product liability claim. Our business could be adversely
affected if someone brings a product liability or other legal claim against us.
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<PAGE>
The demand for VCC units is uncertain. Customers may not buy our products.
It is difficult to project the overall size of the future market for VCC
units. We believe the market for external control systems could expand because
external control systems could soon be used to solve networking problems with
enterprise computing. Based on recent feedback we have received from current and
potential customers, we believe the demand for the VCC is significant. However,
to date we have sold the VCC to only 16 customers and there is a risk that we
will not have additional customers who will buy our products. The concept of an
external monitor and control system for computer hardware is relatively new, and
we do not yet know what the continued demand for the product will be. If
customers do not buy our products, our business, financial condition and results
of operations could be materially and adversely affected.
USE OF PROCEEDS
This prospectus relates to an aggregate of 3,074,726 shares of common stock
that may be sold from time to time by the selling shareholders. Although Global
MAINTECH will pay the expenses of registration of the shares, including legal
and accounting fees, the company will not receive any proceeds from the sale of
the shares.
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SELLING SHAREHOLDERS
The following table lists information, as of February 23, 2000, as to the
maximum number of shares that each of the selling shareholders named below may
sell under this prospectus.
<TABLE>
<CAPTION>
Number of Maximum Number of
shares number of shares
beneficially shares to be beneficially
owned before sold in the owned after the
Name the offering offering offering
- ---------------------------------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Industricorp & Co. FBO Twin Cities Carpenters & Joiners
Pension Fund................................................. 22,863
Robert W. Clark Self-Declared Trust
Robert W. Clark Trustee, under agreement dated 11/12/90..... 4,573
Isadore J. Goldstein Revocable Living Trust
Isadore J. Goldstein, Trustee, dated 3/14/90................. 7,035
James N. Owens Revocable Trust
James N. Owens, Trustee, dated 9/10/70....................... 14,069
David A. Lawrence............................................... 3,517
Gary S. Kohler IRA First Trust NA Trustee....................... 3,521
Gary Kohler..................................................... 3,517
John O. Hanson.................................................. 28,140
John R. Albers.................................................. 14,070
VBS General Partnership......................................... 3,517
David A. Lawrence IRA First Trustee NA Trustee.................. 3,517
Betty L. Johnson................................................ 14,070
Aaron Boxer Revocable Trust
Aaron Boxer Trustee, under agreement dated 8/1/89............ 29,829
David W. Johnson and Linda M. Johnson, as Joint Tenants......... 13,718
John M. Liviakis................................................ 125,000
Liviakis Financial Communications, Inc.......................... 628,000
Earl L. Ferris.................................................. 3,517
CROW 1999 CRUT.................................................. 15,477
Johnson Family CRUT #3.......................................... 10,551
Gary L. Tooker Charitable Remainder............................. 5,628
Tooker Family Ltd. Partnership.................................. 10,552
Welstad Charitable Remainder Unitrust I dated 12/26/97.......... 14,070
George D. Marx.................................................. 1,759
Paul R. Owings & Lenore Owings, as joint tenants................ 3,517
Lenore Owings & Paul R. Owings, as joint tenants................ 3,517
Robert Terhaar & Harriet Terhaar, as joint tenants.............. 2,286
Esquire Trade & Finance Inc..................................... 136,122
Paul R. Kuehn................................................... 1,304
David B. Johnson................................................ 1,304
Eldon C. Miller................................................. 435
Stanley D. Rahm................................................. 435
Austinvest Anstalt Balzers...................................... 136,122
Nesher, Inc..................................................... 24,016
Amro International.............................................. 106,953
Hambrecht & Quist Guaranty Finance, LLC......................... 180,000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Number of Maximum Number of
shares number of shares
beneficially shares to be beneficially
owned before sold in the owned after the
Name the offering offering offering
- ---------------------------------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Raymond James & Associates, Inc................................. 900
Intercoastal Financial Services Corp............................ 52,989
Assanzon Capital Development Corporation........................ 120,079
Garros Ltd...................................................... 74,868
Carbon Mesa, LLC................................................ 9,756
Nash, LLC....................................................... 487,805
Greenfield Capital Partners, LLC................................ 19,512
Geneva Group, Inc............................................... 20,000
RBB Bank Aktiengesellschaft..................................... 346,296
Lavenir Technology, Inc......................................... 366,000
---------------- ---------------- ----------------
Total 3,074,726
================ ================ ================
</TABLE>
PLAN OF DISTRIBUTION
The shares will be offered and sold by the selling shareholders for their
own accounts. Global MAINTECH will not receive any proceeds from the sale of the
shares under this prospectus. Global MAINTECH has agreed to pay the expenses of
registration of the shares, including legal and accounting fees.
The selling shareholders may offer and sell the shares from time to time in
transactions on the OTC Market, in brokerage transactions at prevailing market
prices or in transactions at negotiated prices. Sales may be made to or through
brokers or dealers who may receive compensation in the form of discounts,
concessions or commissions from the selling shareholders or the purchasers of
shares for whom these brokers or dealers may act as agent or to whom they may
sell as principal, or both. As of the date of this prospectus, we are not aware
of any agreement, arrangement or understanding between any broker or dealer and
the selling shareholders.
The selling shareholders and any brokers or dealers acting in connection
with the sale of the shares offered under this prospectus may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act, and any
commissions they receive and any profit they realize on the resale of shares as
principals may be deemed underwriting compensation under the Securities Act.
BUSINESS
General
We were incorporated in Minnesota in 1985 under the name Computer Aided
Time Share, Inc. In 1995, we changed our name to Global MAINTECH Corporation. We
are a holding company with two wholly owned subsidiaries, Global MAINTECH, Inc.
("GMI") and SinglePoint Systems, Inc., and one majority owned subsidiary, Breece
Hill, which we are currently proposing to sell. See "Recent Developments."
Global MAINTECH, Inc. and SinglePoint are direct subsidiaries of Global MAINTECH
Corporation. Breece Hill is a subsidiary of Global MAINTECH, Inc. The address of
our principal executive offices is 7578 Market Place Drive, Eden Prairie,
Minnesota 55344 and our phone number is (612) 944-0400.
Industry Background
We are engaged in the business of providing systems and network management
products and services primarily to computer data centers located in the United
States. Computer data centers, in general, operate a wide range of
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computer devices that are used to perform automated tasks such as monitoring and
controlling external equipment and data manipulation, storage and retrieval. In
recent years, systems and network management products have become increasingly
important to the efficient operation of computer data centers because these
centers generally have evolved to perform increasingly complex and diverse
tasks. This growing complexity and diversity is partly due to the shift with
respect to computer functionality from an emphasis on centralized computer
centers, many of which were based upon mainframe technology, to LANs and WANs
that connect computer workstations to each other in one location or in numerous
locations across a wide geographic area. Different devices, operating systems,
configurations and applications are used with respect to centralized computer
centers than LAN and WAN systems, which typically use only one of two operating
systems (UNIX or Windows NT).
The systems and network management tools perform one or more of the
following eight primary functions:
o event management
o problem or fault management
o performance management
o capacity management
o storage management
o enterprise scheduling
o change management
o security management
Our primary product, the Virtual Command Center, or VCC(TM), is designed to
connect and control systems and network management tools that collectively
perform all of these functions and this connection and control can be exercised
simultaneously at one or more sites anywhere in the world. The VCC can be
described as a manager of managers. Commonly referred to as computer console
consolidation, the VCC provides a centralized location from which to provide
systems and network management functions on an enterprise-wide basis. We believe
the VCC is a platform to which we can add new products to meet other systems and
network management needs not currently met by existing products. There is a vast
array of products in this multi-billion dollar industry but there is a demand
for new products that meet the evolving needs of this rapidly growing market. We
intend to continue to provide new products, whether through our internal
research and development efforts or through acquisitions, to meet these evolving
needs.
Complexity and diversity in enterprise data center operation is widespread
and a growing trend in the industry. In December 1998, the Gartner Group
estimated that 80% of all data centers will be managing multiple platform
environments by 2003. This estimate is based upon the fact that most application
systems have long lives and relatively few applications move from one platform
type to another during the life of the application, such as Microsoft's Windows
95 application, which was designed to be used on PCs, cannot be used on
Mainframe MVS and UNIX platforms. As computer users adopt new platforms and
computer technology, data centers must adapt to support a mixture of platforms
and operating systems. In 2003, mainframe-based applications likely will still
be in production and likely will be operating alongside applications designed
for high-end UNIX severs and an increasing number of new applications targeted
to Windows NT servers. As a result, data centers must adapt to support existing
and future applications and operating systems.
Systems and network management products are usually designed to be used
with one of three computer platforms, either mainframes, UNIX-based computers or
Windows NT workstations. The systems and network management market size is
difficult to measure precisely because the market size frequently is defined as
products sold only for one platform or some other aspect of the market, rather
than for products sold with respect to all platforms. For example, sales of all
UNIX-based enterprise computing software in 1998 were approximately $30 billion
and systems and network management software is a part of this total. We believe
that total annual sales in the system and network management market was $6.8
billion at the end of 1996 and that this market has been growing at a rate of
30% annually since then.
Monitoring Products and Services
VCC. This product is a computer system, consisting of hardware and
software, which monitors and controls
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diverse computers in a data center from a single, master console. A console is a
computer terminal with access to the internal operation of other computers. The
VCC can simultaneously manage servers, networks, mainframes and mid-range
computers such as those with UNIX, Microsoft and Windows NT platforms. The VCC
is designed to perform three primary functions:
o consolidate consoles into one monitor, a "virtual console" or single
point of control;
o monitor and control the computers connected to the virtual console;
and
o automate most, if not all, of the routine processes performed by
computer operators in data centers.
It is an external system that monitors and controls the subject mainframe and
other data center computers from a workstation-quality reduced instruction set,
RISC-based UNIX system, computer which is housed separately from the computers
it controls. VCC users are able to:
o reduce staffing levels;
o consolidate all data center operations and technical support functions
to a single location regardless of the physical location of the data
center(s); and
o achieve improved levels of operational control and system
availability.
The hallmark of this product is that it allows centralized management and
automated operations of multiple hardware platforms and networks on a local and
remote basis. Users of the VCC are able to consolidate the management of entire
data centers, whether the computing devices comprising the data center are
located in one location or distributed across the world, into a single
workstation that provides complete inter-connectivity and control over a
network. The VCC is a hardware and software solution that is easy to install and
use. Benefits include: access to enterprise-wide reports at various levels of
the network, management of any task or computer console on local or remote
basis, and automated warnings of potential or actual system problems. The VCC's
ability to consolidate operational computer consoles reduces the need for
operational staff, technical support and software licenses. The VCC is scalable
to accommodate data center growth and change and can be installed and become
operational in just a few days.
The majority of systems and network management products are represented by
software-only products employing invasive software agents, known as active
agents, which are installed on each of the mission critical computing devices.
Software agents can be either passive collectors of information or active
searchers for information. Software that employs active agents is time consuming
to install and by its nature activates the need for "change control," one of the
eight functions of systems and network management. Any new software must go
through the change control process to determine compatibility with all other
software deployed on the subject computing device. This process may be extensive
depending on which systems and network management software is used.
The VCC is not designed to compete with the active agent software now
prevalent in the industry. It is an external system that accepts the signals and
information output of each of the devices to which it is connected.
Consequently, it can use the infrastructure provided by native and non-native
operational software to control the enterprise computing operations. The greater
the information issuing from these devices, the more useful the VCC becomes. As
a result, some of the other products offered by us employ passive agents to
collect information from host devices or networks before passing that
information on to the VCC.
The VCC is a platform that allows customers to establish enterprise-wide
operational control. In addition, we offer other products that complement the
VCC, which are described below.
Global Watch MVS/SNA. This product can operate on a stand-alone or fully
integrated basis with the VCC to manage a customer's networked environment for
IBM's mainframe-based Net View application and customers have confirmed it uses
only approximately 5% of the processing capacity required by Net View. In
addition, it reduces exposure to network outages, improves average repair times
on network problems and provides many analytic problem-solving tools. When
Global Watch MVS/SNA is combined with the VCC, the customer can take advantage
of the MVS Logical Console, which captures highlighted messages and WTOR's
(Write to Operate with Reply) at the instant the messages are produced, in real
time, from all LPAR's (Logical Partitions which divide a
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<PAGE>
mainframe device into multiple internal devices), and displays the messages in a
single, logical console alert window in the VCC. There is no need for any
customization on the host computer's devices and messages can be collected from
a nearly infinite number of CPUs/LPARs.
Alarm Point(TM). This product can operate on a stand-alone or fully
integrated basis with the VCC. It is an intelligent event notification system
designed to receive status messages from event and system management tools,
including the VCC, Hewlett-Packard's Open View, IBM's Tivoli TME, Computer
Associates' Unicenter, and Cabletron's SPECTRUM, to alert the proper people of
critical alarms. Alarm Point makes note of an appropriate "event" by making
calls to all types of phones, digital and alphanumeric pagers, faxes and email.
Alarm Point "knows" the notification protocol by implementing pre-determined
notification policies set-up using an easy to use graphical user interface.
Alarm Point's telephony skills allow it to automatically recognize when a
voicemail system or answering machine picks up the call and will leave a message
and/or try an alternate contact. This telephony-based product has the ability to
capture and log alarms regardless of the hardware platform or operating system
on which it is installed. Alarm Point is easily installed and can begin
telephone notification on the first day of installation.
Professional Services. We also provide systems management consulting
services. Our goal is to train people in data center operations regarding the
proper installation and optimal use of our systems management products, as well
as those of other manufacturers. We also install the industry's leading systems
management products, including our own.
Tape Library Storage Products
Through our acquisition of Breece Hill Technologies, Inc., effective on
April 1, 1999, we supplied automated tape libraries used to backup, restore and
archive information stored in networks on servers, PC's and workstations, and
on-line data storage subsystems. On February 3, 2000, we entered into an
agreement relating to the sale of Breece Hill to Tandberg Data ASA. The sale is
subject to shareholder approval. See "Recent Developments."
Sales and Marketing for VCC and Related Products
We employ several different sales channels to properly fit the product.
The VCC has been sold primarily through direct sales using our sales force.
This requires appropriate training for each sales person and direct,
consultative sales techniques. The direct sales team is supported by a dedicated
telemarketing process and sales support in the form of written materials, CD-ROM
presentations, VCR tape presentations and remote PC-based presentation routines
available on the salespersons laptop computer. In June 1999, we announced a
corporate sponsorship and alliance with Hitachi Data Systems in which it would
use its 200-plus sales force and 800-plus systems engineers to sell the VCC
under the original equipment manufacturer name of "Gatekeeper." We believe this
alliance represents a significant endorsement of the VCC product.
Our other products, excluding storage management products, are sold through
resellers and strategic arrangements with other companies that have products
complementary to ours. The direct sales team and the telemarketing staff sell
these other products to allow an entry point to a customer at any level in which
the customer may become engaged. In addition, the software-only products may be
downloaded from our web-site for free trial for a limited time.
We are in the process of cross-selling our VCC and storage management
products to take advantage of these previously separate sales channels to
maximize the sales of each set of products.
Competition for VCC and Related Products
The VCC competes with internal monitoring software, which monitors certain
pieces of hardware and software applications in the computer in which such
internal software is installed. Annual sales of systems and network management
software were estimated to be $17 billion as of December 1998. It is believed
this market will grow to almost $26 billion by 2001.
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Major products and companies in the system and network management industry
are as follows:
Product Maker Base Platform
-------------------- ---------------------- ----------------
Net View IBM Mainframe
TME IBM/Tivoli Mid-range server
Unicenter Computer Associates Mainframe
Command/Post Boole & Babbage Mainframe
Open View Hewlett-Packard Mid-range server
The majority of each of the products listed above is expanding its base focus to
include other platforms through partnerships, acquisition or further internal
development. In all cases these products use active agents and often take months
or years to deploy throughout a company's computer network. The Boole & Babbage
and Computer Associates products can consolidate from 7 to 16 computer consoles
but their architecture does not allow significant console consolidation into one
monitor. We believe each of these products requires a significant number of
people to install, maintain and to complete the installation due primarily to
the invasive nature of the active software agents. Also the ability of these
other products to be expanded with the addition of new devices and data center
sites repeats the complexity of the initial installation. The VCC and related
products are all designed to be initially installed in hours or at most days and
to automatically recognize the addition or removal of devices after
installation. One VCC can consolidate from two to several hundred devices and
our other software products such as Global Watch MVS/SNA can monitor from two to
thousands of devices. Each of our products performs at least one of eight
functions of the systems and network management market described above. The VCC
performs all eight of such functions.
Research and Development
Our recent research and development activities have been substantial. Other
than the VCC and the Global Watch MVS/SNA products, all of our products were
developed in 1998. In addition, we introduced our new E-bus technology for the
VCC in 1998. In 1999, we introduced single E-bus units that can be used to
connect up to five devices per unit and allow remote access from a primary VCC
unit via a customer's LAN or WAN. The single E-bus allows economic access of the
VCC technology to any company with widely dispersed devices that tie into a
central VCC in another location. Retail organizations with numerous devices
dispersed across a wide geographic and computer outsourcers can economically
achieve full operational control over the dispersed devices and keep operating
expertise centrally located.
The GlobalWatch MVS/SNA will be re-introduced using the TCP/IP
communications protocol and the ability to link management information from
mainframes and UNIX workstations. This will bring the functionality of
GlobalWatch to additional platforms.
Patents, Trademarks and Copyrights
We have one patent issued and three patents pending relating to the VCC and
related products. Trademarks have been issued in connection with the names
Global MAINTECH(TM), Alarm Point(TM) and Datal(TM). In June, we applied to
register substantially all of our software products with the U.S. copyright
office.
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MANAGEMENT
Directors and Executive Officers
The directors and executive officers of Global MAINTECH are as follows:
Name Age Position
- ---- --- --------
Trent Wong 40 Chief Executive Officer and Director
James Geiser 50 Chief Financial Officer and Secretary
David H. McCaffrey 55 Director
John E. Haugo 64 Director
James G. Watson 56 Director
William Howdon 56 Director
Mr. Wong has served as Global MAINTECH's Chief Executive Officer since
November 1999. He previously served as Group President of Global MAINTECH since
September 1999. Mr. Wong has also served as President of SinglePoint Systems,
Inc. since its acquisition by Global MAINTECH in November 1998. Mr. Wong was
President and co-founder of SinglePoint's predecessor company, Enterprise
Solutions, Inc., since May 1994. Before co- founding Enterprise Solutions, Mr.
Wong served as western division business manager for Votek Systems and Computer
Associates, producers and sellers of enterprise management software tools.
Mr. Geiser has served as the Secretary of Global MAINTECH since September
1993 and Chief Financial Officer of Global MAINTECH since January 1994. Since
1991, Mr. Geiser has served as President of G&B Financial Advisory Services, a
firm engaged in providing financial consulting services to corporations
requiring financial restructuring. From 1989 until January 1992, Mr. Geiser
served as Chief Financial Officer and consultant to International Broadcasting
Corporation, an owner and operator of family entertainment attractions including
the Harlem Globetrotters and Ice Capades touring shows and three regional
amusement parks. From 1987 until October 1989, Mr. Geiser was Vice President and
Treasurer of Washington Square Capital, Inc., an investment management company
and subsidiary of Northwestern National Life Insurance Company. From 1979 until
1987, Mr. Geiser held various positions with Gelco Corporation, including the
position of Assistant Treasurer of Gelco Corporation, and Vice President and
Treasurer of Gelco Finance Corporation.
Mr. McCaffrey served as Global MAINTECH's Chief Executive Officer from
January 1995 until November 1999 and has served as a director since January
1995. Mr. McCaffrey also served as GMI's Chief Executive Officer from December
1994 until November 1999. Before joining Global MAINTECH in December 1994, Mr.
McCaffrey served as President, Chief Executive Officer and Chief Financial
Officer of Rimage Corporation from April 1989 to October 1994. Mr. McCaffrey
also served as a director of Rimage Corporation from November 1992 until October
1994.
Mr. Haugo has served as a director of Global MAINTECH since June 1997. Mr.
Haugo founded and served as Chief Executive Officer of both Edusystems, Inc., an
educational software business, and Serving Software, Inc., a developer of
applications for the healthcare industry. Serving Software, Inc. was sold in
1994 to HBO & Company. Mr. Haugo also serves on the board of directors of St.
Paul Software, Inc., Catalog Marketing Services, Inc. and Member Services
International, Inc.
Mr. Watson joined Breece Hill in 1995 as Vice President of Strategic
Programs. In that capacity he was responsible for all materials procurement,
cost reductions programs, and key strategic relationships with Breece Hill's
suppliers and subcontractors. He became President and CEO of Breece Hill in
September of 1998 and a director of Global MAINTECH in 1999. From 1993 to 1995,
Mr. Watson served as Vice President of Marketing and Sales for Areal Technology.
He served in the same position for WangDat from 1991 to 1992 and for Rodime,
Inc. from 1990 to 1991. From 1987 to 1989, he held the position of Vice
President of OEM sales for Seagate Technology. From 1982 to 1987, he worked as
Vice President of Sales and Marketing with Quantum Corporation where he managed
all sales, marketing, technical support, and service center operations. He has
also held operations, sales and marketing positions at various levels with
Storage Tek and Control Data.
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Mr. Howdon became a director of Global MAINTECH in May 1999. Mr. Howdon
served as the Vice-Chairman of the board of directors of Breece Hill from 1995
until April 1, 1998. Mr. Howdon serves as Managing Partner of 20/20 Financial
Group, a private real estate development group. Previously he worked in the
investment business with Prudential Bache and Smith Barney. Mr. Howdon
previously has served on several public and private company boards of directors.
Prior to February 19, 1999, the board of directors did not have any
standing audit, compensation, stock option or nominating committees. On February
19, 1999, the Board of Directors established an Audit Committee and a
Compensation Committee.
The Audit Committee, consisting of Messrs. Haugo and Howdon, reviews the
results and scope of the audit and other services provided by the Company's
independent auditors, as well as the Company's accounting principles and its
systems of internal controls, and reports the results of its review to the full
Board of Directors and to management.
The Compensation Committee, consisting of Messrs. Haugo and Howdon, makes
recommendations concerning executive salaries and incentive compensation for
employees and will administer the Company's 1999 Stock Option Plan if such plan
is approved at the Annual Meeting. The Board of Directors as a whole administers
the Company's 1989 Stock Option Plan.
Global MAINTECH at present does not pay any director's fees. Global
MAINTECH may reimburse its outside directors for expenses actually incurred in
attending meetings of the board of directors.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The consolidated financial statements that accompany this discussion show
the operating results of Global MAINTECH for the three and nine-month periods
ended September 30, 1999 and 1998 and the fiscal years ended December 31, 1998
and 1997. The results include the operations of Global MAINTECH and our
subsidiaries. On January 3, 2000, Global MAINTECH announced that it approved a
plan to sell the subsidiary Breece Hill Technologies, Inc. See "Summary
Financial Data" for financial information giving effect to the discontinued
operations for the nine months ended September 30, 1999 and "Recent
Developments" for a description of the sale. This prospectus contains, in
addition to historical information, forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to differences include those discussed below, as well as those
discussed elsewhere in this prospectus. See " -- Forward Looking Statements."
Results of Operations
Fiscal Third Quarter 1999 compared to Fiscal Third Quarter 1998.
Operating results by segment are as follows:
Third Quarter Comparison
<TABLE>
<CAPTION>
Amount Increase (Decrease) % of Revenue
------------------- ---------------------- -----------------------
($000s) 1999 1998 $ % 1999 1998
------- ------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Monitoring Products............... $ 1,855 $ 1,659 196 11.8% 17.6% 100.0%
Tape Library Storage Products..... 8,711 -- 8,711 N/A 82.4
------- ------- --------- --------- --------- ----------
Total................ $10,566 $ 1,659 8,907 536.9% 100.0% 100.0%
Income (loss) from operations:
Monitoring Products............... $(3,186) $ 89 (3,275) (3,679.8%) (30.2%) 5.4%
Tape Library Storage Products..... (950) -- (950) N/A (9.0%) --
------- ------- --------- --------- --------- ----------
Total............... $(4,136) $ 89 (4,225) (4,747.2%) (39.1%) 5.4%
</TABLE>
Nine Months Ended September 30, 1999 compared to
Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
Amount Increase (Decrease) % of Revenue
------------------- ---------------------- -----------------------
($000s) 1999 1998 $ % 1999 1998
------- ------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Monitoring Products............... $ 7,134 $ 5,132 2,002 39.0% 27.5% 100.0%
Tape Library Storage Products..... 18,761 -- 18,761 N/A 72.5% --
--------- ---------- --------- --------- --------- ----------
Total.............. $ 25,895 $ 5,132 20,763 404.6% 100.0% 100.0%
Income (loss) from operations:
Monitoring Products............... $ (3,759) $ 435 (4,194) (964.1%) (14.5%) 8.5%
Tape Library Storage Products..... (1,614) -- (1,614) N/A (6.2%) --
--------- ---------- --------- --------- --------- ----------
Total.............. $ (5,373) $ 435 (5,808) (1,335.2%) (20.7%) 8.5%
</TABLE>
20
<PAGE>
Net Sales for the third quarter ended September 30, 1999 were approximately
$10,566,000 compared to sales for the third quarter of 1998 of approximately
$1,659,000. Sales for the nine months ended September 30, 1999 were
approximately $25,895,000 compared to $5,132,000 in the same nine month period
of 1998. The approximate $8,907,000 increase for the third quarter and the
approximate $20,763,000 increase for the nine months ended September 30, 1999 is
substantially related to our acquisition of Breece Hill in April 1999. Breece
Hill contributed approximately $8,711,000 in product sales for the third quarter
and $18,761,000 for the nine month period ended September 30, 1999. The
remaining increases of $196,000 for the third quarter and $2,002,000 for the
nine months ended September 30, 1999 are due to sales from new products and
products acquired in the latter part of 1998 fiscal year.
Cost of sales as a percentage of revenue increased in the third quarter of
1999 to 66% from 31% in the third quarter of 1998 and increased for the nine
months ended September 30, 1999 to 63% from 34% in the nine months ended
September 30, 1998. Excluding the newly acquired tape library business, Breece
Hill, cost of sales increased to 38% in the third quarter of 1999 and decreased
to 30% in the nine months ended September 30, 1999. Excluding one-time non-cash
charges due to a $494,000 inventory valuation related to the Breece Hill
acquisition, the Breece Hill cost of sales was 28% for the third quarter of 1999
and 27% for the nine month period ended September 30, 1999, which reflects the
equipment and labor assembly costs of the tape library industry. The hardware
component in the non-Breece Hill business segment cost of sales decreased
compared to the prior three and nine month periods. However, the costs of sales
in 1999 includes an increase in amortization of software development costs in
1999 of approximately $460,000 and $1,360,000 for the three and nine month
periods ended September 30, 1999. This increase in amortization of development
costs caused the non-Breece Hill business segment cost of sales as a percentage
of revenue to increase to 38% in the third quarter of 1999 compared to 31% in
the third quarter of 1998. Sales in the third quarter ended September 30, 1999
did not increase sufficiently to offset the increase in amortization of software
development costs. We were expecting an increase in VCC sales which did not
materialize. We attribute this to the shift in sales focus from direct sales to
sales through the reseller arrangement with Hitachi Data Systems. We did not
anticipate the delay in sales revenues as a result of focusing our sales force
to this reseller arrangement but have recently experienced an increase in
activity as a result of this change of sales focus and assume this additional
activity will continue.
Selling, general and administrative expenses in the third quarter of 1999
were approximately $7,356,000 compared to $838,000 in the third quarter of 1998.
For the nine month period ended September 30, 1999 these expenses were
approximately $13,718,000 compared to $2,440,000 in the same period in 1998.
Excluding Breece Hill's selling, general and administrative expenses of
approximately $3,357,000 in the third quarter of 1999 and $6,234,000 in the
first nine months of 1999 which includes approximately $800,000 of purchase
costs amortization for the three month period ended September 30, 1999 and
$1,647,000 of purchase cost amortization for the nine month period ended
September 30, 1999, these increases were approximately $3,999,000 and $7,484,000
for the three and nine month periods ended September 30, 1999, respectively.
Included in this increase is a non-cash charge of $1,290,000 which reflects the
issuance of 258,000 shares of common stock for a financial investment advisory
program begun on August 30, 1999 and extending into the year 2000. The terms of
this contract require us to reflect this cost at the start of the program. We do
not expect to incur any significant cash expenditures for this program. The
remaining increase in selling, general and administrative expenses of $2,709,000
for the three month period ended September 30, 1999 and $6,194,000 for the nine
month period ended September 30, 1999 are primarily due to increases in salaries
and advertising and secondarily to increases in travel and meals, depreciation
and rent expenses. The increases are substantially staffing increases in the
product areas generating increases in sales which include 10 new products from a
combination of SSI and Magnum Technologies. We have increased the number of
employees in these product areas including sales, support and development and
increased advertising and marketing to promote these products. The increase in
travel expenses is related to increased sales activity. Depreciation and rent
expenses increased due to depreciation from the purchase of additional equipment
and space required for additional employees.
Research and development costs in the third quarter of 1999 were
approximately $331,000 compared to $212,000 in the third quarter of 1998. For
the nine month period ended September 30, 1999 research and development costs
were approximately $1,241,000 compared to $486,000 in the same period in the
prior year. The increases of $119,000 in the third quarter and $755,000 for the
nine months ended September 30, 1999 are primarily due to the monitoring
products business segment and are due to increased salary and consulting
expenses relating to
21
<PAGE>
additional employees and contractors in this expense category. The majority of
these increases are related to new products we developed or acquired throughout
1998 and the first nine months of 1999.
Non-operating expenses include interest expense, amortization of capitalized
debt issuance costs, interest income and other expense. The increase in
amortization is due to the addition of deferred debt costs from the issuance of
warrants related to $500,000 of subordinated short-term debt issued in February
1999. Interest expense increased $324,000 in the three months ended September
30, 1999 and $609,000 in the nine months ended September 30, 1999. The increase
in both periods is primarily due to interest expense attributable to Breece Hill
in the amount of $217,000 in the three months ended September 30, 1999 and
$443,000 in the nine months ended September 30, 1999. Breece Hill has a line of
credit to finance accounts receivable and inventory and subordinated debt
totaling $6.7 million. The remainder of the increase is related to an increase
in debt we issued, a portion of which was issued in connection with the
acquisition of Breece Hill. See "Recent Developments" regarding the sale of
Breece Hill. Other expense increased as a result of an accrual of penalties on
Series B Stock in the amount of $387,000. This accrual represents a penalty for
a delay in the registration of the underlying common stock into which the Series
B and C Stock is convertible. No demand of the penalty interest has been made
and we have a general understanding that this penalty interest may be waived. We
are continuing to formalize this waiver.
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended
December 31, 1997
Net sales for the year ended December 31, 1998 were approximately
$6,209,000 compared to net sales of $3,003,000 in the year ended December 31,
1997. Sales of the VCC and other systems were approximately $4,246,000 in 1998
compared to approximately $2,138,000 in 1997. Maintenance fees were
approximately $948,000 in 1998 on previously sold systems and consulting fees
were approximately $704,000. Maintenance and consulting fees in 1997 were
approximately $702,000 and $132,000, respectively. During 1998 Global MAINTECH
also recorded approximately $312,000 of revenue primarily relating to the sale
of computer parts compared to $30,000 from such sales in 1997. These revenue
activities reflect the installation of a cumulative total of 38 VCC units with
14 customers compared to a cumulative total of 21 VCC units with 8 customers as
of December 31, 1997, and the sale of system software to numerous other
customers. The gross margin on sales was approximately 63% in 1998 compared to
75% in 1997. The decrease in gross margin in 1998 is primarily related to the
approximate $687,000 increase in amortization of capitalized software costs.
Selling, general and administrative costs for the year ended December 31,
1998 were approximately $4,414,000 compared to approximately $1,649,000 for the
same period in the prior year. This $2,765,000 increase is related to a
$1,187,000 increase in salary expense which reflects an increase in paid
employees which grew during the year from 26 to 87. In addition, Global MAINTECH
increased the allowance for doubtful accounts $300,000 during 1998. Advertising,
travel and entertainment costs increased $150,000 and $245,000, respectively, in
the year ended 1998 versus 1997. This reflects the increased activities in the
business: marketing and travel expenses are directly related to increased
selling activities. Professional and technical costs, depreciation expense,
rent, and utilities costs increased approximately $94,000, $434,000, $152,000
and $119,000, respectively. These increases are all primarily related to
increased business activities of Global MAINTECH. Professional and technical
expenses which include legal, accounting and investor relations expenses
increased due to additional business activity during 1998. Depreciation, rent
and utilities expenses increased as a function of the increase in equipment
purchases and space for new employees. Research and development expenses in 1998
and 1997 relate to the ongoing maintenance of existing software and are
comprised of salaries, consulting fees for technical expertise, and recruiting
expenses.
Non-operating expenses in the year ended December 31, 1998 consisted of
interest expense, interest income and amortization of deferred debt issue costs
indicated as "Other." The increased interest expense is substantially due to the
cost of the $2,000,000 of subordinated debt issued by Global MAINTECH on June
19, 1997. Interest income in 1998 is primarily due to lease income where Global
MAINTECH has acted as lessor of its VCC systems. In 1997 interest income was
primarily the result of short-term investments of excess cash. Amortization
($44,294 annually on a straight-line basis over five years) of deferred debt
issue costs of $225,223 relates to the issuance of $2,000,000 of subordinated
debt.
22
<PAGE>
Liquidity and Capital Resources
As of September 30, 1999, we had negative working capital of approximately
$4,319,000 compared to positive working capital of approximately $2,068,000 as
of December 31, 1998. The decrease in positive working capital as of September
30, 1999 is due to the acquisition of long-term assets using short-term
liabilities. During the nine months ended September 30, 1999, we have incurred
short-term liabilities, primarily in the form of notes payable of approximately
$3.0 million related to the acquisitions of Breece Hill and Lavenir and for the
investment in capitalized software costs and incurred short-term liabilities for
approximately $1.8 million to complete the acquisition of the software licenses
purchased from IGI. In addition, Breece Hill has post-acquisition negative
working capital of approximately $644,000.
Net cash used in operating activities for the nine months ended September
30, 1999 was approximately $5,100,000. During this nine month period of 1999
operating funds loss of approximately $1,229,000 were used by the net loss prior
to depreciation/amortization and valuation charges for common stock issued for
investor relations services. The net loss was also affected by an allocation to
inventory of a portion of the purchase price of Breece Hill in the amount of
$494,000 and the write-off of $83,000 of in process technology at Breece Hill at
the time of acquisition. We charged the $494,000 to cost of sales as the related
inventory was sold and the $83,000 was charged to research and development.
Operating funds were also provided by an increase in accrued expenses and
deferred revenue in the combined approximate amount of $1,415,000. Operating
funds were used by increases in current assets of approximately $2,837,000,
which includes an increase in accounts receivable of approximately $2,082,000
and inventory of approximately $466,000, and a decrease in accounts payable of
approximately $2,449,000.
Cash used by investing activities for the nine months ended September 30,
1999 was approximately $2,342,000 and included investments of $2,331,189 in
capitalized computer software development costs, which represent costs incurred
after technological feasibility has been established in connection with the
development of enhancements to one or more particular software programs. We also
invested in other assets in the amount of $191,000. We also purchased
approximately $409,000 of additions to machinery and equipment during the first
nine months of 1999 and acquired $607,000 of cash as a result of our
acquisitions. In the first nine months of 1998, cash used in investing
activities totaled $2,292,000, which included investments in software
development costs of $1,905,000, purchased technology of $804,000, purchases of
property and equipment of approximately $205,000 and an investment, net of
receipt of payments, in a note receivable in the amount of $95,000. These
investments were partially offset by the sale of sales-type leases in the amount
of $680,000 and a reduction in leased equipment in the amount of $37,000.
Net cash of approximately $7,532,000 was provided by financing activities
in the first nine months of 1999. This is primarily the result of net proceeds
from the issuance of $1,504,000 of Series C Stock at a per share price of $1,000
and approximately $2,720,000 from the issuance of shares of common stock in two
private placements. In addition, proceeds in the amount of $3,307,000 were
received from the issuance of both short-term and long-term debt primarily
secured by long-term assets. In the first nine months of 1998, net cash of
approximately $2,034,000 was provided by financing activities. Net proceeds of
approximately $1,627,000 were received from the issuance of shares of common
stock and approximately $482,000 from the issuance of Series B Stock. These
proceeds were partially offset by a $75,000 reduction in notes payable.
Presently, we believe our negative working capital can be improved from the
sale of a business unit and from earnings measured before non-cash items such as
expenses for depreciation and amortization and stock issued for services. Our
loss before non-cash items for the nine months ended September 30, 1999 was
approximately $1,229,000 in the first nine months of 1999 which represents a
decline from a similar measure in the first six months of 1999. This loss in the
third quarter before non-cash items has caused us to implement a restructuring
plan to reduce our expenses subsequent to September 30, 1999 which resulted in
the layoff of approximately 20 employees and some temporary salary reductions
for the remainder of 1999.
While the loss before non-cash items in the third quarter of 1999 is
largely due to actual sales being less than forecasted, the loss was made worse
because we were incurring operating expenses based upon a planned higher
forecast than actually occurred. As a result operating expenses have been
reduced accordingly. In addition to these changes in operations, we have also
addressed the effects of this loss before non-cash items as it relates to
23
<PAGE>
our ability to keep current with our debt obligations. We have a note payable in
the amount $250,000 with Andersen, Weinroth & Co., L.P. which was due on
September 30, 1999 and borrowing base line of credit with H&Q both of which have
payments which are past due as of September 30, 1999. On October 29, 1999, we
renegotiated our accounts receivable based line of credit with H&Q and H&Q
verbally agreed to purchase the $250,000 note payable from Andersen, Weinroth &
Co., L.P. The terms of the renegotiation with H&Q call for us to significantly
reduce the notes payable outstanding with H&Q with revenue from sales and from
proceeds from additional equity, debt or asset sales. If we are not in default
in our debt agreements with H&Q, the prepayments can be re-borrowed according to
the standard terms of the borrowing base agreement. See "Recent Developments."
We have re-evaluated our assumptions predicting future growth in sales and
improved earnings before non-cash items and believe the factors that created the
loss in the three months ended September 30, 1999 will not significantly affect
future sales. However, future sales may be affected by the sale of a business
unit or other changes. Although variable costs of sales have been reduced,
certain costs of sales such as amortization of capitalized software costs are
not directly related to short-term reductions in sales or reductions in the rate
of sales growth. As a result, total gross margins have declined. These results
have reduced our liquidity and can be expected to reduce our ability to raise
capital in the debt or equity markets. In addition, we have various
contingencies that may require us to issue additional common stock. Depending on
the outcome of these contingencies, it may be necessary for us to seek
shareholder approval to authorize additional shares of common stock.
Liquidity is also affected by our ability to collect our accounts
receivable and our ability to realize full value for our inventory and other
assets. As previously mentioned, the gross margins on our inventory have not
declined and our inventory has increased over the nine months ended September
30, 1999. Furthermore, based on our renegotiations with H&Q and the current
forecast we believe we have adequate lines of credit and cash flow to purchase
additional inventory as necessary. Although our aged accounts receivable have
improved as of September 30, 1999, there is no assurance this improvement will
continue.
Our debt level has increased substantially in the nine months ended
September 30, 1999 and the majority of this debt matures over the next 18
months. The assets that support this debt have a longer expected life than the
debt. This increase in debt has occurred in the non-Breece Hill segment of the
business that has a 67% to 69% gross margin. We believe the recent reduction in
operating expenses in this segment of the business will enhance our operating
margin to service this debt with a higher level of profitability. Nevertheless,
we can provide no assurance as to our future profitability and continued access
to the capital markets or our ability to repay our debts as they become due.
Year 2000 Issue
State of Readiness. The amount of additional remediation work required to
address year 2000 problems was not extensive. Global MAINTECH tested all of the
system software included in its products and determined that it was year 2000
compliant. We did not experience service interruptions from suppliers or
disruptions in such infrastructure areas as utilities, communications,
transportation, banking and government.
Costs. Because essentially all of Global MAINTECH's products and internal
systems were created in the last few years, these products and internal systems
were designed to avoid the year 2000 problem. As a result, the total cost
incurred for resolving Global MAINTECH's year 2000 issues was less than $20,000,
all of which was incurred before July 31, 1999. No additional costs were
incurred. The total cost included the cost of replacing or upgrading
non-compliant systems that were otherwise planned but perhaps accelerated due to
the year 2000 issue, or which have significant improvements and benefits
unrelated to year 2000 issues. Final year 2000 costs were not greater than
anticipated.
Risk. Global MAINTECH has not experienced any material disruption as a
result of year 2000 problems in its products and the third-party systems it uses
for its internal functions. Critical third-party providers, such as those
providers supplying electricity, water or telephone service, did not experience
difficulties resulting in disruption of service to Global MAINTECH. To date,
Global MAINTECH has managed its total year 2000 transition without any material
effect on Global MAINTECH's results of operations or financial condition.
24
<PAGE>
Forward Looking Statements
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. We have
based these forward-looking statements largely on our current expectations and
projections about future events and financial trends affecting our business. The
words "believe," "may," "will," "estimate," "continue," "anticipate," "intend,"
"expect" and similar words are intended to identify forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements because of new information or future events. In light of these risks
and uncertainties, the forward-looking events and circumstances discussed in
this prospectus might not transpire. The forward-looking statements are
qualified in their entirety by the risk factors listed in this prospectus
beginning on page 8. Our forward-looking statements are subject to risks,
uncertainties and assumptions, including:
o our ability to continue to operate profitably in the future;
o our failure to meet future additional capital requirements;
o our loss of key personnel;
o our failure to respond to evolving industry standards and
technological changes;
o our inability to compete in the industry in which we operate;
o our failure to successfully integrate the operations of newly acquired
businesses;
o lack of market acceptance of our products, including products under
development;
o our failure to secure adequate protection for our intellectual
property rights; and
o our exposure to product liability claims.
25
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of common stock and preferred stock, as of February 23, 2000, by (1)
each person known to Global MAINTECH to be the beneficial owner of 5% or more of
any class of Global MAINTECH's voting securities, (2) each of Global MAINTECH's
directors, (3) the executive officers named in the Summary Compensation Table
below and (4) the directors and executive officers of Global MAINTECH as a
group. The address of each of the individuals named below is 7578 Market Place
Drive, Eden Prairie, Minnesota 55344.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes generally the voting and
investment power of the securities. Shares of common stock or preferred stock
subject to options or warrants currently exercisable or exercisable within 60
days of the date of determination are deemed outstanding for purposes of
computing the percentage of shares beneficially owned by the person holding
those options or warrants, but are not deemed to be outstanding for purposes of
computing the percentage for any other person. Each person identified below has
sole voting and investment power of all shares of common stock and preferred
stock shown as beneficially owned by that person.
<TABLE>
<CAPTION>
Common Stock Preferred Stock
Beneficially Owned Beneficially Owned
--------------------------- ---------------------------------------------------------
Number of Percentage Number of Percentage
Shares of of Shares of Shares of of Shares
Number of Percentage Series A Series A Series B of Series B
Name and Address (1) Shares of Shares Stock Stock Stock Stock
- ------------------------ ------------ ------------ ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Trent Wong.............. -- -- -- -- -- --
David H. McCaffrey (2).. 564,000 9.7% -- -- -- --
John E. Haugo (3)....... 31,000 * -- -- -- --
Donald Brattain......... -- -- 2,133 16.0% -- --
Donald Fraser........... -- -- 5,333 40.0% -- --
James Lehr.............. -- -- 2,133 16.0% -- --
Donald Hagen............ -- -- 1,067 8.0% -- --
Henry Mlekoday.......... -- -- -- -- -- --
Douglas Swanson......... -- -- 1,333 10.0% -- --
Aaron Boxer Rev Trust
u/a dtd 8/1/89...... -- -- -- -- 3,446 5.1%
WCN/GAN Partners,
Ltd..................... 409,026 7.1% -- -- -- --
John M. Liviakis........ 753,000 13.5% -- -- -- --
Industricorp & Co. FBO
1561000091.......... -- -- -- -- 5,000 7.4%
John O. Hanson.......... -- -- -- -- 6,150 9.2%
Crow 1999 CRUT.......... -- -- -- -- 3,385 5.0%
Esquire Trade & Finance
Inc................. -- -- -- -- -- --
Austinvest Anstalt
Balzers............. -- -- -- -- -- --
Assanzon Capital
Development
Corporation......... -- -- -- -- -- --
Garros Ltd.............. -- -- -- -- -- --
Nash, LLC............... -- -- -- -- -- --
All officers and directors 669,000 11.4% -- -- -- --
as a group (3 persons)
</TABLE>
[Table continued on next page]
26
<PAGE>
<TABLE>
<CAPTION>
Preferred Stock
Beneficially Owned
-------------------------------------------------------------------------------------------
Number of Percentage of Number of Percentage of Number of Percentage of
Shares of Shares of Shares of Shares of Shares of Shares of
Name and Address (1) Series D Stock Series D Stock Series E Stock Series E Stock Series F Stock Series F Stock
- ------------------------------------- -------------- -------------- -------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Trent Wong........................... -- -- -- -- -- --
David H. McCaffrey (2)............... -- -- -- -- -- --
John E. Haugo (3).................... -- -- -- -- -- --
Donald Brattain...................... -- -- -- -- -- --
Donald Fraser........................ -- -- -- -- -- --
James Lehr........................... -- -- -- -- -- --
Donald Hagen......................... -- -- -- -- -- --
Henry Mlekoday....................... -- -- -- -- -- --
Douglas Swanson...................... -- -- -- -- -- --
Aaron Boxer Rev Trust u/a dtd 8/1/89. -- -- -- -- -- --
WCN/GAN Partners, Ltd................ -- -- -- -- -- --
John M. and Renee A. Liviakis........ -- -- -- -- -- --
Industricorp & Co. FBO 1561000091.... -- -- -- -- -- --
John O. Hanson....................... -- -- -- -- -- --
Crow 1999 CRUT....................... -- -- -- -- -- --
Esquire Trade & Finance Inc.......... 575 21.1% -- -- -- --
Austinvest Anstalt Balzers........... 575 21.1% -- -- -- --
Assanzon Capital Development
Corporation.......................... 500 18.3% -- -- -- --
Garros Ltd........................... 350 12.8% -- -- -- --
Nash, LLC............................ -- -- 2,500 94.3% -- --
RBB Bank Aktiengesellschaft.......... -- -- -- -- 2,000 100%
All officers and directors
as a group (3 persons) (4)....... -- -- -- -- -- --
</TABLE>
- -----------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each of the above is c/o 7578
Market place Drive, Eden Prairie, Minnesota 55344.
(2) Includes 254,000 shares of common stock issuable to Mr. McCaffrey upon the
exercise of outstanding options.
(3) Includes 15,000 shares of common stock issuable to Mr. Haugo upon the
exercise of outstanding options.
(4) Includes 295,000 shares of common stock issuable to all officers and
directors as a group upon the exercise of outstanding options.
27
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides the cash compensation awarded to or earned by
the chief executive officer and any employee who earned in excess of $100,000
during the year ended December 31, 1999. No other executive officer of Global
MAINTECH earned salary and bonus in excess of $100,000 during the year ended
December 31, 1999.
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------
Annual Compensation Awards Payouts
------------------------------------------ ------------ -------------
Securities
Underlying LTIP
Name and Principal Position Year Salary Bonus Options Payouts
- ------------------------------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Trent Wong (1)
Chief Executive Officer 1999 $ 21,500 $ -- 117,000 --
David H. McCaffrey (2) 1999 103,500 -- -- --
1998 90,000 8,000 36,000 --
1997 97,000 -- 50,000 --
</TABLE>
- ----------
(1) Mr. Wong has served as Chief Executive Officer since November 8, 1999.
(2) Mr. McCaffrey served as Chief Executive Officer from January 4, 1995 to
November 8, 1999.
Stock-Based Compensation
The following table provides information concerning individual grants of
stock options made to the persons named in the "Summary Compensation Table"
above. No stock appreciation rights were granted or exercised for the year ended
December 31, 1999.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
(Individual Grants)
Number of % of Total
Securities Options
Underlying Granted to Exercise of
Options Employees in Base Price Expiration
Name Granted Fiscal Year ($/Share) Date
- ----------------------------------------- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Trent Wong (1) 117,600 13.1% $ 6.25 07/28/04
David H. McCaffrey -- -- -- --
</TABLE>
- ----------------
(1) The right to purchase 117,600 shares will vest on May 31, 2000.
28
<PAGE>
The following table provides information concerning stock option exercise
and the value of unexercised options at December 31, 1999 for the named
executive officers.
Aggregated Option Exercises in 1999
and Year End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options at FY-end Options at FY-end
Acquired on Value --------------------------- ---------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- ------------ ------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Trent Wong -- -- -- 284,000 $ 0 $ 781,000(1)
David H. McCaffrey -- -- 254,000 0 $ 1,651,160 $ 0(2)
</TABLE>
- ---------------
(1) Mr. Wong believes his stock options have no value, based on the low trading
volume of the common stock and the restrictive trading rules applicable to
insiders. Notwithstanding the foregoing, for reporting purposes only, Mr.
Wong's unexercised in-the-money options have a value of $781,000 calculated
based on the difference between the fair market value of $9.00 of the
284,000 shares of common stock underlying in-the-money options at year end
and the exercise price of the options at February 23, 2000 (284,000 shares
at $6.25).
(2) Mr. McCaffrey believes his stock options have no value, based on the low
trading volume of the common stock and the restrictive trading rules
applicable to insiders. Notwithstanding the foregoing, for reporting
purposes only, Mr. McCaffrey's unexercised in-the-money options have a
value of $1,651,160, calculated based on the difference between the fair
market value of $9.00 of the 254,000 shares of common stock underlying
in-the-money options at year end and the exercise price of the options at
February 23, 2000 (168,000 shares at $0.75, 50,000 shares at $5.00 and
36,000 shares at $7.1875).
29
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Global MAINTECH's common stock trades on the Over-the-Counter Bulletin
Board under the symbol "GLBM." Before November 12, 1996, Global MAINTECH's
common stock traded on the Nasdaq Small Cap Market under the symbol "GBMT."
Global MAINTECH's common stock has been listed on the Frankfurt Stock Exchange
since September 7, 1999. Global MAINTECH effected a one-for-five reverse stock
split of its common stock and its Series B preferred stock on September 2, 1999.
All prices below are shown as if such split had occurred prior to the periods
presented. As of February 23, 2000, Global MAINTECH had approximately 3,137
shareholders of record of its common stock. The following are the high and low
bid quotations for Global MAINTECH's common stock as reported on the OTC Market
during the periods indicated. These quotations represent prices quoted between
dealers, without retail mark-up, mark-down or commissions, and may not
necessarily represent actual transactions.
1998 High Low
- ----
---------- ---------
First Quarter....................................... $ 13.75 $ 9.40
Second Quarter...................................... 13.75 9.70
Third Quarter....................................... 11.70 5.65
Fourth Quarter...................................... 8.45 5.30
1999
First Quarter....................................... $ 12.19 $ 7.19
Second Quarter...................................... 9.84 5.94
Third Quarter....................................... 12.25 6.09
Fourth Quarter...................................... 8.16 5.13
2000
First Quarter (through February 23, 2000)........... $ 10.37 $ 7.06
DIVIDEND POLICY
Global MAINTECH has not paid cash dividends on its common stock and does
not anticipate paying cash dividends in the next two fiscal years. Global
MAINTECH currently is accruing dividends on its Series B, Series D, Series E and
Series F preferred stock at the annual rate of 8% per year, payable at the
election of Global MAINTECH in either cash or common stock, but no dividends are
payable until conversion into common stock.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock currently consists of 10,711,724 shares. As of
February 23, 2000, 887,980 of these shares are designated as Series A
convertible preferred stock, 123,077 shares are designated as Series B
convertible preferred stock, 1,675 shares are designated as Series C convertible
preferred stock, 2,775 shares are designated as Series D convertible preferred
stock, 2,650 shares are designated as Series E convertible preferred stock, and
2,000 shares are designated as Series F convertible preferred stock. The Series
A stock, the Series B stock, the Series C stock, the Series D stock, the Series
E stock and the Series F stock are sometimes referred to together as preferred
stock. As of February 23, 2000, there were 5,921,431 shares of common stock
outstanding, which were held of record by approximately 3,137 shareholders,
13,860 shares of Series A stock outstanding, which were held of record by
approximately 6 shareholders, 255,114 shares of Series B stock outstanding,
which were held of record by 25 shareholders, no shares of Series C stock
outstanding, 2,725 shares of Series D stock outstanding, which were held of
record by 7 shareholders, 2,650 shares of Series E stock outstanding, which were
held of record by 3 shareholders and 2,000 shares of Series F stock outstanding,
which were held of record by 1 shareholder.
In February 2000, our Board approved an amendment to our Articles of
Incorporation that would increase our authorized capital stock to 18,500,000
shares, subject to approval by the shareholders at the Special Meeting to be
held on April 5, 2000. If the amendment is approved, we will be authorized to
issue an additional
30
<PAGE>
7,788,276 shares from time to time at the discretion of the Board. Unless
otherwise designated by the Board, all of such shares will be common stock.
Common Stock
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. There is no
cumulative voting for the election of directors so that the holders of more than
50% of the aggregate voting power of the outstanding common stock and preferred
stock can elect all directors. See "-- Preferred Stock." Subject to preferences
that may be applicable to any outstanding preferred stock, holders of common
stock are entitled to receive ratably the dividends declared by the board of
directors of Global MAINTECH out of funds legally available for dividends and in
liquidation proceedings. Holders of common stock have no preemptive or
subscription rights and there are no redemption rights associated with these
shares.
Preferred Stock
The holders of Series A stock and Series B stock are entitled to vote on
all matters submitted to a vote of shareholders the number of votes for each
share held of record equal to the number of shares of common stock into which
each share of preferred stock is then convertible. The holders of Series D
stock, Series E stock and Series F stock have no voting rights except in the
event Global MAINTECH desires to issue shares of a class or series of preferred
stock which could adversely affect the rights of such holders, or as may
otherwise be required by law. There is no cumulative voting for the election of
directors so that the holders of more than 50% of the aggregate voting power of
the outstanding common stock and preferred stock can elect all directors.
Holders of Series A stock are entitled to receive ratably the dividends declared
by the board of directors of Global MAINTECH, and holders of Series B stock,
Series D stock, Series E stock and Series F stock are entitled to receive
dividends at an annual rate of 8% per share, out of funds legally available for
dividends and in liquidation proceedings. Dividends on shares of Series B stock,
Series D stock, Series E stock and Series F stock are cumulative and are only
payable upon conversion of the corresponding series of preferred stock. Holders
of preferred stock have no preemptive or subscription rights and there are no
redemption rights with respect to those shares.
Under Minnesota law and Global MAINTECH's articles of incorporation, the
board of directors is authorized, without further shareholder action, to issue
preferred stock in one or more classes or series and to fix the voting rights,
liquidation preferences, dividend rights, repurchase rights, conversion rights,
redemption rights and terms, including sinking fund provisions, and other rights
and preferences, of the preferred stock. Accordingly, although it has no current
intention of doing so, the board of directors of Global MAINTECH may, with the
approval of the holders of a majority of the voting power of the then
outstanding preferred stock, issue shares of a class or series of preferred
stock with voting and conversion rights which could adversely affect the voting
power and the dividend and other rights of the holders of common stock.
Warrants and Options
As of February 23, 2000, Global MAINTECH had outstanding options to
purchase 1,683,466 shares of common stock that had been issued to employees,
directors and consultants to the company under the 1989 Stock Option Plan, with
a weighted average exercise price of $7.48 per share. These options expire
between November 20, 2000 and September 29, 2004. As of February 23, 2000,
Global MAINTECH also had outstanding warrants to purchase a total of 1,937,828
shares of common stock with a weighted average exercise price of $10.91 per
share. These third-party warrants are all currently exercisable and expire on
dates ranging from December 31, 2000 to October 31, 2004. All agreements
embodying these outstanding warrants and options provide for antidilution
adjustments if there are changes in the corporate structure of Global MAINTECH,
such as mergers, consolidations, reorganizations, recapitalizations, stock
dividends, or stock splits.
Anti-Takeover Provisions of the Minnesota Business Corporation Act
The provisions of Minnesota law described below could have an anti-takeover
effect. These provisions are intended to provide management flexibility to
enhance the likelihood of continuity and stability in the composition of the
board of directors and in the policies formulated by the board of directors and
to discourage an unsolicited takeover of Global MAINTECH if the board of
directors determines that a takeover is not in the best interests of the
31
<PAGE>
company and its shareholders. However, these provisions could have the effect of
discouraging attempts to acquire Global MAINTECH, which could deprive the
company's shareholders of opportunities to sell their shares of common stock at
prices higher than prevailing market prices.
Section 302A.671 of the Minnesota Business Corporation Act (the "MBCA")
provides that, unless the acquisition of over 20%, 33 1/3% or 50% of voting
control of Global MAINTECH by an existing shareholder or other person is
approved by a majority of the disinterested shareholders of the company, the
shares acquired above the new percentage level of voting control will not be
entitled to voting rights. Global MAINTECH is required to hold a special
shareholders' meeting to vote on an acquisition within 55 days after the
delivery to the company by the acquiror of an information statement including a
description of the acquiror and any plans of the acquiror to liquidate or
dissolve the company and copies of definitive financing agreements for any
financing of the acquisition not to be provided by funds of the acquiror. If any
acquiror does not submit an information statement to Global MAINTECH within ten
days after acquiring shares representing a new threshold percentage of voting
control of Global MAINTECH, or if the disinterested shareholders vote not to
approve the acquisition, Global MAINTECH may redeem the shares so acquired by
the acquiror at their market value. Section 302A.671 generally does not apply to
a cash offer to purchase all shares of voting stock of the issuing corporation
if the offer has been approved by a majority vote of disinterested board members
of the issuing corporation.
Section 302A.673 of the MBCA restricts various transactions between Global
MAINTECH and a shareholder who becomes the beneficial holder of 10% or more of
Global MAINTECH's outstanding voting stock (an "interested shareholder") unless
a majority of the disinterested directors of Global MAINTECH have approved,
before the date on which the shareholder acquired a 10% interest, either the
business combination transaction suggested by the shareholder or the acquisition
of shares that made the shareholder an interested shareholder. If prior approval
is not obtained, the statute prohibits mergers, sales of substantial assets,
loans, substantial issuances of stock and various other transactions involving
Global MAINTECH and the interested shareholder or its affiliates for four years
following the date on which the interested shareholder became an interested
shareholder.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Norwest Bank,
Minnesota, N.A.
Indemnification of Directors and Officers
Global MAINTECH's second amended and restated articles of incorporation and
the statutes of the State of Minnesota require the company to indemnify any
director, officer, employee or agent who was or is a party to any threatened,
pending or completed action, suit or proceedings, whether civil, criminal,
administrative or investigative, against liabilities and expenses incurred in
connection with the action, suit or proceeding, except where the person was not
acting in good faith or did not reasonably believe that the conduct was in the
best interests of the company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or other persons controlling Global
MAINTECH according to the foregoing provisions, the company has been informed
that in the opinion of the SEC, this indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
CERTAIN TRANSACTIONS
On December 16, 1996, based on the advice of Global MAINTECH's financial
advisor, David McCaffrey exercised stock options to purchase 168,000 shares of
common stock and Jim Geiser exercised stock options to purchase 48,000 shares of
common stock. Messrs. McCaffrey and Geiser paid their respective exercise prices
totaling $126,000 and $59,000 in the form of personal promissory notes payable
to Global MAINTECH. Each of these promissory notes had an interest rate of 5.75%
per year and was scheduled to be repaid no later than the termination date of
the option to which the note related. Mr. McCaffrey agreed to pay his personal
promissory note in full on or before February 28, 2000. Mr. Geiser repaid his
personal promissory note in full on November 15, 1999. David McCaffrey is a
director of Global MAINTECH and served as Chief Executive Officer until November
1999. Jim Geiser is Global MAINTECH's chief financial officer and secretary.
32
<PAGE>
Management of Global MAINTECH believes that the terms of the transactions
described above were no less favorable to Global MAINTECH than would have been
obtained from an unaffiliated third party. Any future material transactions and
loans with officers, directors or 5% beneficial shareholders of common stock, or
affiliates of such persons, will be on terms no less favorable to Global
MAINTECH than could be obtained from unaffiliated third parties and will be
approved by a majority of the outside members of Global MAINTECH's board of
directors who do not have an interest in the transactions.
Global MAINTECH has agreed with the Minnesota Department of Commerce that
so long as the shares described in this prospectus are registered in the State
of Minnesota, or one year from the date of this prospectus, whichever is longer,
Global MAINTECH will not make loans to its officers, directors, employees or
principal shareholders, except for loans made in the ordinary course of
business, such as travel advances, expense account advances, relocation advances
or reasonable salary advances.
RECENT DEVELOPMENTS
Note Payable to Andersen, Weinroth & Co.
On August 6, 1999, we rescheduled the principal payment of $250,000 of a
$500,000 note payable to Andersen, Weinroth & Co. which was due on July 31,
1999. The due date of the payment was extended to November 30, 1999 and the
payment was made in full by that date.
Re-Negotiation of Payment Provision Regarding Lavenir Acquisition
On September 28, 1999, through our wholly owned subsidiary Global MAINTECH,
Inc., we purchased substantially all the assets of Lavenir Technology, Inc., a
California corporation, pursuant to an Agreement and Plan of Reorganization by
and among the us, our subsidiary, and Lavenir.
In addition to purchasing substantially all of the assets of Lavenir
(including rights under and to Lavenir's computer software products and the
trademarks and related copyrights), we assumed certain liabilities of Lavenir,
including, Lavenir's ongoing leases, debt and contract obligations. The primary
assets we acquired were a suite of CAD/CAM software products, including the
ability to design, test, verify and repair precision graphics designs. This
software is sold independently or with Raster Photoplotters, sophisticated
hardware products used to build master printed circuit boards.
The total purchase price of $5,300,000 was payable as follows: 266,000
shares of our common stock was paid to Lavenir at closing, and $400,000 was paid
in the form of a note payable due on January 31, 2000. In November 1999, the
$400,000 note was negotiated to a $100,000 note payable due January 31, 2000 in
return for 100,000 shares of our common stock. A maximum of 700,000 additional
shares of common stock are issuable as of April 30, 2000 sufficient to cause the
value of the shares and debt previously issued and the original $400,000
liability to total $5,300,000 as of April 30, 2000. The holders of the common
stock we issued in connection with this acquisition were granted customary
registration rights.
Asset Sale to MT Acquiring Corp.
The Company, GMI, and Magnum Technologies, Inc. a wholly owned subsidiary
of GMI ("Magnum"), sold all of the business and properties used by GMI in
connection with its business conducted under the Magnum name pursuant to an
Agreement of Purchase and Sale of Assets made as of January 26, 2000 by and
among MT Acquiring Corp., Tim Hadden, Greg Crow, GMI, Magnum and the Company. In
the sale, MT Acquiring Corp. received properties and three software products
used to provide network monitoring and analysis services: CAP-TREND, Coordinator
and Advantage. MT Acquiring Corp. and it principals, Tim Hadden and Greg Crow,
also received a release from GMI, Magnum and the Company for all claims arising
out of the association of MT Acquiring Corp.'s principals with GMI, Magnum and
the Company. In exchange for the foregoing, MT Acquiring Corp. and its
principals released all claims against the Company, GMI and Magnum relating to
the parties' conduct before January 26, 2000, assumed various obligations and
contracts related to the business, and delivered a subordinated promissory note
payable to the Company in the amount of $214,000. The note bears interest at six
percent annually and provides for four semi-annual payments of principal and
interest from the date of the note's execution until its maturity date of
December 30, 2001.
Proposed Settlement Agreement with Infinite Graphics Incorporated
We are currently negotiating the transfer of certain assets and the
termination of various software licenses under a proposed settlement agreement
between Global MAINTECH and Infinite Graphics Incorporated ("Infinite
Graphics"). We acquired the assets and licenses under a February 27, 1998
License and Asset Purchase Agreement with Infinite Graphics. The assets to be
transferred would include those used by GMI in designing, assembling and
marketing computer-aided design and manufacturing software systems that operate
on a variety of mid-range and personal computer platforms. The terminated
licenses would include an exclusive software license of software products used
in the business and a non-exclusive license of software used in both our
business and Infinite Graphics' business. The transfer and termination would be
made in exchange for Infinite Graphics' assumption of specific contracts and
liabilities related to the assets and for mutual release of all claims arising
from the License and Asset Purchase Agreement, including Infinite Graphics'
release of our payment obligations.
33
<PAGE>
Proposed Sale of Breece Hill
On January 3, 2000, we announced that our board of directors approved a
plan to sell our subsidiary Breece Hill Technologies, Inc. ("BHT"), which we
acquired in April 1999, to Tandberg Data ASA of Oslo, Norway ("Tandberg"). On
February 3, 2000, we entered into a stock purchase agreement with Tandberg, GMI,
Hambrecht & Quist Guaranty Finance LLC, Greyrock Capital and Cruttenden Roth,
Incorporated. The transaction will require approval by both Global MAINTECH's
and Tandberg's shareholders. Under the terms of the stock purchase agreement and
related transactions:
o we would sell all of the common stock of BHT to Tandberg in exchange
for $3.4 million in cash, less transaction costs and holdbacks;
o Tandberg will assume or repay approximately $6.1 million in
liabilities of BHT;
o we and GMI will be released from our obligations with respect to
approximately $5.7 million of debt to be prepaid by Tandberg at the
closing;
o holders of BHT Series B preferred stock will receive up to $1 million
in cash in the aggregate;
o former holders of BHT Series A preferred stock at the time of the
merger between BHT and GMI, which we refer to as the former BH Series
A holders, will receive up to approximately $1.5 million in cash in
the aggregate;
o former holders of BHT common stock at the time of the merger between
BHT and GMI, which we refer to as the former BH Common holders, will
receive warrants to purchase up to 5,091,160 ordinary shares of
Tandberg at a price of NOK 30, and up to 518,225 shares of our common
stock in the aggregate and warrants to purchase up to 200,000 shares
of our common stock in the aggregate; and
o the former BH Series A holders and the former BH Common holders will
release any claims they may have against us, GMC, BHT or Tandberg,
except for certain claims against us and GMI related to our obligation
to issue options under the merger agreement between BHT and GMI.
Anticipated Charges in the Fourth Quarter of 1999
Due to the asset sale to MT Acquiring Corp., the proposed settlement with
Infinite Graphics Incorporated, the proposed sale of Breece Hill and re-
evaluation of the recoverability of certain tangible and intangible assets
during the fourth quarter of 1999, we are anticipating a charge of between $10
million to $12 million in December 1999 related to these items. In addition, we
are anticipating other operating losses, exclusive of the items above, between
$9 million and $11 million for the fourth quarter of 1999, approximately $5
million to $6 million of which are related to compensation paid to third parties
through grants of equity instruments. Based upon the September 30, 1999 year-to-
date net loss of $7.4 million and upon consideration of the items above, we
anticipate the fiscal year 1999 net loss to be between $26 million and $30
million.
LEGAL PROCEEDINGS
On February 15, 2000, we and GMI were named as defendants in a patent
infringement suit brought by K. Brent Johnson and I.D.G. Incorporated in federal
court for the Northern District of Oklahoma. The suit alleges, among other
things, that our VCC product, when monitoring a mainframe computer, infringes on
a patent held by the plaintiffs. We believe that the plaintiffs' claims are
without merit, but are attempting to settle the claims in order to avoid
protracted and costly litigation. Other than the patent infringement claim,
there are no material legal proceedings pending against U.S.
DESCRIPTION OF PROPERTY
Global MAINTECH's headquarters is located at 7578 Market Place Drive, Eden
Prairie, MN 55344. Global MAINTECH leases 10,500 square feet under a lease that
expires on March 31, 2000. Global MAINTECH also leases four small office spaces
for sales and technical development services, one of which is in Ohio and the
others are in California. Breece Hill leases 53,590 square feet of office space
located at 6287 Arapahoe Avenue, Boulder, Colorado 80303, which lease began on
July 31, 1996 and terminates on July 31, 2001.
34
<PAGE>
EXPERTS
The financial statements of Global MAINTECH Corporation as of December 31,
1998 and 1997, and for each of the years in the two-year period ended December
31, 1998, have been included in this prospectus and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere in this prospectus, and upon the authority of
KPMG as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares offered under this prospectus has been passed
upon for Global MAINTECH by Dorsey & Whitney LLP, Minneapolis, Minnesota.
WHERE YOU CAN FIND MORE INFORMATION
Global MAINTECH has filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act for the common
stock offered under this prospectus. Global MAINTECH is subject to the
informational requirements of the Exchange Act, and files reports, proxy
statements and other information with the Commission. These reports, proxy
statements and other information filed by Global MAINTECH can be inspected and
copied at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at 7
World Trade Center, Suite 1300, New York, New York 10048 and CitiCorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a Web site that contains reports, proxy statements,
information statements and other information concerning Global MAINTECH at the
site located at http://www.sec.gov. This prospectus does not contain all the
information in the registration statement and its exhibits which Global MAINTECH
has filed with the Commission under the Securities Act and to which reference is
made.
35
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997................ F-3
Consolidated Statements of Operations for the Years ended
December 31, 1998 and 1997............................................... F-5
Consolidated Statements of Stockholders' Equity for the Years
ended December 31, 1998 and 1997......................................... F-6
Consolidated Statements of Cash Flows for the Years ended
December 31, 1998 and 1997............................................... F-7
Notes to Consolidated Financial Statements.................................. F-8
Consolidated Balance Sheet as of September 30, 1999 (Unaudited).............F-22
Consolidated Statements of Operations for the Nine Months ended
September 30, 1999 and 1998 (Unaudited) ..................................F-24
Consolidated Statements of Cash Flows for the Nine Months ended
September 30, 1999 and 1998 (Unaudited) ..................................F-25
Notes to Unaudited Consolidated Financial Statements........................F-26
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Global MAINTECH Corporation:
We have audited the accompanying consolidated balance sheets of Global MAINTECH
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Global MAINTECH
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
Minneapolis, Minnesota
March 29, 1999, except as to Note 12 which is as of September 2, 1999
F-2
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 664,066 $ 1,726,889
Accounts receivable, less allowance for doubtful accounts of
$300,000 and $15,000, respectively 2,283,578 576,573
Employee receivables 147,466 26,111
Inventories 861,418 797,435
Prepaid expenses and other 80,094 77,308
Notes receivable -- 75,000
Current portion of investment in sales-type leases 20,776 286,997
--------------- ---------------
Total current assets 4,057,398 3,566,313
Property and equipment, net 1,042,432 308,347
Leased equipment, net 124,658 209,033
Software development costs, net 2,273,834 955,835
Purchased technology and other intangibles, net 1,419,008 60,000
Net investment in sales-type leases, net of current portion 22,410 492,918
Other assets, net 193,191 271,003
--------------- ---------------
TOTAL ASSETS $ 9,132,931 $ 5,863,449
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
----------------- -------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 867,120 $ 396,159
Current portion of notes payable 395,680 --
Convertible subordinated debentures 200,000 100,000
Accrued liabilities, compensation and payroll taxes 267,581 123,605
Other 31,049 10,588
Deferred revenue 228,231 52,443
----------------- -------------------
Total current liabilities 1,989,661 682,795
Subordinated notes payable, less current portion 1,700,000 1,900,000
----------------- -------------------
Total liabilities 3,689,661 2,582,795
STOCKHOLDERS' EQUITY
Voting, convertible preferred stock - Series A, convertible into one
common stock share for each five preferred shares, no par value;
887,980 shares authorized; 129,176 shares in 1998 and 244,113
shares in 1997 issued and outstanding; total liquidation preference
of outstanding shares - $242,200 60,584 114,489
Voting, convertible preferred stock - Series B, convertible on or
before September 23, 2001 based on price of common stock; conversion
price not to exceed $12.50 per share or be less than $3.75; dividend
of 8% payable in cash or common stock of Company; no par value;
123,077 shares authorized; 67,192 shares in 1998 and none in 1997
issued and outstanding; total liquidation preference of outstanding
shares - $2,183,769 2,183,769 --
Common stock, no par value; 9,699,327 shares authorized; 3,681,879
shares in 1998 and 3,416,972 shares in 1997 issued and outstanding -- --
Additional paid-in-capital 7,362,796 5,295,829
Notes receivable-officers (294,500) (294,500)
Accumulated deficit (3,869,379) (1,835,164)
----------------- -------------------
Total stockholders' equity 5,443,270 3,280,654
----------------- -------------------
$ 9,132,931 $ 5,863,449
================= ===================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net sales:
Systems $ 4,245,684 $ 2,138,323
Maintenance, consulting and other 1,963,625 864,184
------------- -------------
Total net sales 6,209,309 3,002,507
Cost of sales:
Systems 1,127,361 417,225
Maintenance, consulting and other 1,195,941 344,808
------------- -------------
Total cost of sales 2,323,302 762,033
------------- -------------
Gross profit 3,886,007 2,240,474
Operating expenses:
Selling, general and administrative 4,414,140 1,649,394
Research and development 1,291,253 319,859
------------- -------------
Income (loss) from operations (1,819,386) 271,221
Other income (expense):
Interest expense (286,272) (183,004)
Interest income 146,786 92,406
Other (44,294) (22,147)
------------- -------------
Total other expense, net (183,780) (112,745)
------------- -------------
Income (loss) from continuing operations before income taxes (2,003,166) 158,476
Provision for income taxes -- --
------------- -------------
Income (loss) from continuing operations (2,003,166) 158,476
Gain from discontinued operations -- 70,000
------------- -------------
Net income (loss) $ (2,003,166) $ 228,476
============= =============
Accrual of cumulative dividends on Series B convertible preferred stock (31,049) --
------------- -------------
Net income (loss) attributable to common stockholders (2,034,215) 228,476
============= =============
Basic income (loss) per common share:
Continuing operations $ (0.55) $ 0.050
Discontinued operations -- 0.022
------------- -------------
Net income (loss) $ (0.55) $ 0.072
============= =============
Diluted income (loss) per common share:
Continuing operations $ (0.55) $ 0.040
Discontinued operations -- 0.018
------------- -------------
Net income (loss) $ (0.55) $ 0.058
============= =============
Shares used in calculations:
Basic 3,670,342 3,183,609
Diluted 3,670,342 3,911,083
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock A Preferred Stock B Common Stock Additional
------------------- --------------------- ------------------------ paid-in
Shares Amount Shares Amount Shares Amount capital
------- ---------- --------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996 700,667 $ 28,601 -- $ -- 2,652,107 $ -- $2,243,438
Net income -- -- -- -- -- -- --
Common stock issued -- -- -- -- 550,560 -- 2,779,600
Stock issue costs -- -- -- -- -- -- (302,278)
Common stock options and
warrants exercised -- -- -- -- 122,994 -- 360,957
Exercise officer stock
options -- -- -- -- -- -- --
Converted preferred
shares Series A (456,554) (214,112) -- -- 91,311 -- 214,112
- ----------------------------------------------------------------------------------------------------------------
Balance at December 31,
1997 244,113 $ 114,489 -- $ -- 3,416,972 $ -- $ 5,295,829
Net loss -- -- -- -- -- -- --
Accrual of cumulative
dividends on Series B
convertible preferred
stock -- -- -- -- -- -- --
Common stock issued -- -- -- -- 218,400 -- 1,800,350
Values of stock options
issued in acquisition -- -- -- -- -- -- 524,000
Stock issue costs -- -- -- -- -- -- (346,922)
Common stock options
and warrants exercised -- -- -- -- 23,520 -- 35,634
Preferred shares Series B -- -- 67,192 2,183,769 -- -- --
Converted preferred
shares Series A (114,937) (53,905) -- -- 22,987 -- 53,905
- ----------------------------------------------------------------------------------------------------------------
Balance at December 31,
1998 129,176 $ 60,584 67,192 $2,183,769 3,681,879 $ -- $ 7,362,796
</TABLE>
<TABLE>
<CAPTION>
Notes Accumu-
receivable- lated
officers deficit Total
---------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31,
1996 (324,500) (2,063,640) 183,899
Net income -- 228,476 228,476
Common stock issued -- -- 2,779,600
Stock issue costs -- -- (302,278)
Common stock options and
warrants exercised -- -- 360,957
Exercise officer stock
options 30,000 -- 30,000
Converted preferred
shares Series A -- -- --
- -------------------------------------------------------------------
Balance at December 31,
1997 $ (294,500) (1,835,164) 3,280,654
Net loss -- (2,003,166) (2,003,166)
Accrual of cumulative
dividends on Series B
convertible preferred
stock -- (31,049) (31,049)
Common stock issued -- -- 1,800,350
Values of stock options
issued in acquisition -- -- 524,000
Stock issue costs -- -- (346,922)
Common stock options
and warrants exercised -- -- 35,634
Preferred shares Series B -- -- 2,183,769
Converted preferred
shares Series A -- -- --
- -------------------------------------------------------------------
Balance at December 31,
1998 $ (294,500) $(3,869,379) $ 5,443,270
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-6
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------------------
1998 1997
--------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,003,166) $ 228,476
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 1,610,981 433,981
Allowance for doubtful accounts 300,000 --
Changes in operating assets and liabilities:
Accounts receivable (1,532,221) (124,974)
Employee receivables (121,355) (4,592)
Inventories (63,983) (579,492)
Prepaid expense and other (2,786) (50,602)
Accounts payable 337,397 155
Accrued liabilities 112,500 2,253
Deferred revenue 79,859 (207,304)
--------------- ------------
Cash used by operating activities (1,282,774) (302,099)
--------------- ------------
Cash flows from investing activities:
Sale of investment in sales-type leases 736,729 (779,915)
Purchase of property and equipment (1,076,176) (361,869)
Reduction in leased equipment -- (162,548)
Investment in software development costs (2,052,188) (781,516)
Investment in other assets (9,460) (108,900)
Purchase of companies, net of cash acquired (1,276,786) --
Payments received on (investment in) notes receivable 75,000 (75,000)
--------------- ------------
Cash used by investing activities (3,602,881) (2,269,748)
--------------- ------------
Cash flows from financing activities:
Disbursements for deferred debt costs -- (212,470)
Net proceeds from issuance of common stock 1,489,063 2,768,279
Net proceeds from issuance of preferred stock 2,183,769 --
Proceeds (payments) short term notes payable 250,000 (319,963)
Payments received on officers note receivable -- 30,000
Proceeds (payments) long term notes payable (100,000) 2,000,000
--------------- ------------
Cash provided by financing activities 3,822,832 4,265,846
--------------- ------------
Net increase (decrease) in cash (1,062,823) 1,693,999
Cash and cash equivalents at beginning of period 1,726,889 32,890
--------------- ------------
Cash and cash equivalents at end of period $ 664,066 $ 1,726,889
=============== ============
Supplemental disclosures of cash flow information:
Cash paid during the year for: Interest $ 200,554 $ 200,584
Income taxes $ 9,999 $ 9,999
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
Global MAINTECH, Inc., the Company's principal operating subsidiary,
produces and assembles a computer software and hardware product that it sells as
a console consolidation and console management solution to the systems and
network management marketplace primarily in the United States. The product is
called the Virtual Command Center ("VCC").
The VCC is a tool designed to do three functions: the first is to
consolidate consoles (computer terminals with access to the internal operation
of a computer) into one monitor, a "virtual console" or single point of control;
the second is to monitor and control the computers connected to the virtual
console; and, the third is to automate most, if not all, of the routine
processes performed by computer operators in data centers. The VCC can be
operated from a remote location and accepts multiple different computer
platforms and operating systems. It is an external system that monitors and
controls the subject mainframe and other data center computers from a
workstation quality RISC computer, which is housed separately from the computers
it controls. VCC users are able to reduce staffing levels, consolidate all data
center operations and technical support functions to a single location
regardless of the physical location of the data center(s) and achieve improved
levels of operational control and system availability.
In an effort to enhance its revenue base, the Company purchased three new
product lines during 1998. On February 28, 1998, the Company licensed certain
software and purchased certain assets relating to the system software business
of Infinite Graphics Incorporated, a Minnesota corporation ("IGI"). The Company
is using such software and assets to design, assemble and market computer-aided
design and manufacturing software systems that operate on a variety of mid-range
and personal computer platforms. On October 1, 1998, the Company purchased the
software of Asset Sentinel, Inc., a Minnesota corporation ("ASI"). As a result
of this acquisition, the Company obtained a network and electrical line mapping
suite of programs that operate on personal computer platforms. Effective
November 1, 1998, the Company purchased substantially all of the assets of
Enterprise Solutions, Inc., an Ohio corporation ("ESI"). As a result of this
acquisition, the Company obtained software products that notify the proper
person(s) by telephone, pager or the internet of critical data center
events-event notification software and a consulting business that focuses on
solving systems management problems in data centers.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Global
MAINTECH Corporation and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company has not
assessed the impact of this Statement.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
F-8
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORY:
Inventory is stated on a first in, first out (FIFO) basis at the lower of
cost or market.
PROPERTY AND EQUIPMENT:
Property and equipment is recorded at cost and is comprised primarily of
computer and office equipment. Depreciation is provided for principally using
the double declining balance method, based on the estimated useful lives of the
respective assets which generally have lives of three years.
Maintenance and repairs are charged to expense as incurred.
REVENUE RECOGNITION:
Revenue from product sales is recognized upon the latter of shipment or
final acceptance. Deferred revenue is recorded when the Company receives
customer payments before shipment or acceptance or before maintenance revenues
are earned. The Company sells maintenance agreements which require minor updates
of software to be delivered to the customers free of charge. New versions of the
Company's software representing a major upgrade are not a part of the
maintenance agreements. The Company expenses the costs of minor updates to its
software as incurred.
The Company recognizes revenue from leasing activities in accordance with
SFAS No. 13, Accounting for Leases. Accordingly, leases that transfer
substantially all the benefits and risks of ownership are accounted for as
sales-type leases. All other leases are accounted for as operating leases.
Under the sales-type method, profit is recognized at lease inception by
recording revenue and cost. Revenue consists of the present value of the future
minimum lease payments discounted at the rate implicit in the lease. Cost
consists of the equipment's book value. The present value of the estimated value
of the equipment at lease termination (the residual value), which is generally
not material, and the present value of the future minimum lease payments are
recorded as assets. In each period, interest income is recognized as a
percentage return on asset carrying values.
The Company is the lessor of equipment under operating leases expiring in
various years. The cost of equipment subject to such leases is recorded as
leased equipment and is depreciated on a straight-line basis over the estimated
service life of the equipment. Operating lease revenue is recognized as earned
over the term of the underlying lease.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS:
Under the criteria set forth in SFAS No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed, capitalization of
software development costs begins upon the establishment of technological
feasibility of the software. The establishment of technological feasibility and
the ongoing assessment of the recoverability of these costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, anticipated future gross product revenues, estimated economic
life, and changes in software and hardware technology. Capitalized software
development costs are amortized utilizing the straight-line method over the
estimated economic life of the software not to exceed three years.
F-9
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying value of a software development asset is regularly reviewed by
the Company and a loss is recognized when the unamortized costs are not
recoverable based on the estimated cash flows to be generated from the
applicable software.
PURCHASED TECHNOLOGY AND OTHER INTANGIBLES:
The Company has recorded the excess of purchase price over net tangible
assets as purchased technology and customer lists based on the fair value of
these intangibles at the date of purchase. These assets are amortized over their
estimated economic lives of five years using the straight-line method. Recorded
amounts for purchased technology are regularly reviewed and recoverability
assessed. The review considers factors such as whether the amortization of these
capitalized amounts can be recovered through forecasted undiscounted cash flows.
OTHER ASSETS:
Other assets is comprised of patents and capitalized debt issuance costs.
Patents are stated at cost and are amortized over three years or over the useful
life using the straight-line method. Capitalized debt issuance costs are stated
at cost and are amortized over the term of the related debt agreement. Recorded
amounts for patents are regularly reviewed and recoverability assessed. The
review considers factors such as whether the amortization of these capitalized
amounts can be recovered through forecasted undiscounted cash flows.
RESEARCH AND DEVELOPMENT:
Research and development costs are expensed as incurred.
STOCK BASED COMPENSATION:
The Company has adopted the disclosure requirements under SFAS No. 123,
Accounting and Disclosure of Stock-Based Compensation. As permitted under SFAS
No. 123, the Company applies Accounting Principles Board Opinion No. 25 (APB No.
25), Accounting for Stock Issued to Employees, and related interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans.
INCOME (LOSS) PER SHARE:
Basic and diluted net income (loss) per share is computed by dividing the
net income (loss) by the weighted average number of shares of common stock
outstanding during the period. During 1998, dilutive shares were excluded from
the net loss per share computation as their effect is antidilutive.
F-10
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average shares and total dilutive shares used in the
calculation of basic and diluted income (loss) per share are as follows:
Years Ended December 31,
------------------------------------
1998 1997
--------------- ------------------
Basic Income (Loss) Per Share
Weighted average shares 3,670,342 3,183,609
Diluted Income (Loss) Per Share
Weighted average shares 3,670,342 3,183,609
Stock options -- 553,034
Warrants -- 125,617
Conversion of preferred stock -- 48,823
--------------- ------------------
Total dilutive shares 3,670,342 3,911,083
=============== ==================
Antidilutive stock options excluded 1,066,400 16,600
Antidilutive warrants excluded 571,800 120,000
INCOME TAXES:
Deferred taxes are provided on an asset and liability method for temporary
differences and operating loss and tax credit carryforwards. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
FAIR VALUE OF INSTRUMENTS:
All financial instruments are carried at amounts that approximate estimated
fair values.
RECLASSIFICATIONS:
Certain amounts previously reported in 1997 have been reclassified to
conform to the 1998 presentation.
USE OF ESTIMATES:
The preparation of financial statements in accordance with generally
accepted accounting principles require management of the Company to make a
number of estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
F-11
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. RECOVERY FROM DISCONTINUED OPERATION
The Company's Board of Directors made the decision to discontinue that
portion of the operations which brokered and sold parts for IBM mainframe
computers in 1995. Effective December 31, 1995 these operations were sold to
Norcom Resources, Inc. ("Norcom"). A portion of the sale included a $70,000 note
receivable from Norcom which the Company treated as uncollectible. However, in
March 1997 the Company collected the full amount of such note receivable and
recorded a recovery related to the discontinued operation.
NOTE 3. INVENTORIES
Inventories consists of the following:
December 31,
--------------------------------------
1998 1997
----------------- -----------------
Raw materials $ 568,167 $ 526,379
Completed systems 293,251 271,056
----------------- -----------------
Total inventories $ 861,418 $ 797,435
================= =================
NOTE 4. NET INVESTMENT IN SALES-TYPE LEASES
The Company began leasing equipment as lessor under sales-type leases in
1997. The components of net investment in sales-type leases as of December 31,
1998 and 1997, are as follows:
1998 1997
----------------- ------------------
Minimum lease payments receivable $ 45,336 $ 892,323
Less: Unearned revenue (2,150) (112,408)
----------------- ------------------
43,186 779,915
Less: Current portion (20,776) (286,997)
----------------- ------------------
Investment in sales-type lease, net
of current portion $ 22,410 $ 492,918
Future minimum lease payments to be received under sales-type leases are
$23,654 and $21,682 in 1999 and 2000, respectively.
F-12
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. CAPITAL ASSETS
Certain of the Company's capital assets are comprised of the following:
December 31,
-------------------------
1998 1997
----------- -----------
Property and equipment
Computer and officer equipment $ 1,642,691 $ 400,192
Accumulated depreciation (600,259) (91,845)
----------- -----------
Property and equipment, net $ 1,042,432 $ 308,347
Leased equipment
Leased equipment $ 235,922 $ 269,688
Accumulated depreciation (111,264) (60,655)
----------- -----------
Leased equipment, net $ 124,658 $ 209,033
Software development costs
Software development costs $ 3,307,422 $ 1,255,235
Accumulated amortization (1,033,588) (299,400)
----------- -----------
Software development costs, net $ 2,273,834 $ 955,835
Purchased technology and other intangibles
Software, licenses and customer lists $ 1,630,739 $ 75,000
Accumulated amortization (211,731) (15,000)
----------- -----------
Purchased technology costs, net $ 1,419,008 $ 60,000
Other assets
Patents $ 107,386 $ 101,680
Deferred debt issue costs 225,224 221,470
Accumulated amortization (139,419) (52,147)
----------- -----------
Other assets, net $ 193,191 $ 271,003
NOTE 6. ACQUISITIONS
On February 27, 1998, the Company acquired certain assets, liabilities and
perpetual software licenses of a division of Infinite Graphics, Inc., ("IGI") a
computer-aided design and manufacturing software business. The consideration
paid for IGI included $700,000 in cash and an amount up to $3,300,000 in
contingent consideration based on certain operating results of IGI over a period
of 15 months from the date of acquisition. Net identifiable liabilities of
$78,446 were assumed consisting of $50,000 in fixed assets and $128,446 in
current liabilities. The acquisition was accounted for as a purchase and the net
liabilities and results of operations have been included in
F-13
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the Company's consolidated financial statements from the acquisition date. The
contingent consideration, if paid, will be allocated to the intangible assets
and amortized over the remaining useful lives of those assets. As of December
31, 1998, the Company has not paid any contingent consideration, and if paid,
this amount will be included as an increase to purchased technology and
amortized over the remaining useful life of the asset. The Company has recorded
$778,446 as purchased technology and customer lists and will amortize these
amounts straight line over the estimated useful life of three to five years.
On October 1, 1998, the Company acquired the rights to Asset Sentinel,
Inc.'s ("ASI") technology, which is a network mapping software suite of
products. Total consideration for the assets was $425,000, which included
conversion of a note owed to the Company by ASI of $279,320 plus a note payable
due six months from closing of $145,680. In addition, the Company has agreed to
pay contingent consideration in the amount of $2,200,000, based on certain sales
milestones of the ASI products for 18 months after acquisition, payable in cash
or Company Common Stock, to be determined by the Company. The Company did not
acquire any tangible assets or assume any liabilities, and therefore, the entire
purchase price has been recorded as purchased technology and is being amortized
over its estimated economic life of 5 years. The acquisition was recorded as a
purchase and the resulting asset and results from operations of ASI have been
included in the Company's financial statements from the acquisition date. ASI is
a start-up company and prior to the acquisition ASI had essentially no revenues.
As of December 31, 1998, the Company has not paid any contingent consideration,
and if paid, this amount will be included as an increase to purchased technology
and amortized over the remaining useful life of the asset.
On November 1, 1998, the Company acquired the rights and liabilities of
Enterprise Solutions, Inc. ("ESI"). Total consideration paid for the acquisition
was $200,000 plus contingent consideration of options to purchase up to 340,000
shares of common stock exercisable at the fair market value at the date of grant
($6.25). This contingent consideration will be adjusted based on the earnings of
ESI for a period of 18 months following the closing and become exercisable at
that date through 30 months following the acquisition. The maximum amount of
adjustment to the contingent shares is 260,000 shares. The fair value of 80,000
shares is included in the purchase price of ESI. The fair value of the minimum
shares was calculated using the Black Scholes option pricing methodology with a
volatility of 112%, dividend of 0, risk free interest rate of 4.5% and a
five-year life is $524,000. In the event ESI does not meet certain earn-out
calculations reaching $5,000,000, the Company, at its option, will either pay
ESI the difference or return the purchased assets and assumed liabilities, as of
the date the earn-out calculation is made, to ESI. Net identifiable assets of
$269,173 were assumed consisting of accounts receivable of $474,784, fixed
assets of $116,324 and current liabilities of $321,935. The acquisition was
accounted for as a purchase and the net assets and results of operations have
been included in the Company's consolidated financial statements from the
acquisition date. The Company has recorded an intangible asset consisting of
purchased technology and customer lists of $397,031 and will amortize these
amounts straight line over the economic useful life of 5 years. The fair value
of the contingent additional options, if granted, will be allocated to purchased
technology and amortized over the remaining useful lives of those assets.
F-14
<PAGE>
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.
<TABLE>
<CAPTION>
Unaudited
------------------------------------------------------------------
1998 1997
------------------------------- --------------------------------
As reported Pro-forma As reported Pro-forma
--------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
Revenue $ 6,209,309 $ 7,466,162 $ 3,002,507 $ 6,303,050
Net income (loss) (2,003,166) (1,799,035) 228,476 1,165,806
Net income (loss) attributable to
common stockholders (2,034,215) (1,830,084) 228,476 1,165,806
Basic income (loss) per share (0.55) (0.50) 0.05 0.37
</TABLE>
NOTE 7. NOTES PAYABLE
Notes payable at December 31, 1998 and 1997 are comprised of the following:
<TABLE>
<CAPTION>
1998 1997
----------------------------- --------------------------------
Interest Interest
Amount Rate Amount Rate
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Notes payable to Bank Windsor 250,000
due June 1, 1999 $ 9.5% $ -- --
Acquisition note payable to
Asset Sentinel, Inc. 145,680 -- -- --
------------- --------------
Total notes payable $ 395,680 $ --
Subordinated notes payable to 1,900,000
Mezzanine Capital Partners and
Marquette Bancshares, Inc due in
installments of various amounts as
described below through June 30, 2002 $ 14.00% $ 2,000,000 14.00%
------------- --------------
Total subordinated notes payable 1,900,000 2,000,000
Less current portion (200,000) (100,000)
------------- --------------
$ 1,700,000 $ 1,900,000
============= ==============
</TABLE>
On June 19, 1997 the Company issued subordinated notes payable in the form
of two $1,000,000 notes payable to Mezzanine Capital Partners, Inc. and
Marquette Bancshares, Inc., respectively. The interest rate of 14% is fixed for
the term of the notes. Aggregate installments of $200,000, $300,000, $300,000,
and $1,100,000 are due for the years 1999 through 2002, respectively. The notes
are subject to a 5% prepayment penalty through June 30, 1998 and a 4% prepayment
penalty from July 1, 1998 through June 30, 1999 and may be prepaid without
penalty thereafter. The Company incurred costs related to the issuance of this
debt in the amount of $221,470 which includes the estimated fair value of
warrants to purchase a total of 106,000 shares of common stock at $9.00 per
share that were issued in connection with the issuance of notes payable. These
costs are being amortized on a straight-line basis over the five year term of
such debt.
F-15
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has a revolving line of credit at Bank Windsor in the amount of
$250,000 secured by accounts receivable. Borrowings under this revolver carry a
floating rate of interest at prime plus 2%. At year-end this rate was 9.5%.
In connection with an Asset Purchase Agreement dated October 1, 1998, the
Company purchased the technology assets of Asset Sentinel, Inc. in the amount of
$425,000 payable over 6 months. As of December 31, 1998, the unpaid balance was
$145,680. The unpaid balance is interest free.
In February 1999, the Company issued a $500,000 secured subordinated note
payable to certain principals of Anderson, Weinroth & Co. The note was issued
pursuant to a Loan and Security Agreement dated February 23, 1999 at a fixed
interest rate of 10%, is due on July 31, 1999 and may be prepaid without
penalty. The security interest granted to these note holders is subordinate to
the notes payable to Mezzanine Capital Partners, Inc. and Marquette Bancshares,
Inc. The Company incurred legal costs related to the issuance of this debt and
issued warrants, which expire on February 23, 2004, to purchase 80,000 shares of
common stock at $5.40 per share. The Company may call a one-third portion of the
warrants if the common stock price exceeds $15.00 per share for twenty
consecutive trading days.
On March 9, 1999 the Company issued a $100,000 convertible note payable to
an accredited investor, convertible into common stock of the Company at $6.25
per share at a 6% per annum rate of interest. The convertible note payable is
subordinate to current and future debt issued by the Company and is due on
September 9, 1999.
NOTE 8. STOCKHOLDERS' EQUITY
COMMON STOCK WARRANTS:
The Company issued warrants in 1998 in conjunction with common stock issued
pursuant to a private placement of 80,000 shares of common stock in February
1998. These warrants are exercisable at $9.50 per share and expire on July 21,
2003. The Company also issued warrants pursuant to a subsequent private
placement of common stock in August 1998, which are exercisable at $13.00 and
expire on July 16, 2003. Additional warrants to purchase shares of common stock
were issued pursuant to a private placement of Series B Cumulative Convertible
Preferred Stock ("Series B Stock"). The number of warrants issued is equal to
the number of shares of common stock issued at the time the Series B Stock is
converted to common stock. The warrants are exercisable at $16.25 or may be
called by the Company in the event the common stock price trades above $21.875
for a period of 20 consecutive trading days and the Company's Common Stock is
traded on Nasdaq.
The Company issued warrants in 1997 in conjunction with common stock issued
pursuant to the Private Placement Memorandum dated November 25, 1996. These
warrants are exercisable at $3.75 per share and expire on February 28, 2002.
During 1997 the Company also issued warrants pursuant to a subsequent private
placement of common stock in June 1997, which are exercisable at $7.00 and
expire on June 6, 2002. An additional 106,000 warrants were issued in 1997,
which are exercisable at a per share price of $9.00 and expire in the year 2002.
These warrants were issued in connection with the $2,000,000 of subordinated
debt issued in June 1997 (Note 7).
The total warrants outstanding as of December 31, 1998 was 708,396. Such
warrants are exercisable at a weighted average price of $12.95 per share and
expire in 2000 through 2004.
F-16
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMON STOCK OPTIONS:
The Company's stock option plan ("Plan"), provides for granting to the
Company's employees, directors and consultants, qualified incentive and
nonqualified options to purchase common shares of stock. The Plan was amended
during 1995 to increase the number of aggregate options that can be issued to
2,000,000 shares of common stock. Qualified incentive options must be granted
with exercise prices equal to the fair market value of the stock at the date of
grant. Nonqualified options must be granted with exercise prices equal to at
least 85% of the fair market value of the stock at the date of grant.
The Company applies APB No. 25, Accounting for Stock Issued to Employees,
and related interpretations in accounting for its stock options. As a result no
compensation expense has been recognized for stock-based compensation plans. Had
the Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, Accounting and Disclosure of
Stock-Based Compensation, the Company's net income would have been reduced by
approximately $30,000 and $18,000 in 1998 and 1997, respectively. The Company
made this calculation using the Black-Scholes option pricing model with the
following assumptions: volatility of 113%, risk-free interest rate of 4.5%, and
an expected life of 5 years.
This pro-forma effect does not include the compensation cost of stock
options currently issued but which do not vest until future years nor does it
include the compensation cost of stock options issued prior to 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro-forma net income amounts presented above.
Information with respect to stock options under the plan is summarized as
follows:
<TABLE>
<CAPTION>
Incentive Stock Options Nonqualified Options
---------------------------- ----------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Total outstanding at December 31, 1996 523,000 $ 2.45 16,600 $ 29.35
Granted 286,400 7.55 -- --
Canceled (15,000) 5.00 -- --
Exercised (91,000) 2.00 -- --
------------- ------------ ------------ -------------
Total outstanding at December 31, 1997 703,400 $ 3.95 16,600 $ 29.35
Granted 708,600 7.55 -- --
Canceled (67,400) 9.60 (10,000) 28.15
Exercised (15,400) 1.80 -- --
------------- ------------ ------------ -------------
Total outstanding at December 31, 1998 1,329,200 $ 5.55 6,600 $ 31.25
============= ============ ============ =============
</TABLE>
Options for 662,800 shares of common stock were exercisable at a weighted
average exercise price of $3.70 as of December 31, 1998.
F-17
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMON STOCK ISSUED:
In 1998 the Company issued a total of 218,400 shares of common stock. These
shares were issued pursuant to two separate private placement issues: one ending
July 8, 1998; and one ending August 11, 1998. In addition, 22,987 and 91,311
shares of common stock were issued to holders of preferred stock series A and a
one-for-five exchange conversion in accordance with terms of the preferred stock
in 1998 and 1997, respectively. The new issues of common stock were issued
pursuant to an exemption from registration under Rule 506 of Regulation D of the
Securities Act of 1933, as amended.
In 1997 the Company issued a total of approximately 550,560 shares of
common stock. These shares were issued pursuant to two separate private
placement issues: one ending February 1997; and one ending July 1997.
Specifically, the Company issued 330,560 and 130,700 shares of common stock in
1997 and 1996, respectively at $3.75 per share pursuant to the private placement
memorandum dated November 1996. During 1997 the Company also issued 220,000
shares of common stock at $7.00 per share pursuant to a private placement dated
June 1997. In addition, 91,000 shares of common stock were issued due to the
exercise of qualified stock options by certain non- officer employees or former
employees of the Company and 31,994 shares of common stock were issued to
converting warrantholders. Stock issue costs were $302,277 in 1997.
PREFERRED STOCK ISSUED:
From late August 1998 until December 31, 1998, the Company offered up to
123,077 units for sale in a private placement of securities of which 67,192
units were sold. Each unit consisted of one share of Series B Preferred Stock
and one Warrant to purchase shares of Common Stock. The purchase price per unit
was $32.50.
Each share of Series B Preferred Stock entitles the holder thereof to
receive an annual dividend equal to $2.60. Until February 15, 1999, each share
of Series B Preferred Stock is convertible into that number of shares of Common
Stock equal to the per unit purchase price divided by $16.25, subject to certain
adjustments. Thereafter, each share of Series B Preferred Stock is convertible
into that number of shares of Common Stock equal to the per unit purchase price
divided by 80% of the average closing bid price of the Common Stock for the 20
consecutive trading days prior to the conversion date, subject to certain
adjustments; provided, however, that such average price may not be greater than
$12.50 nor less than $3.75. All outstanding shares of Series B Preferred Stock
will be automatically converted into Common Stock on September 23, 2001 if the
Company has registered such common shares under the Securities Act and the
Common Stock is traded on the Nasdaq.
Each Warrant expires in five years, and is callable by the Company and
entitles its holder to purchase Common Stock at $16.25 per share. The number of
shares of Common Stock for which the Warrant in each unit will be exercisable
will equal the number of shares of Common Stock into which the associated share
of Series B Preferred Stock contained in the unit will have been converted. The
Warrants are callable by the Company provided the Common Stock has not traded
below $21.875 for 20 consecutive trading days prior to the call exercise date,
the underlying shares are registered under the Securities Act and the Common
Stock is traded on the Nasdaq.
In connection with the offering of the Series B Preferred Stock and
Warrants described above, the Company agreed to use its best efforts to register
the shares of Common Stock underlying the Series B Preferred Stock and the
Warrants and to pay a penalty if such registration was not effective by February
28, 1999. The registration statement for such Common Stock was not effective by
February 28, 1999, and as of the date of this report is still not effective. As
a result, the Company is paying a penalty to the investors in the offering equal
to 1% of the purchase price of the
F-18
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
units for each of the first two 30-day periods following February 28, 1999 and
3% for every 30-day period thereafter until the registration statement has been
declared effective.
The Company issued 67,192 of such units for total gross proceeds of
$2,183,747. The Company paid Miller, Johnson & Kuehn $126,687 in placement agent
commissions and $23,302 for accountable expenses, including legal fees, incurred
in connection with the offering.
NOTE 9. INCOME TAXES
At December 31, 1998, the Company had a net operating loss carryforward of
approximately $7.0 million. Approximately $3.6 million of the net operating loss
carryforward will be subject to an annual limitation as defined by Section 382
of the Internal Revenue Code of approximately $200,000. Current and future
equity transactions could further limit the net operating losses available in
any one year.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1998 and
1997 are shown as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1998 1997
----------------- ------------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 127,000 $ 5,000
Purchased technology 58,000 --
Net operating loss carryforward 2,911,000 1,360,000
----------------- ------------------
Subtotal 3,096,000 1,365,000
Less valuation allowance for deferred tax asset (2,032,000) (1,212,000)
----------------- ------------------
1,064,000 153,000
Deferred tax liabilities:
Depreciation (153,000) (153,000)
Capitalized software (911,000) --
----------------- ------------------
Net deferred tax assets $ -- $ --
================= ==================
</TABLE>
F-19
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The provisions for income taxes consists of the following for the years
ended December 31, 1998 and 1997.
Years Ended December 31,
-------------------------------
1998 1997
------------ --------------
Current
Federal $ -- $ --
State -- --
------------ --------------
Total -- --
Deferred -- --
------------ --------------
Total $ -- $ --
============ ==============
The income tax expense (benefit) differed from the amounts computed by
applying the U.S. federal income tax rate of 34% as a result of the following:
Years Ended December 31,
---------------------------------
1998 1997
--------------- ---------------
Expense (benefit) at statutory rate $ (681,076) $ 77,000
State income tax expense (benefit),
net of federal (102,216) 13,000
Change in valuation allowance 820,000 (94,000)
Other (36,708) 4,000
--------------- ---------------
Actual tax expense (benefit) $ -- $ --
=============== ===============
NOTE 10. OPERATING LEASES
COMPANY AS LESSOR:
The Company leases equipment, primarily VCC units, under noncancellable
operating leases expiring in various years. The cost of equipment subject to
such leases is recorded as leased equipment.
The operating lease payment stream related to leases initiated in 1996 was
assigned to a third party, on a non-recourse basis, for a lump sum payment to
the Company in 1996. The present value of the cash received was recorded as
deferred revenue and is being recognized into revenue over the term of the
underlying leases. These underlying leases, after being extended, terminated in
1998. Deferred revenue recorded by the Company related to these leases as of
December 31, 1997 was approximately $20,000, respectively. Future minimum lease
payments to be received for operating leases in which the payment stream has not
been assigned to a third party are $15,192 and $11,224 for 1999 and 2000,
respectively.
COMPANY AS LESSEE:
F-20
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has operating leases for certain development related IBM
computers, office equipment and its office premises. The rental payments under
these leases are charged to expense as incurred. All the leases provide that the
Company pay taxes, maintenance, insurance, and other operating expenses
applicable to the leases. Lease expense in 1998 and 1997 was approximately
$94,000 and $112,000, respectively. The future minimum lease payments are
approximately $94,000 and $94,000 for the years 1999 and 2000, respectively.
NOTE 11. SUBSEQUENT EVENTS -- ACQUISITION OF BREECE HILL & ISSUANCE OF SERIES C
PREFERRED STOCK
ACQUISITION OF BREECE HILL TECHNOLOGIES, INC.
On March 5, 1999, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with GMI, BHT Acquisition, Inc. (a new subsidiary of
GMI created solely for purposes of the merger and referred to in this discussion
as "Merger Subsidiary") and Breece Hill Technologies, Inc. ("BHT"). Under the
terms of the Merger Agreement, shortly after approval of the merger by the
stockholders of BHT, and the satisfaction or waiver of the terms and conditions
contained in the Merger Agreement (which is expected to occur in April 1999),
the Merger Subsidiary will merge with and into BHT, BHT, as the surviving
corporation (the "Surviving Corporation"), will become a subsidiary of GMI and
the Board of Directors of the Surviving Corporation will be comprised of the
directors of Merger Subsidiary and the officers of the Surviving Corporation
will be the officers of BHT.
In exchange for all of the outstanding shares of BHT common and preferred
stock, the Company will deliver one or more warrants to purchase 900,000 shares
of GMC Common Stock (subject to adjustment) and may also be required to deliver,
one year after the Closing Date, GMC Common Stock and cash under the Earn Out
Provisions of the Merger Agreement. In connection with the merger, the Company
and Global MAINTECH, Inc. also will guarantee up to $3,800,000 of outstanding
debt of BHT.
For additional details concerning the merger, please refer to the Merger
Agreement attached as Exhibit 2.2 to the Company's Annual Report on Form 10KSB
for the year ended December 31, 1998.
F-21
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ISSUANCE OF SERIES C PREFERRED STOCK
On March 25, 1999, the Company issued 1,600 shares of its Series C
Convertible Preferred Stock (the "Series C Preferred Stock) to certain
accredited investors in a private offering. In connection with such offering,
the Company also issued warrants to the investors to purchase up to 20,000
shares of Common Stock. Settondown Capital International Ltd., the placement
agent used in connection with the offering, received 75 shares of Series C
Preferred Stock and a warrant to purchase an aggregate of 20,000 shares of
Common Stock, in addition to $96,000 in fees for costs incurred in connection
with the offering, including legal fees.
The holders of Series C Preferred Stock are not entitled to vote except in
the event the Company desires to issue shares of a class or series of preferred
stock which could adversely effect the rights of such holders, or as may
otherwise be required by law. The holders of Series C Preferred Stock are
entitled to receive dividends at an annual rate of 8% of the stated value
($1,000) of the Series C Preferred Stock, subject to the prior declaration or
payment of any dividend to which the holders of the Company's Series A Preferred
Stock and the Series B Preferred Stock are entitled. Dividends on shares of the
Series C Preferred Stock are cumulative and are payable only upon conversion of
the Series C Preferred Stock.
NOTE 12. SUBSEQUENT EVENT -- REVERSE STOCK SPLIT
On September 2, 1999, the Company effected a reverse stock split of one
share of the Company's Common Stock for each five shares of such Common Stock
and effected a reverse stock split of one share of the Company's Series B
Convertible Preferred Stock for each five shares of such Series B Stock. As a
result of this stock split, certain conversion prices in regards to preferred
stock were also adjusted. The effect of these stock splits and related
conversion price changes has been retroactively reflected in the accompanying
consolidated financial statements and notes thereto.
F-22
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
September 30,
1999
----------------------
CURRENT ASSETS
Cash and cash equivalents $ 754,128
Accounts receivable, less allowance for
doubtful accounts of $760,000 8,247,561
Other receivables 241,119
Inventories 4,794,313
Prepaid expenses and other 570,495
Current portion deferred debt issue costs 75,790
Total current assets 14,683,406
Property and equipment, net 1,647,452
Leased equipment, net 132,026
Software development costs, net 3,397,610
Purchased technology and other intangibles, net 21,989,322
Other assets, net 449,874
----------------------
TOTAL ASSETS $ 42,299,690
======================
The accompanying notes are an integral part of these consolidated statements.
F-23
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30,
1999
--------------------
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 6,068,545
Current portion of notes payable 7,152,730
Accrued liabilities, compensation and payroll taxes 4,828,444
Other 291,878
Deferred revenue 660,880
--------------------
Total current liabilities 19,002,477
--------------------
Subordinated notes payable, less current portion 5,595,118
Minority interest 1,000,000
--------------------
Total liabilities 25,597,595
STOCKHOLDERS' EQUITY
Voting, convertible preferred stock - Series A, convertible into one
common stock share for each five preferred shares, no par value; 887,980
authorized; 129,176 shares issued and outstanding; total
liquidation preference of outstanding shares - $242,200 $ 60,584
Voting, convertible preferred stock - Series B, convertible on or
before September 23, 2001, based on price of common stock; conversion price
not to exceed $12.50 per share or be less than $3.75; dividend of
payable in cash or common stock of Company; no par value; 123,077 8%
shares authorized; 51,792 shares issued and outstanding; total liquidation
preference of outstanding shares - $1,683,269 1,683,269
Non-voting, convertible preferred stock - Series C, convertible on or
before March 31, 2002, based on price of common stock; conversion price
not to exceed $12.50 per share; dividend of 8% payable in cash or common
stock of Company; no par value; 1,675 shares authorized; 1,675 shares
issued and outstanding; total liquidation preference of outstanding
shares - $1,675,000 1,504,000
Common stock, no par value; 9,698,992 shares authorized; 4,821,187
shares issued and outstanding --
Additional paid-in-capital 25,305,133
Notes receivable-officers (294,500)
Accumulated deficit (11,556,391)
--------------------
Total stockholders' equity 16,702,095
--------------------
$ 42,299,690
====================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-24
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
September 30,
---------------------------------
1999 1998
---------------- ---------------
Net sales
Systems $ 22,673,592 $ 4,325,499
Maintenance, consulting and other 3,221,771 806,369
---------------- ---------------
Total net sales 25,895,363 5,131,868
Cost of sales
Systems 14,417,590 1,117,380
Maintenance, consulting and other 1,892,435 652,564
---------------- ---------------
Total cost of sales 16,310,025 1,769,944
---------------- ---------------
Gross profit 9,585,338 3,361,924
Operating expenses
Selling, general and administrative 13,717,752 2,440,027
Research and development 1,240,593 485,984
---------------- ---------------
Income (loss) from operations (5,373,007) 435,913
Other income (expense):
Interest expense (824,160) (215,257)
Interest income 8,811 124,395
Amortization of deferred debt costs (904,214) (33,220)
Other expenses (451,200) --
---------------- ---------------
Total other income (expense), net (2,170,763) (124,082)
---------------- ---------------
Income (loss) before cumulative effect
of change in accounting principle (7,543,770) 311,831
Cumulative effect of change to straight-line
depreciation 99,607 --
---------------- ---------------
Net income (loss) $ (7,444,163) $ 311,831
---------------- ---------------
Accrual of cumulative dividends on
convertible preferred stock (242,849) --
---------------- ---------------
Net income (loss) attributable to common
stockholders $ (7,687,012) $ 311,831
================ ===============
Basic income (loss) per common share:
Net income (loss) before cumulative
effect of change in accounting
principle $ (2.013) $ 0.089
Cumulative effect of change in
accounting principle 0.026 --
---------------- ---------------
Net income (loss) $ (1.987) $ 0.089
================ ===============
Diluted income (loss) per common share:
Net income (loss) before cumulative
effect of change in accounting
principle $ (2.013) $ 0.077
Cumulative effect of change in
accounting principle 0.026 --
---------------- ---------------
Net income (loss) $ (1.987) $ 0.077
================ ===============
Shares used in calculations:
Basic 3,868,421 3,521,922
Diluted 3,868,421 4,060,546
The accompanying notes are an integral part of these consolidated statements.
F-25
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------------
1999 1998
-------------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (7,444,163) $ 311,831
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Stock issued for services 1,290,000 --
Depreciation and amortization 4,925,203 990,238
Changes in operating assets and liabilities:
Accounts receivable (2,082,106) (1,831,170)
Other receivables (77,004) (173,613)
Inventories (466,301) (599,837)
Prepaid expenses and other (211,508) (81,643)
Accounts payable (2,448,954) 98,386
Accrued liabilities 1,184,698 146,925
Deferred revenue 230,268 (30,516)
-------------------- -----------------
Cash used by operating activities (5,099,868) (1,169,399)
-------------------- -----------------
Cash flows from investing activities:
Cash received from sales-type leases 22,410 679,634
Purchase of property and equipment (408,747) (204,770)
Reduction (increase) in leased equipment (40,686) 37,156
Investment in software development costs (2,331,189) (1,904,808)
Cash acquired in acquisitions 606,998 --
Investment in other assets (190,523) (803,826)
Investment in note receivable -- (170,000)
Payments received on notes receivable -- 75,000
-------------------- -----------------
Cash used by investing activities (2,341,737) (2,291,614)
-------------------- -----------------
Cash flows from financing activities:
Net proceeds from issuance of preferred stock 1,504,000 481,988
Net proceeds from issuance of common stock 2,720,488 1,627,007
Net proceeds of short-term notes payable 2,807,179 --
Net proceeds/payments of long-term notes payable 500,000 (75,000)
-------------------- -----------------
Cash provided by financing activities 7,531,667 2,033,995
-------------------- -----------------
Net increase (decrease) in cash 90,062 (1,427,018)
Cash and cash equivalents at beginning of period 664,066 1,726,889
-------------------- -----------------
Cash and cash equivalents at end of period $ 754,128 $ 299,871
==================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-26
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
General
The consolidated financial statements include the accounts of all
subsidiaries in which a controlling interest is held. These subsidiaries include
Global MAINTECH, Inc. ("GMI"), Breece Hill Technologies, Inc. ("BHT"), and
Singlepoint Systems, Inc. ("SSI"). The Company is primarily engaged in the
business of providing systems and network management products and tape library
storage devices to computer data centers, primarily in the United States.
The Company has expanded through internal development and acquisitions. SSI
was created as a subsidiary in connection with the Company's acquisition of
substantially all of the assets of Enterprise Solutions, Inc. in November 1998.
The Company acquired BHT in April 1999. The network monitoring products were
developed during 1998 and were made available for sale in January 1999. In
addition, in February 1998 the Company licensed certain software and purchased
certain assets relating to the system software business of Infinite Graphics
Incorporated, a Minnesota corporation ("IGI"), and in September 1999 the Company
purchased the substantially all of the assets and liabilities of Lavenir
Technology, Inc ("Lavenir"). The Company uses the IGI and Lavenir software and
assets to design, assemble and market computer-aided design and manufacturing
software systems that operate on a variety of mid-range and personal computer
platforms. However, due to payment default which is in dispute, the IGI license
agreement may terminate on December 12, 1999 and the assets purchased from IGI
will revert to IGI as of the same date.
The Company was incorporated under the laws of the State of Minnesota in
1985 under the name Computer Aided Time Share, Inc. In 1995, the Company changed
its name to Global MAINTECH Corporation.
Basis of Presentation
The interim consolidated financial statements are unaudited, but in the
opinion of management, reflect all adjustments necessary for a fair presentation
of results for such periods. All such adjustments are of a normal recurring
nature.
The results of operations for any interim period are not necessarily
indicative of results for the full year. These financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto contained in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1998.
Income (Loss) Per Share
Basic and diluted net income (loss) per share is computed by dividing the
net income (loss) by the weighted average number of shares of common stock
outstanding during the period. During 1999, dilutive shares were excluded from
the net loss per share computation as their effect was antidilutive.
F-27
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The weighted average shares and total dilutive shares used in the
calculation of basic and diluted income (loss) per share are as follows:
Nine Months Ended
------------------------------------
September 30, September 30,
1999 1998
------------------ -----------------
Basic Income (Loss) Per Share
Weighted average shares 3,868,421 3,521,922
Diluted Income (Loss) Per Share
Weighted average shares 3,868,421 3,521,922
Stock options and warrants -- 511,722
Conversion of preferred stock -- 26,902
------------------ -----------------
Total dilutive shares 3,868,421 4,060,546
================== =================
Capitalized Software Development Costs
Under the criteria set forth in SFAS No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed, capitalization of
software development costs begins upon the establishment of technological
feasibility of the software. The establishment of technological feasibility and
the ongoing assessment of the recoverability of these costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, anticipated future gross product revenues, estimated economic
life, and changes in software and hardware technology. Capitalized software
development costs are amortized utilizing the straight-line method over the
estimated economic life of the software not to exceed three years.
The carrying value of a software development asset is regularly reviewed by
the Company and a loss is recognized when the unamortized costs are not
recoverable based on the estimated cash flows to be generated from the
applicable software.
Purchased Technology and Other Intangibles
The Company has recorded the excess of purchase price over net tangible
assets as purchased technology and other intangibles based on the fair value of
such items at the date of purchase. These assets are amortized over their
estimated economic lives using the straight-line method. Recorded amounts are
regularly reviewed and recoverability assessed. The review considers factors
such as whether the amortization of these capitalized amounts can be recovered
through forecasted undiscounted cash flows.
The Company has allocated the excess of purchase price over net tangible
assets to purchased technology, assembled workforce, distribution agreements,
OEM agreements and trade names. The amortization periods for these categories
vary from 2 to 7 years and average approximately 5 years. For a substantial
portion of these assets the Company employed an independent valuation firm to
determine the allocation of excess purchase price and the appropriate
amortization periods.
Purchased technology and other intangibles at September 30, 1999 includes
$14,752,117 of gross intangible assets as a result of the acquisition of BHT,
$3,300,000 of gross assets as a result of payment of contingent consideration
related to the acquisition of IGI and $4,985,000 of gross intangible assets as a
result of the Lavenir acquisition (each discussed under "Acquisitions").
F-28
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Reverse Stock Split
The Company effected a reverse stock split of 1 share of the Company's
Common Stock for each 5 shares of the Company's Common Stock, on September 2,
1999. The conversion of Preferred Stock into Common Stock was also adjusted, and
in some cases, the Preferred Stock itself according to its terms. As a result,
the aggregate number of authorized shares of the Company was reduced from
50,000,000 to 10,711,724 shares. Excluding the Preferred Stock, the aggregate
number of authorized shares is now 9,698,992. The effect of the stock split on
share and per share amounts has been retroactively reflected in the accompanying
consolidated financial statements and notes thereto.
The reverse stock split does not adversely affect the rights or preferences
of the holders of outstanding shares of any class or series of the Company's
capital stock.
Common Stock Issuance
In March 1999, the Company began a private placement of common stock at a
purchase price of $5.625 per share. The Company completed this private placement
on May 12, 1999. A total of 265,222 shares were sold for total gross proceeds of
$1,491,875. Aethlon Capital acted as the placement agent. The Company paid the
placement agent a cash commission equal to 10% of the gross proceeds and
reimbursed the agent for out-of-pocket expenses incurred in connection with the
offering. The Company also issued to the agent a warrant to purchase up to
26,522 shares of the common stock with an exercise price of $5.625 per share.
On June 28, 1999, the Company began a second private placement of common
stock at a purchase price of $5.00 per share. As of September 30, 1999 a total
of 129,430 shares were sold for total gross proceeds of $647,150. Aethlon
Capital acted as the placement agent. The Company paid the placement agent a
cash commission equal to 10% of the gross proceeds and reimbursed the agent for
out-of-pocket expenses incurred in connection with the offering. The Company
also will issue to the agent a warrant to purchase up to 10% of the number of
shares of the common stock sold in the offering, which warrant will have an
exercise price of $5.00 per share.
The securities issued pursuant to these offerings were exempt from
registration under Rule 506 of Regulation D of the Securities Act of 1933, as
amended.
In August 1999, the Company entered into two arrangements to receive
investor relations consulting services in return for the issuance of an
aggregate of 258,000 shares of common stock. The Company recorded an expense of
$1,290,000 for the value of shares issued for the consulting services received.
On May 7, 1999, the Company issued convertible notes payable to two
accredited investors in the aggregate principal amount of $167,372. The notes
were convertible into common stock at $6.25 per share. The notes were to become
due on November 7, 1999; however, on September 9, 1999, the notes were
converted, in accordance with their terms, into 26,554 shares of common stock.
The shares of common stock issued upon conversion of the notes were exempt from
registration under Section 3(a)(9) of the Securities Act.
On August 6 and again on September 30, 1999, the Company rescheduled the
principal payment of $250,000 of a $500,000 note payable to Andersen, Weinroth,
which originally was due on July 31, 1999. This payment is now due on November
30, 1999. In connection with these reschedulings, the Company issued warrants to
purchase a total of 30,000 shares of common stock at an exercise price of $5.40
per share to Andersen, Weinroth. These warrants have a term of five years and
were issued pursuant to Section 4(2) of the Securities Act. The fair value of
these warrants is being amortized over the new debt payment term.
F-29
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Change in Depreciation Method
Effective January 1, 1999, the Company adopted the straight-line method of
depreciation for its property and equipment. Previously the Company used the
double declining balance method. The Company changed its method based on an
evaluation by management which indicated that the property and equipment does
not depreciate on an accelerated basis during its early years, is not subject to
significant additional maintenance in the later years of the assigned useful
life and that the new method results in a better matching of revenues and
expenses.
The cumulative effect of this accounting change was to decrease the net
loss by $99,607 ($0.026 per share) in the nine months ended September 30, 1999.
Reclassifications
Certain amounts previously reported in 1998 have been reclassified to
conform to the 1999 presentation.
Acquisitions
On September 28, 1999, the Company, through its wholly owned subsidiary
Global MAINTECH, Inc. ("GMI"), purchased substantially all the assets of Lavenir
Technology, Inc., a California corporation ("Lavenir"), pursuant to an Agreement
and Plan of Reorganization (the "Purchase Agreement") by and among the Company,
GMI and Lavenir. Immediately prior to the acquisition, Lavenir was engaged in
the business of developing and selling software and Raster Photoplotters for the
printed circuit board industry.
In addition to purchasing substantially all of the assets of Lavenir
(including rights under and to Lavenir's computer software products and the
trademarks and copyrights related thereto), the Company assumed certain
liabilities of Lavenir, including, Lavenir's ongoing leases, debt and contract
obligations. The primary assets acquired by the Company were a suite of CAD/CAM
software products, including the ability to design, test, verify and repair
precision graphics designs. This software is sold independently or with Raster
Photoplotters, sophisticated hardware products used to build master printed
circuit boards.
The transaction was treated as an asset purchase for accounting purposes.
The total purchase price of $5,300,000 is payable as follows: 266,000 shares of
the Company's common stock was paid to Lavenir at closing and $400,000 in the
form of a payable due on January 31, 2000. A maximum of 700,000 additional
shares of common stock are issuable as of April 30, 2000 sufficient to cause the
value of the shares previously issued and the $400,000 liability to total
$5,300,000 as of April 30, 2000. The holders of common stock issued by the
Company in connection with the acquisition were granted customary registration
rights.
The Company received net assets fair valued at approximately $315,000 as a
result of the Lavenir acquisition and allocated the remaining purchase price of
$4,985,000 to purchased technology with useful lives of three to five years.
On April 14, 1999, the Company acquired all of the issued and outstanding
common stock and Series A Convertible Preferred Stock (the "Outstanding Shares")
of Breece Hill Technologies, Inc. ("BHT") in connection with the merger of BHT
Acquisition, Inc., a subsidiary of GMI, with and into BHT. BHT was the surviving
corporation and is now a subsidiary of GMI. The Company recorded this
acquisition using the purchase method of accounting.
In exchange for the cancellation of their Outstanding Shares, holders of
such shares received rights to proportionate interests in the merger
consideration, which consisted of warrants to purchase a total of 900,000
F-30
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
shares of the Company's common stock and the right to receive an earn out
payment based in part on the sales of BHT over the twelve months following the
acquisition. This earn out payment will be made, if at all, in the form of the
Company's common stock in the maximum amount of 1,100,000 shares, a portion of
the fair value of which may be satisfied with cash. Subsequent to the date of
acquisition, the BHT subsidiary issued 400,000 shares of Preferred Stock Series
B to Hambrecht & Quist Guaranty Fund LLP in exchange for a reduction of debt
secured by certain assets of BHT in the amount of $1,000,000. The Preferred
Stock has a monthly dividend of $10,000 payable in cash or common stock of
Global MAINTECH Corporation and is convertible at the option of the holder into
common stock of Global MAINTECH Corporation. The Company has recorded this
Preferred Stock as a minority interest in BHT.
BHT is a supplier of automated tape libraries used to backup, restore and
archive information stored in networks on servers, PCs and workstations, and
stored via on-line data storage subsystems.
The Company engaged an independent valuation firm to determine the fair
value of the assets purchased. The total valuation in excess of the book value
acquired was $14,752,117 and is comprised of the fair value of warrants issued
using a Black-Scholes valuation model in the amount of $7,630,544, and
liabilities assumed in excess of assets in the amount of $7,121,573. The
$7,630,544 valuation includes the warrants to purchase 900,000 shares of common
stock and warrants issued to Maven Securities, Inc., as fees for acting as
placement agent. The Company assigned $494,000 of the $14,752,117 valuation to
inventory which was expensed as a cost of sale in the fiscal quarter ended June
30, 1999 and assigned $83,381 to in process research and development which was
expensed in the fiscal quarter ended June 30, 1999. The remaining portion of
this valuation of $14,174,736 was assigned to purchased technology in the
following components:
Amount Amortization period
(000's) (years)
------------- -------------------
Technology $ 4,632 7
Assembled workforce 1,575 3
Distribution Agreements 5,374 7
IBM OEM Agreement 1,668 2
Trade Name 926 7
-------------
Total $ 14,175
The Company recorded amortization expenses of approximately $1,650,000 through
September 30, 1999 related to the above intangible assets.
The unaudited pro forma combined historical results, as if BHT and Lavenir
had been acquired as of January 1, 1998, are estimated to be:
Nine months
Nine months ended
ended September 30,
(000's, except per share data) September 30, 1999 1998
- ------------------------------ -------------------- ------------------
Revenue $ 31,700 $ 31,170
Net loss (6,078) (2,674)
Net loss per common share (1.726) (0.691)
The pro forma results include amortization of the intangibles related to both
acquisitions. The pro forma results are not necessarily indicative of what
actually would have occurred if the acquisition had been completed as of the
beginning of each of the fiscal periods presented, nor are they necessarily
indicative of future consolidated results.
F-31
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In June 1999 the Company settled the amount of contingent consideration
related to certain software assets purchased from Infinite Graphics, Inc.,
pursuant to an acquisition agreement dated February 1998. In addition to the
initial cash paid in 1998 of $700,000, the contract provided for additional
contingent consideration based on certain operating results in the amount of
$3,300,000. As operating results met the criteria related to the contingent
consideration, the full contingent amount was fulfilled. The Company paid this
amount by an assignment of accounts receivable in the amount of $1,435,481, and
by the recognition of an accrued liability in the amount of $1,864,519 which is
now recorded in current liabilities. The additional consideration was recorded
as additional purchased technology and other intangibles.
Contingencies
On October 29, 1999, the Company rescheduled the borrowing base line of
credit to bring it into compliance with the terms of its credit facility with
H&Q and made arrangements to make the final payment of $250,000 of a $500,000
note payable to Andersen, Weinroth which was due on September 30, 1999. This
payment is now scheduled to be made on or before November 30, 1999.
Pursuant to the terms of the purchase agreement relating to the Company's
acquisition of Enterprise Solutions, Inc. ("ESI"), the Company may be required
to return the purchased assets and assumed liabilities of ESI to the former
shareholders of ESI on a prospective basis if the Company does not meet certain
working capital conditions set forth in the purchase agreement. On September 29,
1999, ESI notified the Company that its subsidiary, Global MAINTECH, Inc. was in
default of one of those conditions. This default notice has since been waived by
ESI.
The Company received notice from Infinite Graphics Incorporated, dated
November 12, 1999, regarding (1) the termination of the license agreement for
the IGI CAD/CAM software it licensed from IGI pursuant to the License and Asset
Purchase Agreement between the Company and IGI dated February 27, 1998 (the "IGI
Agreement") and (2) the transfer back to IGI of the related assets the Company
purchased from IGI pursuant to the IGI Agreement (the "Transferred Assets").
IGI's right to terminate the license agreement and to reclaim the Transferred
Assets arose due to the Company's inability to pay the earn-out payment due to
IGI pursuant to the Purchase Agreement. The amount of this payment was
approximately $1,864,000 and was due in June 1999. The termination of the
license and the reversion of the assets, according to the claim is to be
effective as of December 12, 1999. IGI claims that the Company still must pay
IGI all or a portion of the earn out payment. The Company intends to dispute
this claim vigorously.
Subsequent Events
NOTE PAYABLE TO ANDERSEN, WEINROTH & CO.
On August 6, 1999, the Company rescheduled the principal payment of
$250,000 of a $500,000 note payable to Andersen, Weinroth & Co. which was due on
July 31, 1999. The due date of the payment was extended to November 30, 1999 and
the payment was made in full by such date.
RE-NEGOTIATION OF PAYMENT PROVISION REGARDING LAVENIR ACQUISITION
In November 1999, a $400,000 note payable due January 31, 2000, relating to
the September 1999 Agreement with Lavenir Technology, Inc. was negotiated to a
$100,000 note payable due January 31, 2000 in return for 100,000 shares of the
Company's common stock.
F-32
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
ASSET SALE TO MT ACQUIRING CORP.
The Company, GMI, and Magnum Technologies, Inc. a wholly owned subsidiary
of GMI ("Magnum"), sold all of the business and properties used by GMI in
connection with its business conducted under the Magnum name pursuant to an
Agreement of Purchase and Sale of Assets made as of January 26, 2000 by and
among MT Acquiring Corp., Tim Hadden, Greg Crow, GMI, Magnum and the Company. In
the sale, MT Acquiring Corp. received properties and three software products
used to provide network monitoring and analysis services: CAP-TREND, Coordinator
and Advantage. MT Acquiring Corp. and it principals, Tim Hadden and Greg Crow,
also received a release from GMI, Magnum and the Company for all claims arising
out of the association of MT Acquiring Corp.'s principals with GMI, Magnum and
the Company. In exchange for the foregoing, MT Acquiring Corp. and its
principals released all claims against the Company, GMI and Magnum relating to
the parties' conduct before January 26, 2000, assumed various obligations and
contracts related to the business, and delivered a subordinated promissory note
payable to the Company in the amount of $214,000. The note bears interest at six
percent annually and provides for four semi-annual payments of principal and
interest from the date of the note's execution until its maturity date of
December 30, 2001.
PROPOSED SETTLEMENT AGREEMENT WITH INFINITE GRAPHICS INCORPORATED
The Company is currently negotiating the transfer of certain assets and the
termination of various software licenses under a proposed settlement agreement
with GMI and Infinite Graphics Incorporated ("Infinite Graphics"). The Company
acquired the assets and licenses under a February 27, 1998 License and Asset
Purchase Agreement with Infinite Graphics. The assets to be transferred would
include those used by GMI in designing, assembling and marketing computer-aided
design and manufacturing software systems that operate on a variety of mid-range
and personal computer platforms. The terminated licenses would include an
exclusive software license of software products used in the business and a
non-exclusive license of software used in both the Company's business and
Infinite Graphics' business. The transfer and termination would be made in
exchange for Infinite Graphics' assumption of all contracts and liabilities
related to the assets and for mutual release of all claims arising from the
License and Asset Purchase Agreement, including Infinite Graphics' release of
the Company's payment obligations.
PROPOSED SALE OF BREECE HILL
On December 27, 1999, the Company signed a letter of intent with regard to
the proposed sale of its subsidiary Breece Hill Technologies, Inc., which the
Company acquired in April 1999, to Tandberg Data ASA ("Tandberg") of Oslo,
Norway. On February 3, 2000, the Company entered into a stock purchase agreement
with Tandberg, GMI, Hambrecht & Quist Guaranty Finance LLC, Greyrock Capital and
Cruttenden Roth Incorporated. The transaction will require approval by both the
Company's and Tandberg's shareholders. Under the terms of the stock purchase
agreement and related transactions:
o the Company would sell all of the common stock of BHT to Tandberg in
exchange for $3.4 million cash, less transaction costs and holdbacks;
o Tandberg will assume or repay approximately $6.1 million in
liabilities of BHT;
o the Company and GMI will be released from our obligations with respect
to approximately $5.7 million of debt to be prepaid by Tandberg at the
closing;
o holders of BHT Series B preferred stock will receive up to $1 million
in cash in the aggregate;
F-33
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
o former holders of BHT Series A preferred stock at the time of the
merger between BHT and GMI ("the former BH Series A holders") will
receive up to approximately $1.5 million in cash in the aggregate;
o former holders of BHT common stock at the time of the merger between
BHT and GMI ("the former BH Common holders") will receive warrants to
purchase up to 5,091,160 ordinary shares of Tandberg at a price of NOK
30, and up to 518,225 shares of the Company's common stock in the
aggregate and warrants to purchase up to 200,000 shares of the
Company's common stock in the aggregate; and
o the former BH Series A holders and the former BH Common holders will
release any claims they may have against the Company, GMC, BHT or
Tandberg, except for certain claims against the Company and GMI
related to the Company's obligation to issue options under the merger
agreement between BHT and GMI.
ISSUANCE OF SERIES D PREFERRED STOCK
On January 19, 2000, the Company issued 2,725 shares of Series D
Convertible Preferred Stock ("Series D Stock") in a private placement. The
shares were issued as follows: (1) 700 shares to new investors for $700,000 in
the aggregate; (2) 300 shares to certain investors upon conversion of $300,000
of convertible promissory notes issued by Global MAINTECH, (3) 1,600 shares to
the holders of Global MAINTECH's then outstanding Series C Convertible Preferred
Stock in exchange for all of their Series C shares; and (4) 125 shares to the
placement agent as compensation for placement agent services. In addition, in
connection with the Series D Stock offering (1) the holders of warrants issued
in the Series C offering were issued warrants to purchase 20,000 shares of
common stock in exchange for the warrants issued to them in the Series C
offering. The Company also issued 30,000 shares of common stock to the new
investors and 120,000 shares of common stock to the holders of the Series C
shares. Each share of Series D Stock is convertible into the number of shares of
common stock calculated by dividing the per share purchase price of $1,000 by
the conversion price. The conversion price equals the lesser of 75% of the
average of the three lowest closing bid prices of the common stock during the 15
trading days immediately before the conversion date or $5.4375. Holders of
Series D Stock are entitled to receive dividends at an annual rate of 8% of the
per share purchase price. The dividends are payable, upon conversion of the
Series D Stock, in either cash or shares of common stock, at the option of the
Global MAINTECH. The number of shares of common stock issuable as a dividend
payment will equal the total dividend payment then due divided by the conversion
price calculated as of the date that the dividend payment is due. Each warrant
entitles its holder to purchase common stock at $8.30 per share at any time
before the fifth anniversary of the date of issuance of the warrant.
ISSUANCE OF SERIES E PREFERRED STOCK
On December 30, 1999, the Company issued 2,650 shares of Series E
Convertible Preferred Stock ("Series E Stock") and warrants to purchase 51,000
shares of common stock in a private placement for consideration totaling
$2,650,000. Each share of Series E Stock is convertible into the number of
shares of common stock calculated by dividing the per share purchase price of
$1,000 by the conversion price. The conversion price equals the lesser of 75% of
the average of the three lowest closing bid prices of the common stock during
the 15 trading days immediately before the conversion date or $5.125. The
holders of Series E Stock are also entitled to receive dividends at the annual
rate of 8% of the per share purchase price. The dividends are payable upon
conversion of the Series E Stock, in either cash or shares of common stock, at
the option of Global MAINTECH. The number of shares of common stock issuable as
a dividend payment will equal the total dividend payment then due divided by the
conversion price calculated as of the date that the dividend payment is due.
Each warrant entitles its holder to
F-34
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
purchase common stock at $5.125 per share at any time before the fifth
anniversary of the date of issuance of the warrant.
ISSUANCE OF SERIES F PREFERRED STOCK
On February 23, 2000, the Company issued 2,000 shares of Series F
Convertible Preferred Stock ("Series F Stock") and warrants to purchase 50,000
shares of common stock in a private placement for consideration totaling
$2,000,000. Each share of Series F Stock is convertible into the number of
shares of common stock calculated by dividing the per share purchase price of
$1,000 by the conversion price. The conversion price equals the lesser of 75% of
the average of the three lowest closing bid prices of the common stock during
the 15 trading days immediately before the conversion date or $6.75. The holders
of Series F Stock are also entitled to receive dividends at the annual rate of
8% of the per share purchase price. The dividends are payable upon conversion of
the Series F Stock, in either cash or shares of common stock, at the option of
Global MAINTECH. The number of shares of common stock issuable as a dividend
payment will equal the total dividend payment then due divided by the conversion
price calculated as of the date that the dividend payment is due. Each warrant
entitles its holder to purchase common stock at $11.00 per share at any time
before the fifth anniversary of the date of issuance of the warrant.
LEGAL PROCEEDING
On February 15, 2000, the Company and GMI were named as defendants in a
patent infringement suit brought by R. Breat Johnson and I.D.G. Incorporated in
the federal court for the Northern District of Oklahoma. The suit alleges, among
other things, that the Company's VCC product, when monitoring a mainframe
computer, infringes on a patent held by the plaintiffs. The Company believes
that the plaintiffs' claims are without merit, but is attempting to settle the
claims in order to avoid protracted and costly litigation.
F-35
<PAGE>
================================================================================
3,074,726 Shares
Global
MAINTECH
Corporation
Common Stock
--------------
PROSPECTUS
--------------
____________ , 2000
================================================================================
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Article Seven of Global MAINTECH's articles of incorporation provides that
a director shall not be liable to Global MAINTECH or its stockholders for
monetary damages for a breach of fiduciary duty as a director, except for
liability (1) for any breach of the director's duty of loyalty to Global
MAINTECH or its shareholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3) under
Sections 302A.559 or 80A.23 of the Minnesota Statutes, (4) for any transaction
from which the director derived an improper personal benefit, or (5) for any act
or omission occurring prior to the date when such Article Seven became
effective.
Global MAINTECH's bylaws provide that the officers and directors of Global
MAINTECH and others shall be indemnified to substantially the same extent
permitted by Minnesota law.
Section 302A.521 of the Minnesota Business Corporation Act provides that a
corporation shall indemnify any person who was or is made or is threatened to be
made a party to any proceeding, by reason of the former or present official
capacity (as defined) of such person, against judgments, penalties, fines,
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding if
statutory standards are met. "Proceeding" means a threatened, pending or
complete civil, criminal, administrative, arbitration or investigative
proceeding, including one by or in the right of the corporation. Section
302A.521 contains detailed terms regarding such right of indemnification and
reference is made thereto for a complete statement of such indemnification
rights.
Global MAINTECH maintains a standard policy of officers' and directors'
insurance.
Item 25. Other Expenses of Issuance and Distribution
SEC Registration Fee...................................... $ 7,610
Accounting Fees and Expenses.............................. 15,000
Legal Fees and Expenses................................... 25,000
Blue Sky Fees and Expenses................................ 6,000
Printing and Engraving Expenses........................... 5,000
Miscellaneous............................................. 0
---------
Total............................................ $ 58,610
=========
All fees and expenses other than the SEC registration fee are estimated.
The expenses listed above will be paid by Global MAINTECH.
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
November 1996 Offering. Global MAINTECH issued a Private Placement
Memorandum dated November 25, 1996 (the "November 1996 Memorandum"), offering
for purchase up to 483,000 shares of Global MAINTECH's common stock at $3.75 per
share, as adjusted for the reverse stock split. As of December 31, 1996, 130,700
shares were issued pursuant to the November 1996 Memorandum. During January and
February 1997, Global MAINTECH issued an additional 330,560 shares in connection
with this offering. Maven Securities, Inc. acted as the placement agent. Global
MAINTECH paid the placement agent a 10% commission and a 3% fee for expenses and
issued to the placement agent a warrant to purchase up to 10% of the number of
shares of common stock issued in connection with such offering at an exercise
price of $3.75 per share. All share numbers and price per share numbers are
adjusted for the reverse stock split. The shares of common stock issued pursuant
to the November 1996 Memorandum were exempt from registration under Rule 506 of
Regulation D of the Securities Act.
June 1997 Offering. On June 6, 1997, Global MAINTECH offered for purchase
up to 220,000 shares of Global MAINTECH's common stock at $7.00 per share, as
adjusted for the reverse stock split. All 220,000 shares were sold pursuant to
this offering in July 1997. Global MAINTECH did not use a placement agent with
respect to such offering. All share numbers and price per share numbers are
adjusted for the reverse stock split. The shares of common stock issued in
connection with this offering were exempt from registration under Rule 506 of
Regulation D of the Securities Act.
June 1997 Note. On June 19, 1997, Global MAINTECH issued a promissory note
in the amount of $1,000,000 to each of two accredited investors in exchange for
a secured subordinated loan in the total amount of $2,000,000. Global MAINTECH
also issued warrants to purchase 106,000 shares of Global MAINTECH's common
stock at a purchase price of $9.00 per share, as adjusted for the reverse stock
split, to one of these accredited investors as a condition of the investor
making this loan. All share numbers and price per share numbers are adjusted for
the reverse stock split.
February 1998 Offering. During the second quarter of 1998, Global MAINTECH
issued 29,300 shares of common stock to accredited investors at a purchase price
of $9.50 per share in a private offering pursuant to the terms of a private
placement agreement dated February 19, 1998. Maven Securities, Inc. acted as
placement agent for such sale and was paid a 10% commission and a 3% fee for
expenses. As additional compensation, Global MAINTECH issued to the placement
agent a warrant to purchase 8,530 shares of common stock (equal to 10% of the
number of shares of common stock issued in connection with the offering) at an
exercise price of $9.50 per share. The aggregate offering price for the shares
issued in the second quarter of 1998 was $278,350 and the aggregate placement
agent commissions and expenses were approximately $36,200. All share numbers and
price per share numbers are adjusted for the reverse stock split. The shares
issued were exempt from registration under Rule 506 of Regulation D of the
Securities Act. This offering terminated on July 9, 1998 and a total of 85,300
shares were sold.
July 1998 Offering. On July 21, 1998, Global MAINTECH began a private
placement of 333,400 units, each consisting of one share of common stock
(subject to possible adjustment as described below) and one Warrant to purchase
a fraction of a share of common stock (determined as described below), at a
price of $11.00 per unit. Each Warrant entitles the holder thereof to purchase
.05334 shares of common stock at $13.00 per share for each $5 such investor
invested in the offering. In addition, the number of shares purchased in the
offering may be increased based on the future market price of the common stock.
If the average closing price per share for Global MAINTECH's common stock for
all trading days in December 1998 (the "Average Price") is less than $14.65,
then the number of shares issued to an investor in the offering will be adjusted
in accordance with the following formula: the number of adjusted shares will
equal the result obtained by dividing the aggregate investment by 75% of the
Average Price; provided, however, that the Average Price is subject to a minimum
value of $10.00. This offering terminated on August 11, 1998 and a total of
90,000 units were sold for a total offering price of $990,000. Global MAINTECH
offered this private placement without the assistance of a placement agent. All
share numbers and price per share numbers are adjusted for the reverse stock
split. The shares of common stock issued pursuant to this offering were exempt
from registration under Rule 506 of Regulation D of the Securities Act.
August 1998 Series B Stock. At the end of August 1998, Global MAINTECH
began a private placement of up to 123,077 units, as adjusted for the reverse
stock split, each consisting of one share of Series B Cumulative
II-2
<PAGE>
Convertible Preferred Stock ("Series B Stock") and one Warrant to purchase
shares of common stock. The purchase price per unit was $32.50.
Each share of Series B Stock entitles the holder thereof to receive an
annual dividend equal to $2.60. Until February 15, 1999, each share of Series B
Stock was convertible into that number of shares of common stock equal to the
per unit purchase price divided by $16.25, subject to adjustments and as
adjusted for the reverse stock split. Thereafter, each share of Series B Stock
is convertible into that number of shares of common stock equal to the per unit
purchase price divided by 80% of the average closing bid price of the common
stock for the 20 consecutive trading days prior to the conversion date, subject
to adjustments; provided, however, that such average price may not be greater
than $12.50 nor less than $3.75, as adjusted for the reverse stock split. All
outstanding shares of Series B Stock will be automatically converted in common
stock on September 23, 2001 if Global MAINTECH has registered the such common
shares under the Securities Act and the common stock is traded on Nasdaq.
Each Warrant is a five-year callable warrant to purchase common stock at
$16.25 per share, as adjusted for the reverse stock split. The number of shares
of common stock for which the Warrant in each unit will be exercisable will
equal the number of shares of common stock into which the associated share of
Series B Stock contained in the unit will have been converted. The Warrants are
callable by Global MAINTECH provided the common stock has not traded below
$21.875, as adjusted for the reverse stock split, for 20 consecutive trading
days prior to the call exercise date and the underlying shares are registered
under the Securities Act and the common stock is traded on Nasdaq.
Global MAINTECH agreed to use its best efforts to register the shares of
common stock underlying the Series B Stock and the Warrants and to pay a penalty
if such registration is not effective by February 28, 1999. This penalty is
equal to 1% of the purchase price of the units for the first 30-day period
following February 28, 1999 and 3% for every 30-day period thereafter until the
registration statement has been declared effective. The units were sold only to
accredited investors and this offering was exempt from registration under Rule
506 of Regulation D of the Securities Act.
Miller, Johnson & Kuehn Incorporated ("MJK") acted as the placement agent.
In consideration for MJK's services, it received a cash fee equal to 10% of the
proceeds from the units it sold and a cash fee equal to 2% of the proceeds from
the units sold by Global MAINTECH. In addition, at each closing held in
connection with the offering, MJK received a warrant to purchase that number of
shares of common stock equal to 10% of the number of units it sold and 2% of the
number of units Global MAINTECH sold, with a per share exercise price equal to
110% of the average closing bid price of the common stock for the 20 trading day
period immediately prior to such closing. This resulted in Global MAINTECH
issuing to MJK warrants to purchase 456, 2,700 and 319 shares of common stock at
per share exercise prices equal to $7.05, $7.35 and $5.80, respectively, as
adjusted for the reverse stock split.
Global MAINTECH issued 67,192 of such units for total gross proceeds of
$2,183,747. Commissions paid on this amount totaled $126,687 to MJK for
placement agent commissions and $23,302 for the payment of MJK's accountable
expenses, including legal fees, incurred in connection with the offering.
Unregistered Issuance in Connection with Asset Purchase from Enterprise
Systems, Inc. Global MAINTECH, through its wholly owned subsidiary SinglePoint
Systems, Inc. ("SSI"), purchased substantially all of the assets of Enterprise
Solutions, Inc., an Ohio corporation ("Enterprise Solutions"), pursuant to an
Asset Purchase Agreement effective as of November 1, 1998 (the "Purchase
Agreement") by and among the Company, GMI, SSI and Enterprise Solutions.
In addition to purchasing substantially all of the assets of Enterprise
Solutions (including rights under and to Enterprise Solutions' computer software
products, the related trademarks and copyrights, Enterprise Solutions' ongoing
leases, contracts and certain office equipment), the Company assumed certain
liabilities of Enterprise Solutions. The primary assets acquired by the Company
were a suite of software products, including AlarmPoint and PhonePoint, which
provide intelligent software linked to telephones, pagers and the Internet for
notification of critical events. This software is linked to other systems
management tools and delivers timely and critical information to the proper
person(s) for problem resolution. The acquired software will be offered by the
Company to customers as an additional component of the Company's base VCC unit.
The Company also obtained Enterprise Solutions' short-term consulting business,
which assists companies to optimize their existing systems management
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and network management tools. The Company expects that this consulting business
will generate sales of newly acquired software and of VCC units.
The purchase price was paid as follows: $200,000 was paid in cash to
Enterprise Solutions; options to purchase a maximum of 340,000 shares of Common
Stock or a minimum of 80,000 shares of Common Stock, subject to earnings events
over the 18 months following the closing, were issued to the shareholders of
Enterprise Solutions (the "Shareholder Options"); and options to purchase a
maximum of 16,000 shares of Common Stock were issued to the employees of
Enterprise Solutions (the "Employee Options"). All such options, as adjusted for
the reverse stock split, have an exercise price equal to $6.25 and expire on
December 9, 2003.
The purchase price of the assets is subject to adjustment depending on the
after-tax earnings generated by the Company using the purchased assets during
the 18-month period following the closing of the transaction ("Adjusted
Earnings"). In the event the Adjusted Earnings are less than certain amounts set
forth in the Purchase Agreement, the number of shares that may be purchased
under the Shareholder Options may be reduced by up to 260,000 shares, as
adjusted for the reverse stock split. Conversely, the Company will pay
Enterprise Solutions the excess, if any, of the Earn-out Amount (as defined
below) over the Option Value (as defined below). "Earn-out Amount" means the
greater of (a) 18 times the sum of the Adjusted Earnings for the first, second,
third and tenth through eighteenth months following the acquisition or (b) 16
times the sum of the Adjusted Earnings for the seventh month through the
eighteenth month following the acquisition. "Option Value" means $200,000 plus
the product of the number of shares subject to the Shareholder Options (after
any adjustments as described above) multiplied by the spread between the
exercise price thereof and the average daily closing price of the Company's
Common Stock during the month immediately preceding the last month of the Earn
Out Period. Notwithstanding the foregoing, in the event the Earn-out Amount
minus the Option Value is less than $5,000,000, the Company, at its option, will
either pay the difference to Enterprise Solutions or return the purchased assets
(and related liabilities) to Enterprise Solutions as of the end of the Earn-out
period. In the event such assets are returned to Enterprise Solutions, the
Shareholder Options and the Employee Options will be canceled.
All securities issued in connection with this transaction were issued under
Section 4(2) of the Securities Act.
February 1999 Note and Warrants. On February 23, 1999, Global MAINTECH
received a loan in the amount of $500,000 from five partners in the investment
firm of Andersen, Weinroth & Co. In exchange for the loan, Global MAINTECH
issued a promissory note in the amount of $500,000 and Warrants to purchase up
to 80,000 shares of Common Stock, as adjusted for the reverse stock split. The
promissory note bears interest at an annual rate of 10% payable on April 30,
1999, and upon repayment of the balance due under the note on its maturity date
of July 31, 1999. To secure payment under the promissory note, Global MAINTECH
granted the investors in the offering a security interest on both its current
assets and its noncurrent assets. Holders of the Warrants may exercise them by
paying the exercise price in cash or by converting the Warrants under a cashless
exercise option. Holders of the Warrants also have the right to"demand" and
"piggyback" registration rights under certain circumstances. The Warrants are
exercisable at $5.40 per share, subject to adjustment and as adjusted for the
reverse stock split. Warrants with respect to 26,760 shares, as adjusted for the
reverse stock split, are callable by Global MAINTECH upon the occurrence of
certain conditions set forth in the Warrants. Warrants with respect to the
remaining 53,240 shares are noncallable. The note and warrants were exempt from
registration under Section 4(2)of the Securities Act of 1933.
March 1999 Offering. In March 1999, the Company began a private placement
of common stock at a purchase price of $5.625 per share, as adjusted for the
reverse stock split. The Company completed this private placement on May 12,
1999. A total of 265,000 shares were sold for total gross proceeds of
$1,491,875. Aethlon Capital acted as the placement agent. The Company paid the
placement agent a cash commission equal to 10% of the gross proceeds and
reimbursed the agent for out-of-pocket expenses incurred in connection with the
offering. The Company also issued to the agent a warrant to purchase up to
26,522 shares of the common stock sold in the offering with an exercise price of
$5.625 per share. The shares of common stock issued pursuant to this offering
were exempt from registration under Rule 506 of Regulation D of the Securities
Act of 1933.
March 1999 Note. On March 9, 1999, Global MAINTECH issued a $100,000
convertible note payable to an accredited investor, convertible into Common
stock at $6.25 per share, as adjusted for the reverse stock split, at a 6%
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per annum rate of interest. The convertible note payable is subordinate to
current and future debt issued by Global MAINTECH and is due on September 9,
1999. The note was exempt from registration under Section 4(2) of the Securities
Act of 1933.
March 1999 Series C Stock. On March 25, 1999, Global MAINTECH issued 1,600
shares of its Series C Convertible Preferred Stock (the "Series C Stock") to
certain accredited investors in a private offering. In connection with such
offering, Global MAINTECH also issued warrants to the investors to purchase up
to 20,000 shares of Common Stock, as adjusted for the reverse stock split.
Settondown Capital International Ltd., the placement agent used in connection
with the offering, received 75 shares of Series C Stock and a warrant to
purchase an aggregate of 20,000 shares of common stock, in addition to $96,000
in fees for costs incurred in connection with the offering, including legal
fees. On January 19, 2000, the holders of Series C stock and warrants to
purchase shares of common stock exchanged their Series C shares and those
warrants for shares of Series D stock and new warrants, adjusted for the reverse
stock split, as described below under "January 19, 2000 Series D Stock."
Unregistered Issuance in Connection with Merger with Breece Hill
Technologies, Inc. On April 14, 1999, the Company acquired all of the issued and
outstanding common stock and Series A Convertible Preferred Stock (the
"Outstanding Shares") of Breece Hill Technologies, Inc. ("BHT") in connection
with the merger of BHT Acquisition, Inc., a subsidiary of GMI, with and into
BHT. BHT was the surviving corporation and is now a subsidiary of GMI.
In exchange for the cancellation of their Outstanding Shares, holders of
such shares received rights to proportionate interests in the merger
consideration, which consisted of warrants to purchase a total of 900,000 shares
of the Company's common stock and the right to receive an earn out payment based
in part on the sales of BHT over the twelve months following the acquisition.
This earn out payment will be made, if at all, in the form of the Company's
common stock in the maximum amount of 1,100,000 shares, a portion of the fair
value of which may be satisfied with cash. Subsequent to the date of
acquisition, the BHT subsidiary issued 400,000 shares of Preferred Stock Series
B to Hambrecht & Quist Guaranty Fund LLP in exchange for a reduction of debt
secured by certain assets of BHT in the amount of $1 million. The preferred
stock has a monthly dividend of $10,000 payable in cash or common stock of
Global MAINTECH Corporation and is convertible at the option of the holder into
common stock of Global MAINTECH Corporation. The Company has recorded this
Preferred Stock as a minority interest in BHT. BHT is a supplier of automated
tape libraries used to backup, restore and archive information stored in
networks on servers, PCs and workstations, and stored via on-line data storage
subsystems. The Company is currently negotiating the sale of BHT.
All securities issued in connection with this transaction were issued under
Section 4(2) of the Securities Act.
May 1999 Offering. On May 7, 1999, Global MAINTECH issued convertible notes
payable to two accredited investors in the aggregate principal amount of
$167,372. The notes are convertible into common stock at $6.25 per share, as
adjusted for the reverse stock split, and bear interest at the rate of 6% per
annum. The notes are subordinate to current and future debt issued by Global
MAINTECH. The notes were due on November 7, 1999; however, on September 9, 1999,
the notes were converted, in accordance with their terms, into 26,554 shares of
common stock. The notes were exempt from registration under Section 3(a)(9) of
the Securities Act of 1933.
June 1999 Offering. On June 28, 1999, the Company began a second private
placement of common stock at a purchase price of $5.00 per share. A total of
144,430 shares were sold for total gross proceeds of $722,150. Aethlon Capital
acted as the placement agent. The Company paid the placement agent a cash
commission equal to 10% of the gross proceeds and reimbursed the agent for
out-of-pocket expenses incurred in connection with the offering. The Company
also issued to the agent a warrant to purchase up to 10% of the number of shares
of the common stock sold in the offering with an exercise price of $5.00 per
share. The shares issued were exempt from registration under Rule 506 of
Regulation D of the Securities Act of 1933.
August 1999 Note Payable. On August 6 and again on September 30, 1999, the
Company rescheduled the principal payment of $250,000 of a $500,000 note payable
to Andersen, Weinroth, which originally was due on July 31, 1999. This payment
was extended to November 30, 1999, and was paid in full by the Company by such
date. In connection with these reschedulings, the Company issued warrants to
purchase a total of 30,000 shares of
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common stock at an exercise price of $5.40 per share to Andersen, Weinroth.
These warrants have a term of five years and were issued pursuant to Section
4(2) of the Securities Act.
August 1999 Offering. On August 26, 1999, Global MAINTECH issued 238,000
shares of common stock to Liviakis Financial Communications, Inc. in exchange
for an agreement by Liviakis to perform public relations work for Global
MAINTECH. An additional 20,000 shares of common stock were issued to The Geneva
Group, Inc. to perform public relations work for Global MAINTECH in Europe. The
agreement was amended as of November 17, 1999 to extend the term through April
1, 2001. Global MAINTECH issued an additional 390,000 shares of common stock to
Liviakis as consideration for extension of the term. Pursuant to the agreement,
Liviakis agreed to a lock-up of the shares until the expiration of the term of
the consultancy. The share numbers are as adjusted for the reverse stock split
and were exempt from registration under Section 4(2) of the Securities Act of
1933.
Unregistered Issuance in Connection with Asset Purchase from Lavenir
Technology, Inc. On September 28, 1999, the Company, through its wholly owned
subsidiary Global MAINTECH, Inc. ("GMI"), purchased substantially all the assets
of Lavenir Technology, Inc., a California corporation ("Lavenir"), pursuant to
an Agreement and Plan of Reorganization (the "Purchase Agreement") by and among
the Company, GMI and Lavenir.
In addition to purchasing substantially all of the assets of Lavenir
(including rights under and to Lavenir's computer software products and the
trademarks and copyrights related thereto), the Company assumed certain
liabilities of Lavenir, including, Lavenir's ongoing leases, debt and contract
obligations. The primary assets acquired by the Company were a suite of CAD/CAM
software products, including the ability to design, test, verify and repair
precision graphics designs, This software is sold independently or with Raster
Photoplotters, sophisticated hardware products used to build master printed
circuit boards.
The total purchase price of $5,300,000 was payable as follows: 266,000
shares of the Company's common stock was paid to Lavenir at closing, and
$400,000 was paid in the form of a note payable due on January 31, 2000. In
November 1999, the $400,000 note was negotiated to a $100,000 note payable due
January 31, 2000 in return for 100,000 shares of the Company's common stock. A
maximum of 700,000 additional shares of common stock are issuable as of April
30, 2000 sufficient to cause the value of the shares and debt previously issued
and the original $400,000 liability to total $5,300,000 as of April 30, 2000.
The holders of common stock issued by the Company in connection with the
acquisition were granted customary registration rights.
All securities issued in connection with this transaction were issued under
Section 4(2) of the Securities Act.
November 1999 Offering. On November 30, 1999, in a transaction separate
from the consulting agreement referenced above under "August 1999 Offering,"
Global MAINTECH issued to John and Renee Liviakis 125,000 shares of common stock
at a total purchase price of $500,000 pursuant to a subscription agreement. The
parties agreed to a lock-up of the shares for the same period as the lock-up
referenced under "August 1999 Offering" above.
January 19, 2000 Series D Stock. On January 19, 2000, we issued 2,725
shares of Series D Convertible Preferred Stock ("Series D Stock") in a private
placement. The shares were issued as follows: (1) 700 shares to new investors
for $700,000 in the aggregate; (2) 300 shares to certain investors upon
conversion of $300,000 of convertible promissory notes issued by Global
MAINTECH, (3) 1,600 shares to the holders of Global MAINTECH's then outstanding
Series C Convertible Preferred Stock in exchange for all of their Series C
shares; and (4) 125 shares to the placement agent as compensation for placement
agent services. In addition, in connection with the Series D Stock offering (1)
the holders of warrants issued in the Series C offering were issued warrants to
purchase 20,000 shares of common stock in exchange for the warrants issued to
them in the Series C offering. We also issued 30,000 shares of common stock to
the new investors and 120,000 shares of common stock to the holders of the
Series C shares. Each share of Series D Stock is convertible into the number of
shares of common stock calculated by dividing the per share purchase price of
$1,000 by the conversion price. The conversion price equals the lesser of 75% of
the average of the three lowest closing bid prices of the common stock during
the 15 trading days immediately before the conversion date or $5.4375. Holders
of Series D Stock are entitled to receive dividends at an annual rate of 8% of
the per share purchase price. The dividends are payable, upon conversion of the
Series D
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Stock, in either cash or shares of common stock, at the option of the Global
MAINTECH. The number of shares of common stock issuable as a dividend payment
will equal the total dividend payment then due divided by the conversion price
calculated as of the date that the dividend payment is due. Each warrant
entitles its holder to purchase common stock at $8.30 per share at any time
before the fifth anniversary of the date of issuance of the warrant.
Global MAINTECH agreed to use its best efforts to register the shares of
common stock underlying the Series D Stock and the Warrants and to pay a penalty
if such registration is not effective by the 30th day after issuance of the
Series D Stock. This penalty is equal to 2% of the purchase price of the Series
D Stock for the first 30-day period following such 30-day period and 3% of such
purchase price for every 30-day period thereafter until the registration
statement has been declared effective. The shares issued were exempt from
registration pursuant to Section 4(2) and Regulation D of the Securities Act of
1933.
December 30, 1999 Series E Stock. On December 30, 1999, Global MAINTECH
issued 2,650 shares of its Series E Convertible Preferred Stock (the "Series E
Stock") to certain accredited investors in a private offering. In connection
with such offering, Global MAINTECH also issued warrants to the investors to
purchase 51,000 shares of Common Stock. The holders of Series E Stock are not
entitled to vote except in the event Global MAINTECH desires to issue shares of
a class or series of preferred stock which could adversely effect the rights of
such holders, or as may otherwise be required by law. The holders of Series E
Stock are entitled to receive dividends at an annual rate of 8% of the stated
value($1,000) of the Series E Stock, subject to the prior declaration or payment
of any dividend to which the holders of Global MAINTECH's Series A Stock, Series
B Stock or Series D Stock are entitled. Dividends on shares of the Series E
Stock are cumulative and are payable only upon conversion of the Series E Stock.
At any time after the issuance of the Series E Stock, each share of Series E
Stock is convertible into that number of shares of common stock equal to the
stated value of each such share ($1,000) divided by the lesser of $5.125 or 75%
of the average of the three lowest closing bid prices of the Common Stock during
the 15 trading days immediately preceding the conversion date. All outstanding
shares of Series E Stock will be automatically converted into Common stock on
December 30, 2001. Each warrant is a five-year callable warrant to purchase
Common Stock at $5.125 per share. Global MAINTECH agreed to use its best efforts
to file a registration statement with regard to sales of the shares of common
stock underlying the Series E Stock and the Warrants and to pay a penalty if
such registration statement is not filed by the 30th day after issuance of the
Series E Stock or effective by the 120th day after issuance of the Series E
Stock. This penalty is equal to 2% of the purchase price of the Series E Stock
for the first 30-day period following such 30-day period and 3% of such purchase
price for every 30-day period thereafter until the registration statement has
been declared effective. The Series E Holders have waived their right to receive
their penalty fee if the registration statement is filed on or before March 3,
2000. The shares issued were exempt from registration pursuant to Rule 506 of
Regulation D and Section 4(2) of the Securities Act of 1933.
February 17, 2000 Series F Stock. On February 17, 2000, Global MAINTECH
issued 2,000 shares of its Series F Convertible Preferred Stock (the "Series F
Stock") to certain accredited investors in a private offering. In connection
with such offering, Global MAINTECH also issued warrants to the investors to
purchase 50,000 shares of Common Stock. The holders of Series F Stock are not
entitled to vote except in the event Global MAINTECH desires to issue shares of
a class or series of preferred stock which could adversely effect the rights of
such holders, or as may otherwise be required by law. The holders of Series F
Stock are entitled to receive dividends at an annual rate of 8% of the stated
value($1,000) of the Series F Stock, subject to the prior declaration or payment
of any dividend to which the holders of Global MAINTECH's Series A Stock, Series
B Stock, Series D Stock or Series E Stock are entitled. Dividends on shares of
the Series F Stock are cumulative and are payable only upon conversion of the
Series F Stock. At any time after the issuance of the Series F Stock, each share
of Series F Stock is convertible into that number of shares of common stock
equal to the stated value of each such share ($1,000) divided by the lesser of
$6.75 or 75% of the average of the three lowest closing bid prices of the Common
Stock during the 15 trading days immediately preceding the conversion date. All
outstanding shares of Series F Stock will be automatically converted into Common
stock on February 17, 2002. Each warrant is a five-year callable warrant to
purchase Common Stock at $11.00 per share. Global MAINTECH agreed to use its
best efforts to file a registration statement with regard to sales of the shares
of common stock underlying the Series F Stock and the Warrants and to pay a
penalty if such registration statement is not filed by the 45th day following
the issuance of the Series F Stock or effective by the 120th day after issuance
of the Series F Stock. This penalty is equal to 2% of the purchase price of the
Series E Stock for the first 30-day period following such 45-day period and 3%
of such purchase price for every
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30-day period thereafter until the registration statement has been declared
effective. The shares issued were exempt from registration pursuant to Rule 506
of Regulation D and Section 4(2) of the Securities Act of 1933.
Item 27. List of Exhibits
Exhibit
Number Description
------- -----------
2.1 Agreement and Plan of Merger dated December 6, 1994, as amended, among
Global MAINTECH Corporation (the "Company"), Mirror Consolidation
Company, and MAINTECH Resources, Inc. (incorporated by reference to
the Company's Form 8-K filed with the Commission on January 19, 1995
(File No. 0-14692)).
2.2 Agreement and Plan of Merger dated March 5, 1999, among the Company,
Global MAINTECH, Inc. ("GMI"), Breece Hill Acquisition, Inc., and
Breece Hill Technologies, Inc. (incorporated by reference to the
Company's Form 10-KSB for the year ended December 31, 1998 (File No.
0-14692)).
2.3 Agreement and Plan of Reorganization dated as of July 1, 1999 by and
among GMI, the Company and Lavenir Technology, Inc. (incorporated by
reference to the Company's Form 8-K filed with the Commission on
October 12, 1999 (File No. 0-14692)).
3.1 Bylaws of the Company, as amended (incorporated by reference to the
Company's Form S-1 (File No. 33-34894)).
3.2 Third Restated Articles of Incorporation of the Company, including
amendment to effect a reverse split in the capital stock of the
Company, filed on November 10, 1999 (filed herewith).
3.3 Certificate of Designation of Series D Convertible Preferred Stock, as
corrected, filed on December 8, 1999 (filed herewith).
3.4 Certificate of Designation of Series E Convertible Preferred Stock,
filed on December 29, 1999 (filed herewith).
4.1 Form of 11% Convertible Subordinated Debenture due July 1, 1996
(incorporated by reference to the Company's Form 10-K for the year
ended March 31, 1991 (File No. 0-14692)).
4.2 Form of Registration Agreement between the Company and holders of the
Company's 11% Convertible Subordinated Debentures Due July 1, 1996
(incorporated by reference to the Company's Form 10-K for the year
ended March 31, 1991 (File No. 0-14692)).
4.3 Form of Certificate of the Company Series A convertible Preferred
Stock (incorporated by reference to the Company's Form 10-KSB for the
year ended December 31, 1994 (File No. 0-14692)).
4.4 Form of Certificate of the Company's Common Stock following change of
corporate name (incorporated by reference to the Company's Form 10-KSB
for the year ended December 31, 1995 (File No. 0-14692)).
4.5 Form of Promissory Note, dated June 19, 1997, issued to each of
Marquette Bancshares, Inc. and Mezzanine Capital Partners, Inc.
(incorporated by reference to the Company's Form SB-2, as amended
(File No. 333-33477)).
4.6 Form of Preferred Stock and Warrant Purchase Agreement, including
Registration Rights exhibit thereto, relating to sale of Series B
Convertible Preferred Stock and Callable Common Stock Warrants during
the fourth quarter of 1998 (incorporated by reference to the Company's
Registration Statement on Form SB-2 filed with the Commission on
February 17, 1999 (File No. 333-72513)).
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4.7 Form of Certificate of the Company's Series B Convertible Preferred
Stock (incorporated by reference to the Company's Registration
Statement on Form SB-2 filed with the Commission on February 17, 1999
(File No. 333-72513)).
4.8 Form of Series C Convertible Preferred Stock Purchase Agreement, dated
March 24, 1999, which sets forth the rights of the holders of Series C
Convertible Preferred Stock and the Warrants issued in connection
therewith (incorporated by reference to the Company's Form 10-KSB for
the year ended December 31, 1998 (File No. 0-14692)).
4.9 Form of Certificate of the Company's Series C Convertible Preferred
Stock (incorporated by reference to the Company's Form 10-KSB for the
year ended December 31, 1998 (File No. 0-14692)).
4.10 Form of Series D Convertible Preferred Stock Purchase Agreement,
including Registration Rights Agreement and Common Stock Purchase
Warrant attached as exhibits thereto (filed herewith).
4.11 Form of Certificate of the Company's Series D Convertible Preferred
Stock (filed herewith).
4.12 Form of Securities Purchase Agreement for Series E Convertible
Preferred Stock, including Registration Rights Agreement and Common
Stock Purchase Warrant attached as exhibits thereto (filed herewith).
4.13 Form of Certificate of the Company's Series E Convertible Preferred
Stock. (filed herewith).
4.14 Form of Certificate of Designation of Series F Convertible Preferred
Stock of the Company (filed herewith).
4.15 Securities Purchase Agreement, dated as of February 17, 2000, between
the Company and the Buyer named therein (to be filed by amendment).
4.16 Form of certificate for shares of Series F Preferred Stock (filed
herewith).
5 Opinion of Dorsey & Whitney LLP (filed herewith).
10.1 Global MAINTECH Corporation 1989 Stock Option Plan (incorporated by
reference to Exhibit 28 to the Company's Registration Statement on
Form S-8 (File No. 33-33576)).
10.2 Amendments No. 1 and 2, dated October 17, 1991 and April 24, 1992,
respectively, to the Company's 1989 Stock Option Plan (incorporated by
reference to the Company's Form 10-K for the year ended March 31, 1992
(File No. 0-14692)).
10.3 Mirror Technologies, Incorporated 401(k) Plan effective April 1, 1992
(incorporated by reference to the Company's Form 10-K for the year
ended March 31, 1992 (File No. 0-14692)).
10.4 Exclusive Distributor and Licensing Agreement between Yutaka Takagi
and Circle Corporation and MAINTECH Resources, Inc. and the Company,
Inc. dated December 20, 1994 (incorporated by reference to the
Company's Form 10-KSB for the year ended December 31, 1994 (File No.
0-14692)).
10.5 Amendment No. 3, dated May 15, 1995, to the Company's 1989 Stock
Option Plan (incorporated by reference to the Company's Form 10-KSB
for the year ended December 31, 1995 (File No. 0-14692)).
10.6 License and Asset Purchase Agreement between Infinite Graphics
Incorporated and the Company Corporation dated February 27, 1998
(incorporated by reference to the Company's Form 10-KSB for the year
ended December 31, 1997 (File No. 0-14692)).
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<PAGE>
10.7 Asset Purchase Agreement, dated November 1, 1998, by and among GMI.,
the Company, SinglePoint Systems, Inc. and Enterprise Solutions, Inc.
(incorporated by reference to the Company's Form 8-K filed with the
Commission on December 23, 1998 (File No. 0-14692)).
10.8 Office Lease between the Company and Compass Marketing, Inc.,
sublessor, and Glenborough Realty Trust Incorporated, lessor, dated
March 3, 1998 (incorporated by reference to the Company's Form 10- KSB
for the year ended December 31, 1997 (File No. 0-14692)).
21 Subsidiaries of the Company (filed herewith).
23.1 Consent of KPMG LLP (filed herewith).
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5).
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(b) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information appearing
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price in the
"Calculation of Registration Fee" table in the effective registration
statement;
(c) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change in the information in the registration
statement;
Provided, however, that paragraphs (1)(a) and (1)(b) do not apply if
the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Exchange Act
that are incorporated by reference in the registration statement.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. If a claim for indemnification against liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in
II-10
<PAGE>
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota, on March 3, 2000.
Global MAINTECH Corporation
By /s/ Trent Wong
-------------------------------------
Trent Wong
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature to this registration statement appears below
hereby constitutes and appoints Trent Wong and James Geiser, and each of them,
as his or her true and lawful attorney-in-fact and agent, with full power of
substitution, to sign on his behalf individually and in the capacity stated
below and to perform any acts necessary to be done in order to file all
amendments and post-effective amendments to this registration statement, and any
and all instruments or documents filed as part of or in connection with this
registration statement or the amendments thereto, and each of the undersigned
does hereby ratify and confirm that said attorney-in-fact and agent, or his
substitutes, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement on Form SB-2 has been signed by the following persons in the
capacities indicated on March 3, 2000.
NAME TITLE
- ---- -----
/s/ Trent Wong Chief Executive Officer (Principal
- ----------------------------- Executive Officer) and Director
Trent Wong
/s/ James Geiser Chief Financial Officer and Secretary
- ----------------------------- (Principal Financial and Accounting Officer)
James Geiser
* Director
- -----------------------------
David H. McCaffrey
Director
- -----------------------------
John Haugo
* Director
- -----------------------------
James G. Watson
Director
- -----------------------------
William Howdon
*By: /s/ James Geiser
------------------------
Attorney-in-fact
II-11
<PAGE>
Exhibit Index
Number Description
- ------ -----------
3.2 Third Restated Articles of Incorporation of the Company,
including amendment to effect a reverse split in the capital
stock of the Company, filed on November 10, 1999.
3.3 Certificate of Designation of Series D Convertible Preferred
Stock, as corrected, filed on December 8, 1999.
3.4 Certificate of Designation of Series E Convertible Preferred
Stock, filed on December 29, 1999.
4.10 Form of Series D Convertible Preferred Stock Purchase Agreement,
including Registration Rights Agreement and Common Stock Purchase
Warrant attached as exhibits thereto.
4.11 Form of Certificate of the Company's Series D Convertible
Preferred Stock.
4.12 Form of Securities Purchase Agreement for Series E Convertible
Preferred Stock, including Registration Rights Agreement and
Common Stock Purchase Warrant attached as exhibits thereto.
4.13 Form of Certificate of the Company's Series E Convertible
Preferred Stock.
4.14 Form of Certificate of Designation of Series F Convertible
Preferred Stock of the Company.
4.16 Form of certificate for shares of Series F Preferred Stock.
5 Opinion of Dorsey & Whitney LLP.
21 Subsidiaries of the Company.
23.1 Consent of KPMG LLP.
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5).
<PAGE>
EXHIBIT 3.2
THIRD RESTATED
ARTICLES OF INCORPORATION
ARTICLES OF AMENDMENT
OF ARTICLES OF INCORPORATION OF
GLOBAL MAINTECH CORPORATION
I, the undersigned, James Geiser, Chief Financial Officer and Secretary of
Global MAINTECH Corporation, Inc. (the "Corporation") organized under and
pursuant to the provisions of Minnesota Statutes, Chapter 302A, hereby certify
that the Board of Directors of the Corporation on August 6, 1999 duly approved a
reverse split in the capital stock of the Corporation, with such reverse split
to be effective upon the filing of these Articles of Amendment, and duly
approved the Third Restated Articles of Incorporation of the Corporation as
follows:
THIRD RESTATED
ARTICLES OF INCORPORATION
OF
GLOBAL MAINTECH CORPORATION
Article 1. Name
----------------
The name of the corporation is Global MAINTECH Corporation.
Article 2. Registered Office
-----------------------------
The address of the registered office of the corporation is 7578 Market
Place Drive, Eden Prairie, MN 55344.
Article 3. Authorized Shares
----------------------------
3.1 Designation and Number. The aggregate number of authorized shares of
----------------------
the corporation is 10,711,724 shares, no par value, of which 887,980 shares
shall be designated Series A Convertible Preferred Stock (the "Series A
Preferred Stock"), 123,077 shall be designated Series B Convertible Cumulative
Preferred Stock (the "Series B Preferred Stock"), 1,675 shall be designated as
Series C Convertible Preferred Stock (the "Series C Preferred
-1-
<PAGE>
Stock"), and 9,698,992 shares shall be divisible into such classes and series,
have such designations, voting rights, and other rights and preferences and be
subject to such restriction as the Board of Directors of the corporation may
from time to time establish, fix and determine consistent with the provisions
hereof. Unless otherwise designated in these Third Restated Articles by the
Board of Directors, all issued shares shall be deemed "Common Stock" (as defined
in Section 3.4(d)) with equal rights and preferences. The rights, preferences,
privileges and restrictions granted to and imposed upon the Common Stock, the
Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock are set forth in this Article 3.
3.2 Dividend Provisions.
-------------------
(a) Dividends shall be payable on the Series A Preferred Stock out of
funds legally available for the declaration of dividends only if and when
declared by the Board of Directors. No dividend shall be paid or declared, nor
shall any distribution be made, on the Common Stock, unless holders of the
Series A Preferred Stock shall participate in such dividend on a pro rata basis
with the holders of Common Stock, counting shares of Series A Preferred Stock on
an as-if-converted basis.
(b) Upon issuance, dividends shall accrue on each share of
outstanding Series B Preferred Stock at an annual rate equal to $2.60 per share
per annum (8% of the Series B Original Issue Price, as defined below). Such
dividends shall be cumulative and shall be payable upon any conversion of the
Series B Preferred Stock pursuant to Section 3.4 below. Such dividends shall be
payable by the corporation, in its sole discretion, either entirely in cash out
of legally available funds of the corporation or entirely in shares of
unrestricted, freely tradable Common Stock; provided, however, that prior to the
payment of any such dividend in shares of Common Stock, the corporation shall
deliver to the holders of the Series B Preferred Stock an opinion of counsel
stating that all such shares have been validly registered under the Securities
Act of 1933, as amended (the "Securities Act"), so as to be freely tradable, and
that such shares are duly authorized, validly issued and nonassessable. For the
purposes hereof, the number of shares of Common Stock issuable in lieu of any
cash dividend payment shall equal the total dividend payment then due divided by
the average closing bid price for one share of Common Stock as quoted on the
Nasdaq Stock Market (or, if not so quoted on the Nasdaq Stock Market, as quoted
in the over-the-counter market) for the ten consecutive trading days prior to
the payment of such dividend. Dividends on shares of the Series B Preferred
Stock shall accrue beginning on the date of issuance of the shares of Series B
Preferred Stock, shall compound on an annual basis and shall be payable upon
conversion of the Series B Preferred Stock. All accrued and unpaid dividends on
the Series B Preferred Stock must be paid before any dividends may be declared
or paid on any other junior series of Preferred or Common Stock issued by the
corporation.
(c) The holders of shares of Series C Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor,
subject to the prior declaration or payment of any dividend to which the holders
of Series A Preferred Stock and Series B Preferred
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<PAGE>
Stock are entitled, prior to, and in preference to, any declaration or payment
of any dividend on the Common Stock, at a per share rate equal to eight percent
(8%) per annum of the amount of the stated value of the Series C Preferred Stock
(the "Series C Stated Value"), which Series C Stated Value shall initially be
$1,000, and which dividends shall be payable upon conversion (based upon a 365
calendar day year) as set forth below. Dividends shall begin to accrue as of the
date on which the Series C Preferred Stock were issued (the "Series C Issuance
Date"). Any dividends payable pursuant to the provisions of this paragraph
shall, at the corporation"s option, be payable in cash or in unrestricted shares
of Common Stock within five Business Days (as defined below) of when due. The
number of shares of Common Stock issuable per share of Series C Preferred Stock
in lieu of any cash dividend payment shall equal the dollar amount of dividends
owed per share of Series C Preferred Stock divided by the Series C Conversion
Price (as defined below) on the date that the dividends are payable (if such
date is not a Trading Day, then the next Trading Day (as defined below)
immediately thereafter).
Such dividends shall accrue from day to day whether or not earned
or declared. Such dividends shall be cumulative so that if such dividends in
respect of any previous or current annual dividend period, computed at the
annual rate specified above, shall not have been paid or declared and a sum
sufficient for the payment thereof set apart for all Series C Preferred Stock at
the time outstanding, the deficiency shall first be fully paid before any
dividend or other distribution shall be paid on or declared or set apart for the
Series C Preferred Stock, Common Stock or other security of the corporation
subordinate in liquidation to the Series C Preferred Stock. Holders of the
Series C Preferred Stock shall not be entitled to participate in any other
dividends beyond the cumulative dividends specified herein.
3.3 Liquidation Preference. In the event of any liquidation, dissolution
----------------------
or winding up of the corporation, either voluntary or involuntary:
(a) the holders of Series A Preferred Stock then outstanding shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the corporation to the holders of the Common Stock by
reasons of their ownership thereof, an amount equal to $.375 per share, subject
to adjustment in the event of any stock dividend, split, distribution or
combination with respect to the Series A Preferred Stock. If upon the occurrence
of such event, the assets and funds of the corporation available for
distribution to its stockholders shall be insufficient to pay the holders of the
Series A Preferred Stock the full amounts to which they shall be entitled, the
holders of the Series A Preferred Stock shall share ratably in any distribution
of assets and funds of the corporation legally available for distribution to
such holders in proportion to the amounts to which they would otherwise be
entitled.
(b) subject to the prior liquidation preference of the holders of the
Series A Preferred Stock, the Series B Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of the
corporation to the holders of Common Stock by reason of their ownership thereof,
an amount per share equal to the sum of (i) $32.50, as adjusted pursuant to
Section 3.5(c) hereof (the "Series B Original Issue Price"), and (ii) an amount
equal
-3-
<PAGE>
to cumulative unpaid dividends on such shares (such sum referred to as a
"Liquidation Amount"). If upon the occurrence of such an event, the assets and
funds of the corporation available for distribution to the holders of the Series
B Preferred Stock shall be insufficient to pay to such holders the full amounts
to which they shall be entitled, the holders of the Series B Preferred Stock
shall share ratably in any distribution of assets and funds of the corporation
legally available for distribution to such holders in proportion to the amounts
to which they would otherwise be entitled.
(c) subject to the prior liquidation preference of the holders of
Series A Preferred Stock and Series B Preferred Stock and prior and in
preference to any distribution of any assets of the corporation to the holders
of Common Stock, holders of each share of Series C Preferred Stock shall be
entitled to receive out of the assets available for distribution to such holders
the Series C Stated Value (as defined below) per share of Series C Preferred
Stock held plus eight percent (8%) per annum thereon from the Series C Issuance
Date to the Trading Day (as defined below) immediately prior to such
liquidation, dissolution or winding up of the corporation (the "Liquidation
Amount"). Upon completion of any required distribution to the holders of the
Series A Preferred Stock and Series B Preferred Stock, if the assets of the
corporation available for distribution to the holders of the Series C Preferred
Stock shall be insufficient to pay such holders the full amounts to which they
shall be entitled, the holders of the Series C Preferred Stock shall share
ratably in any distribution of assets and funds of the corporation legally
available for distribution to such holders in proportion to the amounts to which
they would otherwise be entitled. After payment of the Liquidation Amount shall
have been made in full to the holders of the Series C Preferred Stock or funds
necessary for such payment shall have been set aside by the corporation in trust
for the account of holders of the Series C Preferred Stock so as to be available
for such payments, the holders of the Series C Preferred Stock shall be entitled
to no further participation in the distribution of the assets of the
corporation. Upon completion of the distribution required by subparagraphs (a),
(b) and (c) of this Section 3.3, if assets remain in the corporation, such
remaining assets shall be distributed ratably among the holders of the Common
Stock, Series A Preferred Stock and the Series B Preferred Stock in proportion
to the number of shares of Common Stock held by each (assuming full conversion
of all shares of Series A Preferred Stock and Series B Preferred Stock).
(d) (1) For purposes of this Section 3.3, a liquidation, dissolution
or winding up of the corporation shall be deemed to be occasioned by, or to
include, (A) the acquisition of the corporation by another entity by means of
any transaction or series of related transactions (including any reorganization,
merger or consolidation but excluding any merger effected exclusively for the
purpose of changing the domicile of the corporation); or (B) a sale of all or
substantially all of the assets of the corporation, unless the corporation"s
shareholders as constituted immediately prior to such acquisition or sale will,
immediately after such acquisition or sale (by virtue of securities issued as
consideration for the corporation"s acquisition or sale or otherwise) hold at
least 50% of the voting power of the surviving or acquiring entity.
-4-
<PAGE>
(2) In any of such events, if the consideration received by the
corporation is other than cash, its value will be deemed its fair market value.
(3) In the event the requirements of this Section 3.3 are not
complied with, the corporation shall forthwith either:
(A) cause such closing to be postponed until such time as the
requirements of this Section 3.3 have been complied with, or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock (the "Preferred Stock")
shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
subsection 3.3(d)(4) hereof.
(4) The corporation shall give each holder of record of Preferred
Stock written notice of such impending transaction not later than 30 days prior
to the shareholders" meeting called to approve such transaction, or 30 days
prior to the closing of such transaction, whichever is earlier, and shall also
notify such holders in writing of the final approval of such transaction;
provided, however, that the holder of any shares of then outstanding Preferred
Stock shall have the right during such applicable period to convert such shares
pursuant to Section 3.3 hereof. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 3.3, and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than: (A) 30 days (20 days in the case of the holders of Series B
Preferred Stock) after the corporation has given the first notice provided for
herein; or (B) ten days after the corporation has given notice of any material
changes provided for herein; provided, however, that such periods may be
shortened upon the written consent of the holders of the Preferred Stock that
are entitled to such notice rights or similar notice rights and that represent
at least a majority of the voting power of all then-outstanding shares of
Preferred Stock, each voting separately as a series.
3.4 Conversion.
----------
(a) Conversion of Series A Preferred Stock. Each share of Series A
--------------------------------------
Preferred Stock shall be convertible at the option of the holder thereof at any
time into the number of shares of Common Stock of the corporation equal to the
number obtained by dividing $.375 by the conversion price computed as
hereinafter set forth (the "Series A Conversion Price") in effect for such
Series A Preferred Stock at the time of conversion. The Series A Conversion
Price shall be $1.875, subject to adjustment from time to time as hereinafter
provided.
In order to exercise the conversion privilege, a holder of
Series A Preferred Stock shall surrender the certificate to the corporation at
its principal office,
-5-
<PAGE>
accompanied by written notice to the corporation that the holder elects to
convert a specified portion or all of such shares. Series A Preferred Stock
shall be deemed to have been converted on the day of surrender of the
certificate representing such shares for conversion in accordance with the
foregoing provisions, and at such time the rights of such holder of such shares
of Series A Preferred Stock, as such holder, shall cease and such holder shall
be treated for all purposes as the record holder of the Common Stock issuable
upon conversion. As promptly as practicable on or after the conversion date,
certificates representing the number of shares of Common Stock issuable upon
conversion, rounded to the nearest full share, and a certificate or certificates
for the balance of the Series A Preferred Stock surrendered, if any, not so
converted into Common Stock.
The Series A Conversion Price is subject to adjustment from time
to time as follows:
(1) Dividends. In case the corporation shall declare a
---------
dividend upon its shares of Common Stock payable otherwise than in cash out of
earnings or surplus (including a dividend payable in shares of Common Stock),
then thereafter each holder of shares of Series A Preferred Stock upon
conversion thereof will be entitled to receive the number of shares of Common
Stock into which such Series A Preferred Stock shall be converted and, in
addition and without payment thereof, the cash, stock or other securities and
other property (including Common Stock) which such holder would have received by
way of dividends or distributions (otherwise than out of earnings or surplus) if
continuously since the record date for any such dividend or distribution such
holder (A) had been the record holder of the number of shares of Common Stock
into which such shares of Series A Preferred Stock shall be convertible, and (B)
had retained all dividends or distributions in stock or securities payable in
respect of such Common Stock or in respect of any stock or securities paid as
dividends or distributions and originating directly or indirectly from such
Common Stock.
(2) Subdivisions and Combinations. In case the corporation
-----------------------------
shall at any time subdivide or split its outstanding shares of Common Stock into
a greater number of shares, the Series A Conversion Price in effect immediately
prior to such subdivision or split shall be proportionately reduced, and
conversely, in the event that the outstanding shares of Common Stock of the
corporation shall be combined into a smaller number of shares, the Series A
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(3) Reorganizations. In any capital reorganization or
---------------
reclassification of the capital stock of the corporation, or consolidation or
merger of the corporation with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be effected in such
a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for shares of Common Stock,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the holders
of the Series A Preferred Stock shall thereafter have the right
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<PAGE>
to receive, upon the basis and upon the terms and conditions specified in such
reorganization, reclassification, consolidation, sale or merger in lieu of the
shares of Common Stock of the corporation immediately theretofore receivable
upon the conversion of the Series A Preferred Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of Common Stock equal to number of shares of
Common Stock immediately theretofore receivable upon the conversion of the
Series A Preferred Stock had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of the holders
of the Series A Preferred Stock to the end that the provisions hereof (including
without limitation provisions for adjustments of the Series A Conversion Price
and of the number of shares receivable upon the conversion of the Series A
Preferred Stock) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter receivable upon
the conversion of the Series A Preferred Stock. The corporation shall not effect
any such consolidation, merger or sale, unless prior to the consummation thereof
the surviving corporation (if other than this corporation), the corporation
resulting from such consolidation or the corporation purchasing such assets
shall assume by written instrument executed and mailed to the registered holders
of the Series A Preferred Stock at the last address of such holders appearing on
the books of the corporation the obligation to deliver to such holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holders may be entitled to receive.
(b) Conversion of Series B Preferred Stock. At the option of the
--------------------------------------
holder thereof, each share of Series B Preferred Stock shall be convertible at
any time during the period commencing on the day on which the resale of the
Common Stock underlying the Series B Preferred Stock (the "Series B Conversion
Stock") is registered under the Securities Act and expiring on September 23,
2001; provided, however, that if upon such expiration date the Series B
Conversion Stock is not subject to an effective Registration Statement under the
Securities Act, such expiration date shall be extended until 30 days after the
Series B Conversion Stock is subject to an effective registration statement
under the Securities Act (the "Extension Period"). Each share of Series B
Preferred Stock shall be convertible at the office of the corporation or any
transfer agent for such stock into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing the Series B Original Issue
Price by the Series B Conversion Price in effect on the date the certificate
representing such share is surrendered for conversion (the "Series B Conversion
Date"). The Series B Conversion Price shall equal the average closing bid price
of one share of Common Stock as quoted by the Nasdaq SmallCap Market, the Nasdaq
National Market or the principal exchange upon which shares of Common Stock may
be listed, or, if the Common Stock shall not then be quoted on the Nasdaq
SmallCap Market or the Nasdaq National Market or listed on a national securities
exchange, but shall otherwise be traded in the over-the-counter market, on such
over-the-counter market, for the 20 consecutive trading days prior to the Series
B Conversion Date (the "Trading Period") multiplied by .8 (the "Series B
Conversion Price"); provided, however, that in no event shall the Series B
Conversion Price exceed $12.50 per share or be less than $3.75 (the "Maximum
Price" and "Minimum Price," respectively) per share; and provided, further, that
appropriate adjustments shall be made in
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<PAGE>
determining the average closing bid price if a recapitalization or other event
affecting the Common Stock shall occur during the Trading Period.
(1) Dividend Payment. Should the corporation, pursuant to
----------------
Section 3.2 hereof, not elect to pay all outstanding, cumulative, accrued and
unpaid dividends on the Series B Preferred Stock in shares of its Common Stock,
the corporation shall pay, in immediately available funds, to the holder of any
shares of Series B Preferred Stock being converted, all such dividends within
five business days of the date that it receives notice of such holder"s intent
to convert such shares pursuant to subsection 3.4(b)(3) below. Separately,
should the corporation elect to pay all outstanding, cumulative, accrued and
unpaid dividends on the Series B Preferred Stock in shares of its Common Stock,
it shall, within five business days of receiving a notice of intent to convert
from a holder of Series B Preferred Stock, deliver certificates representing
such shares to such holder.
(2) Automatic Conversion. Any shares of Series B Preferred Stock
--------------------
remaining outstanding on the later of September 23, 2001 or the expiration of
any Extension Period shall be automatically converted as of such date pursuant
to the conversion terms of this Section 3.4(b). In any event, the corporation
shall, within five business days after automatic conversion of the Series B
Preferred Stock, issue and deliver a certificate or certificates for the number
of shares of Common Stock to which each former holder of Series B Preferred
Stock is entitled. Notwithstanding the foregoing, no automatic conversion of the
Series B Preferred Stock shall occur pursuant to this Section 3.4 unless (A) all
shares of Common Stock underlying the Series B Preferred Stock may be sold
pursuant to an effective registration statement under the Securities Act, (B)
the Common Stock is listed and trading on The Nasdaq Stock Market, and (C) the
corporation has reserved and available for issuance a number of shares of Common
Stock sufficient to cover conversion of all outstanding shares of Series B
Preferred Stock.
(3) Mechanics of Conversion. Before any holder of Series B
-----------------------
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he, she or it shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the corporation or of any transfer agent for the
Series B Preferred Stock, and shall give written notice, via facsimile, to the
corporation, at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The corporation shall,
immediately thereafter (and in any event no more than five business days
thereafter), issue and deliver to such holder of Series B Preferred Stock at the
address shown on the corporation"s records or at such other address as such
holder may designate by written notice to the corporation, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled pursuant to Section
3.4(b) and a certificate representing any shares of Series B Preferred Stock not
so converted. Such conversion shall be deemed to have been made immediately
prior to the close of business on the Series B Conversion Date, and the person
or persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be
-8-
<PAGE>
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date.
(4) Mechanics of Automatic Conversion. On the Series B
---------------------------------
Conversion Date with respect to the automatic conversion pursuant to subsection
3.4(b)(2) above, the certificates representing shares of Series B Preferred
Stock shall immediately represent that number of shares of Common Stock into
which such shares are convertible. Holders of Series B Preferred Stock shall
deliver their certificates, duly endorsed in blank, to the principal office of
the corporation, together with a notice setting out the name or names (with
addresses) and denominations in which the certificates representing such shares
of Common Stock issuable upon conversion are to be issued and including
instructions for delivery thereof. The person entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Common Stock at and on the Series B
Conversion Date, and the rights of such person as a holder of shares of Series B
Preferred Stock shall cease and terminate at and on the Series B Conversion
Date, without regard to any failure by such holder to deliver the certificates
or the notice required by this subsection 3.4(b)(4). On the Series B Conversion
Date with respect to automatic conversion, the corporation shall pay all
outstanding, cumulative, accrued and unpaid dividends, either by the issuance of
shares of its Common Stock or in cash, pursuant to the provisions set forth in
3.2(b)(1) above; provided, however, that should the corporation elect to pay
such dividends by the issuance of additional shares of its Common Stock, the
person entitled to receive such shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such
additional shares on the Series B Conversion Date.
(c) Conversion of Series C Preferred Stock. Each holder of Series C
--------------------------------------
Preferred Stock shall have the right, at such holder"s option, to convert the
Series C Preferred Stock into shares of Common Stock, on the following terms and
conditions:
(1) Subject to the provisions of Section 3.4(c)(11) hereof, at
any time or times, upon the earlier to occur of (A) the 61/st/ calendar day
after the Series C Issuance Date, or (B) the Effective Date (as defined below),
any holder of the Series C Preferred Stock shall be entitled to convert any
whole number of such holder"s shares of Series C Preferred Stock into that
number of fully paid and nonassessable shares of Common Stock equal to the
number of shares of Series C Preferred Stock being converted multiplied by
$1,000 and divided by the Series C Conversion Price (as defined below).
(2) For purposes of this Section 3.4(c), the following terms
shall have the following meanings:
A "Business Day" shall be any day other than a Saturday,
Sunday, national holiday or a day on which the New York Stock Exchange is
closed.
-9-
<PAGE>
The "Closing Bid Price" shall mean, for any security as of
any date, the last closing bid price for such security on the Nasdaq Stock
Market as reported by Bloomberg L.P. ("Bloomberg"), or, if the Nasdaq Stock
Market is not the principal trading market for such security, the last closing
bid price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price of such security in the
over-the-counter market on the NASD OTC Electronic Bulletin Board for such
security as reported by Bloomberg, or, the last closing trade price of such
security as reported by Bloomberg, or, if no last closing bid or trade price is
reported for such security by Bloomberg, the closing bid price shall be
determined by reference to the closing bid price as reported on the Principal
Market. If the Closing Bid Price cannot be calculated for such security on such
date on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as mutually agreed by the corporation
and the holders of two thirds of the outstanding shares of Series C Preferred
Stock.
The "Series C Conversion Price" shall mean, as of any
Conversion Date (as defined below) the lesser of (A) $2.50 or (B) 80% of the
average of the three Trading Days, during the hours of 9:30 a.m. and 4:00 p.m.
Eastern Time, that have the lowest volume weighted average prices of the Common
Stock during the 15 Trading Days (the "Lookback Period") immediately preceding
the Conversion Date (hereinafter referred to as the "Current Price") as reported
by Bloomberg using the "AQR" function. On the last Trading Day of each month,
starting on the first day of the fourth calendar month immediately following the
Series C Issuance Date, the Lookback Period will be increased by two Trading
Days until the Lookback Period equals a maximum of 30 Trading Days.
"Effective Date" shall mean the date on which the Securities
and Exchange Commission (the "SEC") first declares effective a Registration
Statement registering the resale of 200% of the number of shares of Common Stock
issuable upon conversion of all of the Series C Preferred Stock outstanding on
the Trading Day immediately preceding the day such Registration Statement is
filed.
A "Trading Day" shall mean a day on which the Principal
Market is open.
The "Principal Market" shall mean the Nasdaq National
Market, the Nasdaq Small Cap Stock Market, the American Stock Exchange, the NASD
OTC Electronic Bulletin Board operated by the National Association of Securities
Dealers, Inc., or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the Common Stock.
(3) Holders of Series C Preferred Stock may exercise their right
to convert the Series C Preferred Stock by telecopying an executed and completed
notice of conversion in the agreed upon form (the "Notice of Conversion") to the
corporation and
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delivering to corporation the original Notice of Conversion and the certificate
representing the Series C Preferred Stock being converted by reputable overnight
courier. Each Business Day (between the hours of 7:00 a.m. and 4:00 p.m. Pacific
Time) on which a Notice of Conversion is telecopied to and received by the
corporation shall be deemed a "Conversion Date." The corporation shall, at its
expense, deliver the certificates representing shares of Common Stock issuable
upon conversion of any share of Series C Preferred Stock (together with the
certificates representing any shares of Series C Preferred Stock not so
converted) to the holder thereof via reputable overnight courier, by electronic
transfer or otherwise within three Business Days after the Conversion Date;
provided the corporation has received the original Notice of Conversion and
Series C Preferred Stock certificate being so converted on or before the close
of business of the third Business Day after the Conversion Date. In addition to
any other remedies which may be available to the holders of shares of Series C
Preferred Stock, in the event that the corporation fails to deliver such shares
of Common Stock within such three Business Day period, the holder will be
entitled to revoke the relevant Notice of Conversion by delivering a notice (by
similar method) to such effect to the corporation whereupon the corporation and
such holder shall each be restored to their respective positions immediately
prior to delivery of such Notice of Conversion. The Notice of Conversion and
Series C Preferred Stock certificates representing the portion of the Series C
Preferred Stock converted shall be delivered as follows:
To the corporation: Global MAINTECH Corporation
7578 Market Place Drive
Eden Prairie, MN 55344
Attention: CEO
Telephone: (612) 944-0400
Facsimile: (612) 944-3311
with a copy to: Ken Cutler
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
Telephone: (612) 343-2194
Facsimile: (612) 340-2868
In the event that shares representing the Common Stock
issuable upon conversion of the Series C Preferred Stock (the "Series C
Conversion Stock") are not delivered by the corporation within three Business
Days after the Conversion Date, in addition to all other available remedies
which such holder may be entitled, the corporation shall pay to the holders
thereof, in immediately available funds, upon demand, as liquidated damages for
such failure and not as a penalty, for each $100,000 principal amount of Series
C Preferred Stock sought to be converted, $500 for each of the first ten (10)
days and $1,000 per day thereafter that the Series C Conversion Shares are not
delivered, which liquidated damages shall run from the fourth Business Day after
the Conversion Date up until the time that either the Conversion Notice
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is revoked or the Series C Conversion Shares are delivered, at which time
accrual of such liquidated damages shall cease. Any and all payments required
pursuant to this paragraph shall be payable only in cash immediately. The
payment of these liquidated damages by the corporation shall not relieve the
corporation of its obligations under these Third Restated Articles of
Incorporation.
(4) If the Common Stock issuable upon the conversion of the
Series C Preferred Stock shall be changed into the same or different number of
shares of any class or classes of stock, whether by capital reorganization,
reclassification or otherwise, then and in each such event, the holders of
Series C Preferred Stock shall have the right thereafter to convert such shares
into the kind and amount of shares of stock and other securities and property
receivable upon such capital reorganization, reclassification or other change
which such holders would have received had their shares of Series C Preferred
Stock been converted immediately prior to such capital reorganization,
reclassification or other change.
(5) If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section)
or a merger or consolidation of the corporation with or into another
corporation, or the sale of all or substantially all of the corporation's
properties and assets to any other person (any of which events is herein
referred to as a "Reorganization"), then as a part of such Reorganization,
provision shall be made so that the holders of the Series C Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series C
Preferred Stock the number of shares of stock or other securities or property of
the corporation, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled if such holder had
converted its shares of Series C Preferred Stock immediately prior to such
Reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section with respect to the rights of the
holders of the Series C Preferred Stock after the Reorganization, to the end
that the provisions of this Section (including adjustment of the number of
shares issuable upon conversion of the Series C Preferred Stock) shall be
applicable after that event in as nearly equivalent a manner as may be
practicable.
(6) Upon the occurrence of each adjustment or readjustment of
the Series C Conversion Price as provided herein, the corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of such Series C
Preferred Stock a certificate executed by the president and chief financial
officer (or in the absence of a person designated as the chief financial
officer, by the treasurer) setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment are
based. The corporation shall, upon written request at any time of any holder of
Series C Preferred Stock, furnish or cause to be furnished to such holder a
certificate setting forth (A) the Series C Conversion Price at the time in
effect, and (B) the number or shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of Series C Preferred Stock.
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<PAGE>
(7) Upon receipt by the corporation of evidence of the loss, theft,
destruction or mutilation of any Series C Preferred Stock certificate, and (in
the case of loss, theft or destruction) of indemnity or security reasonably
satisfactory to the corporation, and upon cancellation of the Series C Preferred
Stock certificate, if mutilated, the corporation shall execute and deliver new
certificates for Series C Preferred Stock of like tenure and date. However, the
corporation shall not be obligated to reissue such lost or stolen certificates
for shares of Series C Preferred Stock if the holder contemporaneously requests
the corporation to convert such shares of Series C Preferred Stock into Common
Stock.
(8) Each share of Series C Preferred Stock outstanding three years
from the Series C Issuance Date shall automatically be converted into Common
Stock on such date, at the Series C Conversion Price as of such date, and such
date shall be deemed the Conversion Date with respect to such shares.
(9) The corporation shall pay any and all original issue and/or
transfer taxes which may be imposed upon it with respect to the issuance and
delivery of Common Stock upon conversion of the Series C Preferred Stock.
(10) In the event a holder shall elect to convert any share or shares
of Series C Preferred Stock as provided herein, the corporation cannot refuse
conversion based on any claim that such holder or anyone associated or
affiliated with such holder has been engaged in any violation of law, unless an
injunction from a court, restraining and/or enjoining conversion of all or part
of said shares of Series C Preferred Stock shall have been issued and the
corporation posts a surety bond for the benefit of such holder in the amount of
125% of the Series C Stated Value of the shares and dividends sought to be
converted, which is subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such holder in the event it obtains a favorable
judgment.
(11) For so long as the corporation has not received a Notice of
Conversion for such shares, the corporation may, at its option, repurchase, in
whole or in part, the Series C Preferred Stock shares at the Redemption Price
(as defined below). The Series C Preferred Stock is redeemable as a series, in
whole or in part, by the corporation by providing written notice (the
"Redemption Notice") to the holder of the Series C Preferred Stock via facsimile
at his or her address as the same shall appear on the books of the corporation
(during any Business Day between the hours of 7:00 a.m. and 4:00 p.m. Pacific
Time the Redemption Notice is received by the holders of the Series C Preferred
Stock via facsimile is defined to be the "Redemption Notice Date"). Within ten
Trading Days after the Redemption Notice Date the corporation shall make payment
of the Redemption Price (as defined below) in immediately available funds to the
holder for the shares of Series C Preferred Stock which are the subject of the
Redemption Notice (such date of payment referred to as the "Redemption Date").
Partial redemptions shall be in an aggregate principal amount of at least
$100,000. If fewer than all of the outstanding shares of Series C Preferred
Stock are to be redeemed, the corporation will select
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those to be redeemed pro-rata amongst the holders of the Series C Preferred
Stock based on the number of shares of Series C Preferred Stock then
outstanding.
The redemption price (the "Redemption Price") shall equal the greater
of (A) 115% of the Series C Stated Value of the shares which are subject to such
Redemption Notice, plus all accrued but unpaid dividends on such shares, or (B)
the Economic Benefit (as defined below) of the shares of Series C Preferred
Stock which are the subject of such Redemption Notice, subject to proportionate
adjustment upon any adjustment of the Series C Conversion Price as provided
herein and in the event of any stock dividend, stock split, combination of
shares or similar event. "Economic Benefit" shall mean the dollar value derived
if the shares of Series C Preferred Stock which were the subject of the
Redemption Notice were converted on the Redemption Notice Date and sold on the
Redemption Notice Date at the Closing Bid Price of the Common Stock on the
Redemption Notice Date.
The Notice of Redemption shall set forth (A) the Redemption Date and
the place fixed for redemption, (B) the Redemption Price, (C) a statement that
dividends on the shares of Series C Preferred Stock to be redeemed will cease to
accrue on such Redemption Date, (D) a statement of or reference to the
conversion right set forth herein, and (E) confirmation that the corporation has
the full Redemption Price reserved as set forth below. If fewer than all the
shares of the Series C Preferred Stock owned by such holder are then to be
redeemed, the notice shall specify the number of shares thereof that are to be
redeemed and, if practicable, the numbers of the certificates representing such
shares. Within ten Trading Days of the Notice of Redemption Date, the
corporation shall wire transfer the appropriate amount of funds to the holders
of the Series C Preferred Stock. If the corporation fails to comply with the
redemption provisions set forth herein it shall not be permitted to serve a
Redemption Notice for a period of 60 calendar days after the Redemption Notice
Date relating to the Redemption Notice with respect to which such failure to
comply occurred. For the first five Trading Days after the Notice of Redemption
Date the holder of the Series C Preferred Stock will retain his or her right to
convert the Series C Preferred Stock. In the event the corporation has not
complied with the redemption provisions set forth herein the corporation must
comply with the delivery requirements of any then outstanding Conversion Notice
as set forth herein. The holders shall send the shares of Series C Preferred
Stock being redeemed to the corporation within three Business Days after they
have received good funds for the Redemption Price of such shares.
Subject to the receipt by the holders of the Series C Preferred Stock
being redeemed of the wire transfer of the Redemption Price as described above,
each share of Series C Preferred Stock to be redeemed shall be automatically
canceled and converted into a right to receive the Redemption Price, and all
rights of the Series C Preferred Stock, including the right to conversion shall
cease without further action.
The corporation shall not be entitled to send any Redemption Notice
and begin the redemption procedure hereunder unless it has:
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(A) the full amount of the Redemption Price in cash,
available in a demand or other immediately available account in a bank
or similar financial institution, specifically allotted for such
redemption;
(B) immediately available credit facilities, in the full
amount of the Redemption Price with a bank or similar financial
institution specifically allotted for such redemption; or
(C) a combination of the items set forth in (A) and (B)
above, aggregating the full amount of the Redemption Price.
(d) General Provisions.
------------------
(1) Common Stock Defined. As used in this Section 3.4, the term
--------------------
"Common Stock" shall mean and include the corporation's presently authorized
common stock and shall also include any capital stock of any class of the
corporation hereafter authorized which shall have the right to vote on all
matters submitted to the shareholders of the corporation and shall not be
limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution, or winding up of this
corporation; provided that the shares issuable upon conversion of the Preferred
Stock shall include shares designated as Common Stock of this corporation as of
the date of issuance of such Preferred Stock, or, in case of any
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in section 3.4(a)(3) and 3.4(c)(4)above.
(2) No Impairment. The corporation will not, by amendment of
-------------
these Third Restated Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3.4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Preferred Stock against impairment.
(3) No Fractional Shares. No fractional shares shall be issued
---------------------
upon the conversion of any share or shares of the Preferred Stock, and the
number of shares of Common Stock to be issued in connection with each conversion
shall be rounded to the nearest whole share. Whether or not fractional shares
are issuable upon such conversion shall be determined on the basis of the total
number of shares of Preferred Stock the holder is at the time converting into
shares of Common Stock and the number of shares of such Common Stock issuable
upon such aggregate conversion.
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(4) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
its Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Preferred Stock; and if at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Preferred Stock, in addition to such other remedies as shall be available to the
holder of such Preferred Stock, the corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes, including using its best efforts to obtain the
requisite shareholder approval of any necessary amendment to the corporation's
articles of incorporation. The corporation shall, so long as any share or shares
of the Series C Preferred Stock are outstanding reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Series C Preferred Stock, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the Series C Preferred Stock then outstanding; provided that the number of
shares of Common Stock so reserved shall at no time be less than 200% of the
number of shares of Common Stock for which the Series C Preferred Stock are at
any time convertible and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to maintain such number of shares
of Common Stock, the corporation shall take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
(5) Restrictions and Limitations. Except as expressly provided
----------------------------
herein or as required by law, so long as any shares of Series C Preferred Stock
remain outstanding, the corporation shall not, without the approval by vote or
written consent by the holders of at least two thirds of the then outstanding
shares of Series C Preferred Stock, voting as a separate class, take any action
that would adversely affect the rights, preferences or privileges of the holders
of Series C Preferred Stock.
Without limiting the generality of the preceding paragraph,
the corporation shall not, so long as any shares of Series C Preferred Stock
remain outstanding, amend its Articles of Incorporation without the approval by
the holders of all of the then outstanding shares of Series C Preferred Stock if
such amendment would:
A. create any other class or series of capital stock entitled
to seniority as to the payment of dividends in relation to the holders of Series
C Preferred Stock;
B. reduce the amount payable to the holders of Series C
Preferred Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the corporation, or change the relative seniority of the
liquidation preferences of the holders of Series C Preferred Stock to the rights
upon liquidation of the holders of other capital stock of the corporation,
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C. cancel or modify the conversion rights of the holders of
Series C Preferred Stock provided for in Section 3.4 hereof; or
D. cancel or modify the rights of the holders of the Series C
Preferred Stock provided for in this Section 3.
(6) No Reissuance of Series C Preferred Stock. No share or
-----------------------------------------
shares of Series C Preferred Stock acquired by the corporation by reason of
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the corporation shall
be authorized to issue. The corporation may from time to time take such
appropriate corporate action as may be necessary to reduce the authorized number
of shares of the Series C Preferred Stock accordingly.
(7) 4.99% Limitation. The number of shares of Common Stock
----------------
which may be acquired by any holder pursuant to the terms herein shall not
exceed the number of such shares which, when aggregated with all other shares of
Common Stock then owned by such holder, would result in such holder owning more
than 4.99% of the then issued and outstanding Common Stock at any one time. The
preceding shall not interfere with any holder's right to convert any share or
shares of Series C Preferred Stock over time which in the aggregate totals more
than 4.99% of the then outstanding shares of Common Stock so long as such holder
does not own more than 4.99% of the then outstanding Common Stock at any given
time. The foregoing limitation shall not apply to any automatic conversion
pursuant to Section 3.4(c)(8).
3.5 Anti-Dilution Provisions.
------------------------
(a) If at any time the corporation shall subdivide its outstanding
shares of Common Stock into a greater number of shares, the Series B Original
Issue Price, the Maximum Price and the Minimum Price in effect immediately prior
to such subdivision shall be proportionately reduced, and the corporation shall
subdivide the Series B Preferred Stock in the same proportion. In case at any
time the outstanding shares of Common Stock shall be combined into a smaller
number of shares, the Series B Original Issue Price, the Maximum Price and the
Minimum Price in effect immediately prior to such combination shall be
proportionately increased, and the corporation shall combine the Series B
Preferred Stock in the same proportion. Any adjustment under this paragraph
3.5(a) shall become effective at the close of business on the date the
subdivision or combination shall become effective. The corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Series B Preferred Stock to such
number of shares as shall be sufficient for any such purposes, including using
its best efforts to obtain the requisite shareholder approval of any necessary
amendment to the corporation's articles of incorporation.
(b) The corporation shall provide the holders of Series B Preferred
Stock with at least ten days prior written notice of any capital reorganization
or reclassification of the capital stock of the corporation, or consolidation or
merger of the corporation with another corporation, or the sale of all or
substantially all of the corporation's assets to another corporation. Further,
if
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any of the foregoing events shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holders of Series B Preferred Stock
shall thereafter have the right to receive, upon the basis and upon the terms
and conditions specified herein and in lieu of the shares of Common Stock of the
corporation immediately theretofore receivable upon the conversion of shares of
Series B Preferred Stock, such stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such stock immediately
theretofore receivable upon the conversion of shares of Series B Preferred Stock
had such reorganization, reclassification, consolidation, merger or sale not
taken place, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the holders of Series B Preferred Stock
to the end that the provisions hereof (including provisions for adjustments of
the Series B Conversion Price and of the number of shares of Common Stock
issuable upon the conversion) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the conversion of such Series B Preferred Stock. The
corporation shall not effect any such reorganization, reclassification,
consolidation, merger or sale unless prior to the consummation thereof the
successor corporation (if other than the corporation) resulting from such
consolidation or merger, or the corporation purchasing such assets, shall assume
by operation of law or written instrument, the obligation to deliver to such
holders of Series B Preferred Stock such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holders of Series B
Preferred Stock may be entitled to receive. Notice of such assumption shall be
promptly mailed to the registered holders of Series B Preferred Stock hereof at
the last address of such holder appearing on the books of the corporation.
(c) Upon any adjustment of the Series B Original Issue Price, the
Maximum Price or the Minimum Price, then, and in each such case, the corporation
shall give written notice thereof, by first class mail, postage prepaid,
addressed to each registered holder of Series B Preferred Stock at the address
of such holder as shown on the books of the corporation, which notice shall
state the Series B Original Issue Price, the Maximum Price or the Minimum Price
resulting from such adjustment, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(d) If any event occurs as to which in the good faith determination of
the Board of Directors of the corporation the other provisions of this Section
3.5 are not strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the holders of Series B Preferred Stock in
accordance with the essential intent and principles of such provisions, then the
Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights as aforesaid.
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(e) The corporation shall not, by amendment of its articles of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
these Third Restated Articles of Incorporation, but shall at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
holders of the Series C Preferred Stock against dilution or other impairment.
Without limiting the generality of the foregoing, the corporation (1) shall not
establish a par value of any shares of stock issuable upon conversion of the
Series C Preferred Stock above the amount payable therefor on such conversion,
(2) shall take all such action as may be necessary or appropriate in order that
the corporation may validly and legally issue fully paid and nonassessable
shares of stock on the conversion of all Series C Preferred Stock from time to
time outstanding, and (3) shall not consolidate with or merge into any other
person or entity, or permit any such person or entity to consolidate with or
merge into the corporation (if the corporation is not the surviving person),
unless such other person or entity shall expressly assume in writing and will be
bound by all of the terms of the Series C Preferred Stock set forth herein.
3.6 Voting Rights of Preferred Stock. The holder of each share of
--------------------------------
Preferred Stock shall have the right to vote on all matters submitted to the
corporation's shareholders a number of votes equal to the number of shares of
Common Stock into which such holder's shares of Preferred Stock shall then be
convertible (assuming a conversion as of the record date set for the vote);
provided, however, that holders of Series C Preferred Stock shall have no voting
rights except as expressly required by law or as expressly provided herein.
3.7 Special Voting Rights for Series A Preferred Stock. Without the
--------------------------------------------------
affirmative vote or consent of holders of at least a majority of the Series A
Preferred Stock at the time outstanding, voting separately as a class, the
corporation shall not:
(a) Authorize or issue any (1) additional Series A Preferred Stock or
(2) shares of stock having priority over the Series A Preferred Stock or ranking
on a parity therewith as to the payment of dividends or as to the payment or
distribution of assets upon the liquidation or dissolution, voluntary or
involuntary, of the corporation; or
(b) Declare or pay any dividend or make any other distribution on any
shares of capital stock of the corporation at any time created and issued
ranking junior to the Series A Preferred Stock with respect to the right to
receive dividends and the right to the distribution of assets upon liquidation,
dissolution or winding up of the corporation (the "Junior Stock"), other than
dividends or distributions payable solely in shares of Junior Stock, or
purchase, redeem or otherwise acquire for any consideration (other than in
exchange for or out of the net cash proceeds of the contemporaneous issue or
sale of other shares of Junior Stock) or set aside as a sinking fund for the
redemption or repurchase of any shares of Junior Stock; or
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(c) Amend the articles of incorporation of the corporation so as to
adversely affect any of the rights, preferences or privileges of the holders of
Series A Preferred Stock.
3.8 Status of Converted Stock. In the event any shares of Preferred Stock
-------------------------
shall be converted pursuant to Section 3.4 hereof, the shares of Preferred Stock
so converted shall be canceled.
3.9 Notice Provisions.
-----------------
(a) (1) If at any time: (A) the corporation shall pay any dividend
payable in stock upon its Common Stock or make any distribution (other than
regular cash dividends) to the holders of its Common Stock; (B) the corporation
shall offer for subscription pro rata to the holders of its Common Stock any
additional shares of stock of any class or other rights; (C) there shall be any
capital reorganization, reclassification of the capital stock of the
corporation, or consolidation or merger of the corporation with, or sale of all
or substantially all of its assets to, another corporation; or (D) there shall
be a voluntary or involuntary dissolution, liquidation or winding up of the
corporation; in any such event, the corporation shall give written notice, by
first-class mail, postage prepaid, addressed to the holders of the Series A
Preferred Stock at the addresses of such holders as shown on the books of the
corporation, on the date on which the books of the corporation shall close or a
record shall be take for such dividend, distribution or subscription rights, or
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Common Stock of record
shall participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the case
may be. Such written notice shall be given at least 20 days prior to the action
in question and not less than 20 days prior to the record date or the date on
which the corporation's transfer books are closed in respect thereto.
(2) Upon any adjustment of the Series A Conversion Price the
corporation shall give written notice thereof, by first-class mail, postage
prepaid, addressed to the registered holders of the Series A Preferred Stock at
the addresses of such holders as shown on the books of the corporation, which
notice shall state the Series A Conversion Price resulting from such adjustment
and the increase or decrease, if any, in the number of shares receivable at such
price upon the conversion of the Series A Preferred Stock, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
(3) In the event of any taking by the corporation of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, the
corporation shall mail to each holder of Series A Preferred Stock, at least 30
days' (20 days in the case of the holders of Series B Preferred Stock) prior to
the date
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<PAGE>
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
(b) (1) The corporation shall provide all holders of shares of
Series B Preferred Stock five business days' prior written notice of any
adjustments in the Series B Original Issue Price, the Maximum Price, the Minimum
Price or any other adjustments made pursuant to the provisions hereof.
(2) Any notice required by the provisions of this Section 3 to
be given to the holders of shares of Series B Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his, her or its address appearing on the books of the
corporation
(c) In the event of:
(1) any taking by the corporation of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right,
(2) any capital reorganization of the corporation, any
reclassification or recapitalization of the capital stock of the corporation,
any merger of the corporation, or any transfer of all or substantially all of
the assets of the corporation to any other corporation, or any other entity or
person, or
(3) any voluntary or involuntary dissolution, liquidation or
winding up of the corporation, then and in each such event the corporation shall
mail or cause to be mailed to each holder of Series C Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, merger, dissolution, liquidation
or winding up is expected to become effective and (iii) the time, if any, that
is to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, merger,
dissolution, liquidation or winding up. Such notice shall be mailed at least ten
Business Days prior to the date specified in such notice on which such action is
to be taken.
Article 4. No Cumulative Voting
--------------------------------
There shall be no cumulative voting by the shareholders of the corporation.
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<PAGE>
Article 5. No Preemptive Rights
--------------------------------
The shareholders of the corporation shall not have any preemptive rights to
subscribe for or acquire securities or rights to purchase securities of any
class, kind or series of the corporation.
Article 6. Written Action by Directors
---------------------------------------
An action required or permitted to be taken at a meeting of the board of
directors of the corporation may be taken by a written action signed, or
counterparts of a written action signed in the aggregate, by all of the
directors unless the action need not be approved by the shareholders of the
corporation, in which case the action may be taken by a written action signed,
or counterparts of a written action signed in the aggregate, by the number of
directors that would be required to take the same action at a meeting of the
board of directors of the corporation at which all of the directors were
present.
Article 7. Director Liability
------------------------------
A director of this corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its shareholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Sections 302A.559 or 80A.23 of the Minnesota
Statutes; (iv) for any
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<PAGE>
transaction from which the director derived an improper personal benefit;
or (v) for any act or omission occurring prior to the date when this Article 7
became effective.
If the Minnesota Business Corporation Act is hereafter amended to authorize
the further elimination or limitation of the liability of a director, then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Minnesota Business Corporation Act, as so
amended.
Any repeal or modification of the foregoing provisions of this Article 7 by
the shareholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
Date: September 1, 1999
/s/ James Geiser
-----------------------
James Geiser, Secretary
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<PAGE>
EXHIBIT 3.3
SERIES D
CERTIFICATE OF DESIGNATION
Corrected
CERTIFICATE OF DESIGNATION
of
SERIES D CONVERTIBLE PREFERRED STOCK
of
GLOBAL MAINTECH CORPORATION
(Adopted Ppursuant to Section 302A.401 of the Minnesota Business Corporation
Act)
The undersigned hereby certifies that the Board of Directors of GLOBAL
MAINTECH CORPORATION, a Minnesota corporation (the "Company"), duly adopted the
following resolutions effective as of November 5, 1999:
RESOLVED, a series of preferred stock of the Company is created and
the relative rights, preferences, and limitations of the shares of such series
are as follows:
I. Designation and Amount. The shares of such series of Preferred Stock shall
----------------------
be designated as "Series D Convertible Preferred Stock" (the "Series D Preferred
Stock") and the number of shares constituting the Series D Preferred Stock shall
be 2,775. The Series D Preferred Stock shall have a stated value (the "Stated
Value") of $1,000 per share.
II. Dividends.
---------
A. The holders of shares of Series D Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor,
subject to the prior declaration or payment of any dividend to which the holders
of Series A Convertible Preferred Stock of the Company (the "Series A Stock")
and the Series B Convertible Preferred Stock of the Company (the "Series B
Stock") are entitled, and prior to, and in preference to, any declaration or
payment of any dividend on the Common Stock of this Company, at a per share rate
equal to eight percent (8%) per annum of the amount of the Stated Value of the
Series D Preferred Stock, which is payable upon conversion (based upon a 365
calendar day year) as set forth below. Dividends shall begin to accrue as of
the Issuance Date (as defined below). Any dividends payable pursuant to the
provisions of this paragraph shall, at the Company's option, be payable in cash,
or unrestricted shares of Common Stock of the Company within five Business Days
(as defined below) of when due. The number of shares of Common Stock to be
issued by the Company in lieu of a cash payment for dividends due as set forth
herein shall be equal to the number of
<PAGE>
shares of Common Stock resulting from dividing the dollar amount of dividends
owed by the Conversion Price (as defined below) on such date as the dividends
are payable (if such date is not a Trading Day, then the next Trading Day (as
defined below) immediately thereafter).
B. Such dividends shall accrue on each share of Series D Preferred Stock
from the Issuance Date, and shall accrue from day to day whether or not earned
or declared. Such dividends shall be cumulative so that if such dividends in
respect of any previous or current annual dividend period, at the annual rate
specified above, shall not have been paid or declared and a sum sufficient for
the payment thereof set apart, for all Series D Preferred Stock at the time
outstanding, the deficiency shall first be fully paid before any dividend or
other distribution shall be paid on or declared or set apart for the Series D
Preferred Stock, Common Stock or other security of the Company subordinate in
liquidation to the Series D Preferred Stock. Dividends on the Series D Preferred
Stock shall be non-participating and the holders of the Series D Preferred Stock
shall not be entitled to participate in any other dividends beyond the
cumulative dividends specified herein.
III. Liquidation, Dissolution or Winding Up.
--------------------------------------
A. In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, subject to the prior liquidation
preference of the holders of Series A Stock and Series B Stock and prior and in
preference to any distribution of any assets of the Company to the holders of
Common Stock , holders of each share of Series D Preferred Stock shall be
entitled to receive out of the assets available for distribution to shareholders
the Stated Value per share of Series D Preferred Stock plus eight percent (8%)
per annum thereon from the Issuance Date (as defined below) to the Trading Day
(as defined below) immediately prior to such liquidation, dissolution or winding
up of the Company (the "Liquidation Amount").
B. Upon the completion of any required distribution to the holders of
the Series A Stock and Series B Stock, if the assets of the Company available
for distribution to shareholders shall be insufficient to pay the holders of
shares of Series D Preferred Stock the full Liquidation Amount to which they
shall be entitled, then any such distribution of assets of the Company shall be
distributed ratably to the holders of shares of Series D Preferred Stock.
C. After the payment of the Liquidation Amount shall have been made in
full to the holders of the Series D Preferred Stock or funds necessary for such
payment shall have been set aside by the Company in trust for the account of
holders of the Series D Preferred Stock so as to be available for such payments,
the holders of the Series D Preferred Stock shall be entitled to no further
participation in the distribution of the assets of the Company, and the
remaining assets of the Company legally available for distribution to
shareholders shall be distributed among the holders of Common Stock and any
other classes or series of Preferred Stock of the Company in accordance with
their respective terms.
IV. Voting. Holders of Series D Preferred Stock shall have no voting rights
------
except as expressly required by law or as expressly provided herein.
2
<PAGE>
V. Conversion of Series D Preferred Stock. The holders of Series D Preferred
--------------------------------------
Stock shall have the right, at such holder's option, to convert the Series D
Preferred Stock into shares of Common Stock, on the following terms and
conditions:
A. Subject to the provisions of Section XI hereof, at any time or times
after the Issuance Date any holder of the Series D Preferred Stock shall be
entitled to convert any whole number of such holder's shares of Series D
Preferred Stock into that number of fully paid and nonassessable shares of
Common Stock, which is determined (per share of Series D Preferred Stock) by
dividing (x) $1,000, by (y) the Conversion Price (as defined below) (the
"Conversion Rate").
B. For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A "Business Day" shall be any day other than a Saturday, Sunday,
national holiday or a day on which the New York Stock Exchange is closed.
The "Closing Bid Price" shall mean, for any security as of any date,
the last closing bid price for such security on the Nasdaq Stock Market as
reported by Bloomberg L.P. ("Bloomberg"), or, if the Nasdaq Stock Market is not
the principal trading market for such security, the last closing bid price of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price of such security in the over-the-counter
market on the NASD OTC Electronic Bulletin Board for such security as reported
by Bloomberg, or, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing bid or trade price is reported for such
security by Bloomberg, the closing bid price shall be determined by reference to
the closing bid price as reported on the Principal Market. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as mutually agreed by the Company and the holders of two
thirds of the outstanding shares of Series D Preferred Stock.
The "Conversion Price" shall mean, as of any Conversion Date (as
defined below) the lesser of (i) $5.4375 ( the lowest Closing Bid Price of the
Common Stock over the ten Trading Days ending on the Trading Day immediately
preceding November 10, 1999) or (ii) 75% of the average of the three lowest
Closing Bid Prices of the Common Stock during the 15 Trading Days (the "Lookback
Period") immediately preceding the Conversion Date (hereinafter referred to as
the "Current Price"). On the last Trading Day of each month, starting on the
first day of the fourth calendar month immediately following the Issuance Date,
the Lookback Period will be increased by two Trading Days until the Lookback
Period equals a maximum of 30 Trading Days.
"Effective Date" shall mean the date on which the Securities and
Exchange Commission (the "SEC") first declares effective a Registration
Statement registering the resale of 200% of the number of shares of Common Stock
issuable upon conversion of all of the Series D Preferred Stock outstanding on
the Trading Day immediately preceding the day such Registration Statement is
filed.
3
<PAGE>
The "Issuance Date" shall mean, with respect to each share of Series D
Preferred Stock, the date of issuance of the applicable share of Series D
Preferred Stock.
A "Trading Day" shall mean a day on which the Principal Market is
open.
4
<PAGE>
The "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq Small Cap Stock Market, the American Stock Exchange, the NASD OTC
Electronic Bulletin Board operated by the National Association of Securities
Dealers, Inc., or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the Common Stock.
Holders of Series D Preferred Stock may exercise their right to
convert the Series D Preferred Stock by telecopying an executed and completed
notice of conversion in the agreed upon form (the "Notice of Conversion") to the
Company and delivering to Company the original Notice of Conversion and the
certificate representing the Series D Preferred Stock being converted by
reputable overnight courier. Each Business Day (between the hours of 7:00 a.m.
and 4:00 p.m. Pacific Time) on which a Notice of Conversion is telecopied to and
received by the Company shall be deemed a "Conversion Date." The Company will
deliver the certificates representing shares of Common Stock issuable upon
conversion of any share of Series D Preferred Stock (together with the
certificates representing the share or shares of Series D Preferred Stock not so
converted) to the holder thereof via reputable overnight courier, by electronic
transfer or otherwise within three Business Days after the Conversion Date,
provided the Company has received the original Notice of Conversion and Series D
- --------
Preferred Stock certificate being so converted on or before the close of
business of the third Business Day after the Conversion Date. In addition to
any other remedies which may be available to the holders of shares of Series D
Preferred Stock, in the event that the Company fails to deliver such shares of
Common Stock within such three Business Day period, the holder will be entitled
to revoke the relevant Notice of Conversion by delivering a notice (by similar
method) to such effect to the Company whereupon the Company and such holder
shall each be restored to their respective positions immediately prior to
delivery of such Notice of Conversion. The Notice of Conversion and Series D
Preferred Stock certificates representing the portion of the Series D Preferred
Stock converted shall be delivered as follows:
To the Company:
Global MAINTECH Corporation
7578 Market Place Drive
Eden Prairie, MN 55344
Attention: CEO
Telephone: (612) 944-0400
Facsimile: (612) 944-3311
with a copy to:
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
Attention: Ken Cutler
Telephone: (612) 340-2740
Facsimile: (612) 340-8378
5
<PAGE>
In the event that shares representing the Common Stock issuable upon
conversion of the Series D Preferred Stock (the "Conversion Shares") are not
delivered by the Company within three Business Days after the Conversion Date,
in addition to all other available remedies which such holder may be entitled,
the Company shall pay to the holders thereof, in immediately available funds,
upon demand, as liquidated damages for such failure and not as a penalty, for
each $100,000 principal amount of Series D Preferred Stock sought to be
converted, $500 for each of the first ten (10) days and $1,000 per day
thereafter that the Conversion Shares are not delivered, which liquidated
damages shall run from the fourth Business Day after the Conversion Date up
until the time that either the Conversion Notice is revoked or the Conversion
Shares are delivered, at which time such liquidated damages shall cease. Any
and all payments required pursuant to this paragraph shall be payable only in
cash immediately. The payment of these liquidated damages by the Company shall
not relieve the Company of its obligations under this Certificate of
Designation.
D. If the Common Stock issuable upon the conversion of the Series D
Preferred Stock shall be changed into the same or different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification or otherwise, then and in each such event, the holders of
Series D Preferred Stock shall have the right thereafter to convert such shares
into the kind and amount of shares of stock and other securities and property
receivable upon such capital reorganization, reclassification or other change
which such holders would have received had their shares of Series D Preferred
Stock been converted immediately prior to such capital reorganization,
reclassification or other change.
E. If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section)
or a merger or consolidation of the Company with or into another corporation, or
the sale of all or substantially all of the Company's properties and assets to
any other person (any of which events is herein referred to as a
"Reorganization"), then as a part of such Reorganization, provision shall be
made so that the holders of the Series D Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series D Preferred Stock, the number
of shares of stock or other securities or property of the Company, or of the
successor corporation resulting from such Reorganization, to which such holder
would have been entitled if such holder had converted its shares of Series D
Preferred Stock immediately prior to such Reorganization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section with respect to the rights of the holders of the Series D Preferred
Stock after the Reorganization, to the end that the provisions of this Section
(including adjustment of the number of shares issuable upon conversion of the
Series D Preferred Stock) shall be applicable after that event in as nearly
equivalent a manner as may be practicable.
F. Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series D Preferred Stock as provided herein, the Company, at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of such
Series D Preferred Stock a certificate executed by the president and chief
financial officer (or in the absence of a person designated as the chief
financial officer, by the treasurer) setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment are based. The Company shall, upon written request at any time of
any holder of Series D Preferred Stock, furnish or cause to be furnished to such
holder a certificate
6
<PAGE>
setting forth (A) the Conversion Price at the time in effect, and (B) the number
or shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of a share of Series D Preferred
Stock.
G. Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of any Series D Preferred Stock certificate(s), and
(in the case of loss, theft or destruction) of indemnity or security reasonably
satisfactory to the Company, and upon the cancellation of the Series D Preferred
Stock certificate(s), if mutilated, the Company shall execute and deliver new
certificates for Series D Preferred Stock of like tenure and date. However, the
Company shall not be obligated to reissue such lost or stolen certificates for
shares of Series D Preferred Stock if the holder contemporaneously requests the
Company to convert such shares of Series D Preferred Stock into Common Stock.
H. The Company shall not issue any fraction of a share of Common Stock
upon any conversion. The Company shall round such fraction of a share of Common
Stock up to the nearest whole share.
I. In the event some but not all of the shares of Series D Preferred
Stock represented by a certificate or certificates surrendered by a holder are
converted, the Company shall execute and deliver to or on the order of the
holder, at the expense of the Company, a new certificate representing the number
of shares of Series D Preferred Stock which were not converted.
J. Each share of Series D Preferred Stock outstanding two years from the
Issuance Date shall automatically be converted into Common Stock on such date at
the Conversion Price and such date shall be deemed the Conversion Date with
respect to such shares.
K. The Company shall pay any and all original issue and/or transfer taxes
which may be imposed upon it with respect to the issuance and delivery of Common
Stock upon conversion of the Series D Preferred Stock.
L. Subject to the provisions of this Section, if the Company at any time
shall issue any shares of Common Stock prior to the conversion of the entire
Stated Value of the Series D Preferred Stock and dividends on such Series D
Preferred Stock, otherwise than: (i) pursuant to options, warrants, or other
obligations to issue shares outstanding on the date hereof (including issuances
pursuant to the Company's proposed transaction with Breece Hill Technologies,
Inc. ) as described in writing to the holders prior to the Issuance Date or in
SEC filings made by the Company prior to the Issuance Date, or (ii) all shares
reserved for issuance pursuant to the Company's existing stock option,
incentive, or other similar plan, which plan and which grant is approved by the
Board of Directors of the Company ((i) and (ii) collectively referred to as the
"Existing Obligations"), for a consideration less than the fixed Conversion
Price set forth in (i) of the definition of Conversion Price in Section V.B.
above (as adjusted from the date hereof (the "Fixed Conversion Price"), then,
and thereafter successively upon each such issue, the fixed Conversion Price
shall, from such date forward, equal the resulting quotient of the following
formula: (y) the number of shares of Common Stock outstanding immediately prior
to such issue shall be multiplied by the Fixed Conversion Price in effect at the
time of such issue and the product shall be added to the aggregate
consideration, if any received by the Company upon such issue of additional
shares of Common Stock; and (z) the sum so obtained shall be divided by the
7
<PAGE>
number of shares of Common Stock outstanding immediately after such issue.
Except for the Existing Obligations and options that may be issued under any
employee incentive stock option and/or any qualified stock option plan adopted
by the Company, for purposes of this adjustment, the issuance of any security of
the Company carrying the right to convert such security into shares of Common
Stock or of any warrant, right, or option to purchase Common Stock shall result
in an adjustment to the Fixed Conversion Price upon the issuance of shares of
Common Stock upon exercise of such conversion or purchase rights.
M. In the event a holder shall elect to convert any share or shares of
Series D Preferred Stock as provided herein, the Company cannot refuse
conversion based on any claim that such holder or anyone associated or
affiliated with such holder has been engaged in any violation of law, unless an
injunction from a court, restraining and/or enjoining conversion of all or part
of said shares of Series D Preferred Stock shall have been issued and the
Company posts a surety bond for the benefit of such holder in the amount of 125%
of the Stated Value of the Series D Preferred Stock and dividends sought to be
converted, which is subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such holder in the event it obtains a favorable
judgment.
VI. No Reissuance of Series D Preferred Stock. No share or shares of Series D
-----------------------------------------
Preferred Stock acquired by the Company by reason of purchase, conversion or
otherwise shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Company shall be authorized to issue. The
Company may from time to time take such appropriate corporate action as may be
necessary to reduce the authorized number of shares of the Series D Preferred
Stock accordingly.
VII. Reservation of Shares. The Company shall, so long as any share or shares
---------------------
of the Series D Preferred Stock are outstanding reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Series D Preferred Stock, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the Series D Preferred Stock then outstanding; provided that the number of
shares of Common Stock so reserved shall at no time be less than 200% of the
number of shares of Common Stock for which the Series D Preferred Stock are at
any time convertible and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to maintain such number of shares
of Common Stock, the Company shall take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
VIII. Restrictions and Limitations.
----------------------------
A. Except as expressly provided herein or as required by law, so long as
any shares of Series D Preferred Stock remain outstanding, the Company shall
not, without the approval by vote or written consent by the holders of at least
two thirds of the then outstanding shares of Series D Preferred Stock, voting as
a separate class take any action that would adversely affect the rights,
preferences or privileges of the holders of Series D Preferred Stock.
8
<PAGE>
B. Without limiting the generality of the preceding paragraph, the
Company shall not so long as any shares of Series D Preferred Stock remain
outstanding amend its Articles of Incorporation without the approval by the
holders of all of the then outstanding shares of Series D Preferred Stock if
such amendment would:
1. create any other class or series of capital stock entitled to
seniority as to the payment of dividends in relation to the holders of Series D
Preferred Stock;
2. reduce the amount payable to the holders of Series D Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or winding up
of the Company, or change the relative seniority of the liquidation preferences
of the holders of Series D Preferred Stock to the rights upon liquidation of the
holders of other capital stock of the Company,
3. cancel or modify the conversion rights of the holders of Series D
Preferred Stock provided for in Section V herein; or
4. cancel or modify the rights of the holders of the Series D
Preferred Stock provided for in this Section.
IX. No Dilution or Impairment. The Company shall not, by amendment of its
-------------------------
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Certificate of Designation set forth herein, but shall at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the holders of the Series D Preferred Stock against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) shall not establish a par value of any shares of stock
receivable on the conversion of the Series D Preferred Stock above the amount
payable therefor on such conversion, (b) shall take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of stock on the conversion of all Series D
Preferred Stock from time to time outstanding, and (c) shall not consolidate
with or merge into any other person or entity, or permit any such person or
entity to consolidate with or merge into the Company (if the Company is not the
surviving person), unless such other person or entity shall expressly assume in
writing and will be bound by all of the terms of the Series D Preferred Stock
set forth herein.
X. Notices of Record Date. In the event of:
----------------------
A. any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
B. any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger of the Company,
or any transfer of all or substantially all of the assets of the Company to any
other corporation, or any other entity or person, or
9
<PAGE>
C. any voluntary or involuntary dissolution, liquidation or winding up of
the Company, then and in each such event the Company shall mail or cause to be
mailed to each holder of Series D Preferred Stock a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or winding up is
expected to become effective and (iii) the time, if any, that is to be fixed, as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, merger, dissolution, liquidation
or winding up. Such notice shall be mailed at least ten Business Days prior to
the date specified in such notice on which such action is to be taken.
XI. Redemption.
----------
A. For so long as the Company has not received a Notice of Conversion
for such shares, the Company may, at its option, repay, in whole or in part, the
Series D Preferred Stock shares at the Redemption Price (as defined below). The
Series D Preferred Stock is redeemable as a series, in whole or in part, by the
Company by providing written notice (the "Redemption Notice") to the holder of
the Series D Preferred Stock via facsimile at his or her address as the same
shall appear on the books of the Company (the Business Day between the hours of
7:00 a.m. and 4:00 p.m. Pacific Time the Redemption Notice is received by the
holders of the Series D Preferred Stock via facsimile is defined to be the
"Redemption Notice Date"). Within ten Trading Days after the Redemption Notice
Date the Company shall make payment of the Redemption Price (as defined below)
in immediately available funds to the holder for the shares of Series D
Preferred Stock which are the subject of the Redemption Notice (such date of
payment referred to as the "Redemption Date"). Partial redemptions shall be in
an aggregate principal amount of at least $100,000. If fewer than all of the
outstanding shares of Series D Preferred Stock are to be redeemed, the Company
will select those to be redeemed pro-rata amongst the then holders of the Series
D Preferred Stock based on the number of shares of Series D Preferred Stock then
outstanding.
B. In the event the Company serves a Redemption Notice, the Redemption
Price shall be equal to the greater of (i) 130% of the Stated Value of the
shares of Series D Preferred Stock which are subject to such Redemption Notice,
plus all accrued but unpaid dividends on such shares, or (ii) the "Economic
Benefit" of the shares of Series D Preferred Stock which are the subject of such
Redemption Notice. "Economic Benefit" shall mean the dollar value derived if the
shares of Series D Preferred Stock which were the subject of the Redemption
Notice were converted on the Redemption Notice Date and sold on the Redemption
Notice Date at the Closing Bid Price of the Common Stock on the Redemption
Notice Date.
C. The Notice of Redemption shall set forth (i) the Redemption Date and
the place fixed for redemption, (ii) the Redemption Price, (iii) a statement
that dividends on the shares of Series D Preferred Stock to be redeemed will
cease to accrue on such Redemption Date, (iv) a statement of or reference to the
conversion right set forth herein, and (v) confirmation that the
10
<PAGE>
Company has the full Redemption Price reserved as set forth in F. below. If
fewer than all the shares of the Series D Preferred Stock owned by such holders
are then to be redeemed, the notice shall specify the number of shares thereof
that are to be redeemed and, if practicable, the numbers of the certificates
representing such shares. Within fiveten Trading Days of the Notice of
Redemption Notice Date, the Company shall wire transfer the appropriate amount
of funds to the holders of the Series D Preferred Stock. If the Company fails to
comply with the redemption provisions set forth herein by the sixth Trading Day
after the Redemption Notice Date (or in the case of a public offering as
contemplated in F below, by the sixth Trading Day after the Redemption Notice
Date) relating to the Redemption Notice, the redemption will be declared null
and void and the Company it shall not be permitted to serve another Redemption
Notice. For the first five Trading Days after the Redemption Notice Date, the
holders of the Series D Preferred Stock will retain their conversion rights with
resoect. The holders of the Series D Preferred Stock will retain their rights to
convert up to a maximum of twenty percent (20%) of the number of shares subject
to the redemption. If the holders of the Series D Preferred Stock elect to so
convert the Series D Preferred Stock after the receipt of the Redemption Notice,
the Company must receive notice of such election within twenty-four (24) hours
from the time the Redemption Notice was received by the holders of the Series D
Preferred Stock. In the event the Company has not complied with the redemption
provisions set forth herein the Company must comply with the delivery
requirements of any then outstanding Conversion Notice as set forth herein. The
holders shall send the shares of Series D Preferred Stock being redeemed or
converted to the Company within three (3) Business Days after they have received
good funds for the Redemption Price of the redeemed shares.
D. Subject to the receipt by the holders of the Series D Preferred Stock
being redeemed of the wire transfer of the Redemption Price as described above,
each share of Series D Preferred Stock to be redeemed shall be automatically
canceled and converted into a right to receive the Redemption Price, and all
rights of the Series D Preferred Stock, including the right to conversion shall
cease without further action.
E. The Redemption Price shall be adjusted proportionally upon any
adjustment of the Conversion Price as provided herein and in the event of any
stock dividend, stock split, combination of shares or similar event.
F. The Company shall not be entitled to send any Redemption Notice and
begin the redemption procedure hereunder unless it has:
(a) the full amount of the Redemption Price in cash, available
in a demand or other immediately available account in a bank or similar
financial institution, specifically allotted for such redemption;
(b) immediately available credit facilities, in the full amount
of the Redemption Price with a bank or similar financial institution
specifically allotted for such redemption; or
(c) a combination of the items set forth in (i) and (ii) above,
aggregating the full amount of the Redemption Price.
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<PAGE>
Notwithstanding the foregoing, in the event the redemption is expected to be
made contemporaneously with the closing of a public offering of the Company's
securities for an amount in excess of the Redemption Price, the Company shall
not be required to have the full amount of the Redemption Price available to it
as set forth above.
XII. 4.99% Limitation. The number of shares of Common Stock which may be
----------------
acquired by any holder pursuant to the terms herein shall not exceed the number
of such shares which, when aggregated with all other shares of Common Stock then
owned by such holder, would result in such holder owning more than 4.99% of the
then issued and outstanding Common Stock at any one time. The preceding shall
not interfere with any holder's right to convert any share or shares of Series D
Preferred Stock over time which in the aggregate totals more than 4.99% of the
then outstanding shares of Common Stock so long as such holder does not own more
than 4.99% of the then outstanding Common Stock at any given time. The
foregoing limitation shall not apply to the automatic conversion upon the
Maturity Date as contained herein.
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<PAGE>
IN WITNESS WHEREOF, I have subscribed my name this 3rd day of
December, 1999.
GLOBAL MAINTECH CORPORATION
By: /s/ James Geiser
-------------------------------------
Name: James Geiser
Title: Secretary
13
<PAGE>
EXHIBIT 3.4
SERIES E
CERTIFICATE OF DESIGNATION
CERTIFICATE OF DESIGNATION
of
SERIES E CONVERTIBLE PREFERRED STOCK
of
GLOBAL MAINTECH CORPORATION
(Adopted pursuant to Section 302A.401 of the Minnesota Business Corporation
Act)
The undersigned hereby certifies that the Board of Directors of GLOBAL
MAINTECH CORPORATION, a Minnesota corporation (the "Company"), duly adopted the
following resolutions effective as of December 27, 1999:
RESOLVED, a series of preferred stock of the Company is created and
the relative rights, preferences, and limitations of the shares of such series
are as follows:
I. Designation and Amount. The shares of such series of Preferred Stock shall
----------------------
be designated as "Series E Convertible Preferred Stock" (the "Series E Preferred
Stock") and the number of shares constituting the Series E Preferred Stock shall
be 2,650. The Series E Preferred Stock shall have a stated value (the "Stated
Value") of $1,000 per share.
II. Dividends.
---------
A. The holders of shares of Series E Preferred Stock shall be entitled to
receive dividends, out of any assets legally available therefor, subject to the
prior declaration or payment of any dividend to which the holders of Series A
Convertible Preferred Stock of the Company (the "Series A Stock") the Series B
Convertible Preferred Stock of the Company (the "Series B Stock") and the Series
D Convertible Preferred Stock of the Company (the "Series D Stock") are
entitled, and prior to, and in preference to, any declaration or payment of any
dividend on the Common Stock of this Company, at a per share rate equal to eight
percent (8%) per annum of the amount of the Stated Value of the Series E
Preferred Stock, which is payable upon conversion (based upon a 365 calendar day
year) as set forth below. Dividends shall begin to accrue as of the Issuance
Date (as defined below). Any dividends payable pursuant to the provisions of
this paragraph shall, at the Company's option, be payable in cash, or
unrestricted shares of Common Stock of the Company within five Business Days (as
defined below)
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<PAGE>
of when due. The number of shares of Common Stock to be issued by the Company in
lieu of a cash payment for dividends due as set forth herein shall be equal to
the number of shares of Common Stock resulting from dividing the dollar amount
of dividends owed by the Conversion Price (as defined below) on such date as the
dividends are payable (if such date is not a Trading Day, then the next Trading
Day (as defined below) immediately thereafter).
B. Such dividends shall accrue on each share of Series E Preferred Stock
from the Issuance Date, and shall accrue from day to day whether or not earned
or declared. Such dividends shall be cumulative so that if such dividends in
respect of any previous or current annual dividend period, at the annual rate
specified above, shall not have been paid or declared and a sum sufficient for
the payment thereof set apart, for all Series E Preferred Stock at the time
outstanding, the deficiency shall first be fully paid before any dividend or
other distribution shall be paid on or declared or set apart for the Series E
Preferred Stock, Common Stock or other security of the Company subordinate in
liquidation to the Series E Preferred Stock. Dividends on the Series E
Preferred Stock shall be non-participating and the holders of the Series E
Preferred Stock shall not be entitled to participate in any other dividends
beyond the cumulative dividends specified herein.
III. Liquidation, Dissolution or Winding Up.
--------------------------------------
A. In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, subject to the prior liquidation
preference of the holders of Series A Stock and Series B Stock and prior and in
preference to any distribution of any assets of the Company to the holders of
Common Stock , holders of each share of Series E Preferred Stock shall be
entitled to receive out of the assets available for distribution to shareholders
the Stated Value per share of Series E Preferred Stock plus eight percent (8%)
per annum thereon from the Issuance Date (as defined below) to the Trading Day
(as defined below) immediately prior to such liquidation, dissolution or winding
up of the Company (the "Liquidation Amount").
B. Upon the completion of any required distribution to the holders of the
Series A Stock and Series B Stock, if the assets of the Company available for
distribution to shareholders shall be insufficient to pay the holders of shares
of Series E Preferred Stock the full Liquidation Amount to which they shall be
entitled, then any such distribution of assets of the Company shall be
distributed ratably to the holders of shares of Series E Preferred Stock.
C. After the payment of the Liquidation Amount shall have been made in
full to the holders of the Series E Preferred Stock or funds necessary for such
payment shall have been set aside by the Company in trust for the account of
holders of the Series E Preferred Stock so as to be available for such payments,
the holders of the Series E Preferred Stock shall be entitled to no further
participation in the distribution of the assets of the Company, and the
remaining assets of the Company legally available for distribution to
shareholders
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<PAGE>
shall be distributed among the holders of Common Stock and any other classes or
series of Preferred Stock of the Company in accordance with their respective
terms.
IV. Voting. Holders of Series E Preferred Stock shall have no voting rights
------
except as expressly required by law or as expressly provided herein.
V. Conversion of Series E Preferred Stock. The holders of Series E Preferred
--------------------------------------
Stock shall have the right, at such holder's option, to convert the Series E
Preferred Stock into shares of Common Stock, on the following terms and
conditions:
A. Subject to the provisions of Section XI hereof, at any time or times
after the Issuance Date any holder of the Series E Preferred Stock shall be
entitled to convert any whole number of such holder's shares of Series E
Preferred Stock into that number of fully paid and nonassessable shares of
Common Stock, which is determined (per share of Series E Preferred Stock) by
dividing (x) $1,000, by (y) the Conversion Price (as defined below) (the
"Conversion Rate").
B. For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A "Business Day" shall be any day other than a Saturday, Sunday,
national holiday or a day on which the New York Stock Exchange is closed.
The "Closing Bid Price" shall mean, for any security as of any date,
the last closing bid price for such security on the Nasdaq Stock Market as
reported by Bloomberg L.P. ("Bloomberg"), or, if the Nasdaq Stock Market is not
the principal trading market for such security, the last closing bid price of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price of such security in the over-the-counter
market on the NASD OTC Electronic Bulletin Board for such security as reported
by Bloomberg, or, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing bid or trade price is reported for such
security by Bloomberg, the closing bid price shall be determined by reference to
the closing bid price as reported on the Principal Market. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as mutually agreed by the Company and the holders of two
thirds of the outstanding shares of Series E Preferred Stock.
The "Conversion Price" shall mean, as of any Conversion Date (as
defined below) the lesser of (i) $5.125 ( the lowest Closing Bid Price of the
Common Stock over the ten Trading Days ending on the Trading Day immediately
prior to December 30, 1999 (the "Closing Date")) (the "Maximum Conversion
Price") or (ii) 75% of the average of the three lowest Closing Bid Prices of the
Common Stock during the 15 Trading Days (the "Lookback Period") immediately
prior to the Conversion Date. On the last Trading Day of each month, starting
on the first day of the fourth calendar month immediately following the
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<PAGE>
Issuance Date, the Lookback Period will be increased by two Trading Days until
the Lookback Period equals a maximum of 30 Trading Days.
"Effective Date" shall mean the date on which the Securities and
Exchange Commission (the "SEC") first declares effective a Registration
Statement registering the resale of 200% of the greater of (i) the number of
shares of Common Stock issuable upon conversion of all of the Series E Preferred
Stock outstanding on the Trading Day immediately preceding the day such
Registration Statement is filed (ii) the number of shares of Common Stock
issuable upon conversion of all of the Series E Preferred Stock outstanding on
the Trading Day immediately preceding the day any amendment to such Registration
Statement is filed.
The "Issuance Date" shall mean, with respect to each share of Series E
Preferred Stock, the date of issuance of the applicable share of Series E
Preferred Stock.
A "Trading Day" shall mean a day on which the Principal Market is
open.
The "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq Small Cap Stock Market, the American Stock Exchange, the NASD OTC
Electronic Bulletin Board operated by the National Association of Securities
Dealers, Inc., or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the Common Stock.
Holders of Series E Preferred Stock may exercise their right to
convert the Series E Preferred Stock by telecopying an executed and completed
notice of conversion in the agreed upon form (the "Notice of Conversion") to the
Company and delivering to Company the original Notice of Conversion and the
certificate representing the Series E Preferred Stock being converted by
reputable overnight courier within three (3) business thereafter. Each Business
Day (between the hours of 6:30 a.m. and 4:00 p.m. Pacific Time) on which a
Notice of Conversion is telecopied to and received by the Company shall be
deemed a "Conversion Date." The Company will deliver the certificates
representing shares of Common Stock issuable upon conversion of any share of
Series E Preferred Stock (together with the certificates representing the share
or shares of Series E Preferred Stock not so converted) to the holder thereof
via reputable overnight courier, by electronic transfer or otherwise within
three Business Days after the Conversion Date, provided the Company has received
--------
the original Notice of Conversion and Series E Preferred Stock certificate being
so converted on or before the close of business of the third Business Day after
the Conversion Date. In addition to any other remedies which may be available
to the holders of shares of Series E Preferred Stock, in the event that the
Company fails to deliver such shares of Common Stock within such three Business
Day period, the holder will be entitled to revoke the relevant Notice of
Conversion by delivering a notice (by similar method) to such effect to the
Company whereupon the Company and such holder shall each be restored to their
respective positions immediately prior to delivery of such Notice of Conversion.
The Notice of Conversion and Series E Preferred Stock certificates representing
the portion of the Series E Preferred Stock converted shall be delivered as
follows:
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<PAGE>
To the Company:
Global MAINTECH Corporation
7578 Market Place Drive
Eden Prairie, MN 55344
Attention: CEO
Telephone: (612) 944-0400
Facsimile: (612) 944-3311
with a copy to:
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
Attention: Ken Cutler
Telephone: (612) 340-2740
Facsimile: (612) 340-8378
The Company understands that a delay in the issuance of the shares of
Common Stock beyond the Delivery Date could result in economic loss to the
holder. As compensation to the holder for such loss, the Company agrees to pay
late payments to the holder in the event that Company's failure to issue and
deliver the shares on the Delivery Date in accordance with the following
schedule (where "No. Business Days Late" is defined as the number of business
days beyond three (3) business days after the Delivery Date):
Late Payment For Each $10,000
of Preferred Stock Liquidation
No. Business Days Late Amount Being Converted
---------------------- ----------------------
<TABLE>
<CAPTION>
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
Greater than 5 $500 +$200 for each
Business Day Late
beyond 5 days from
the Delivery Date
</TABLE>
The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit the
holder's right to pursue actual damages or to cause the Company to redeem the
Preferred Shares as provided below for the Company's actions or inactions
resulting in the transfer agent's failure to issue and deliver the Common Stock
to the holder. Furthermore, in addition to
-5-
<PAGE>
any other remedies which may be available to the holder, in the event that the
Company fails to deliver such shares of Common Stock within five (5) business
days after the Delivery Date, the Holder will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion. In the
event the Company's actions or inactions result in the transfer agent's failure
to issue and deliver the Common Stock to the holder within ten (10) days after
the Delivery Date, holder may, at its option, require the Company (without
limiting its other remedies hereunder) to immediately redeem all outstanding
Preferred Stock in accordance with Section XI hereof.
If, by the relevant Delivery Date, the Company fails for any reason to
deliver the Shares to be issued upon conversion of the Preferred Stock and
after such Delivery Date, the holder of the Preferred Stock being converted (a
"Converting Holder") purchases, in an open market transaction or otherwise,
shares of Common Stock (the "Covering Shares") in order to make delivery in
satisfaction of a sale of Common Stock by the Converting Holder made after a
Conversion Date (the "Sold Shares"), which delivery such Converting Holder
anticipated to make using the Shares to be issued upon such conversion (a "Buy-
In"), the Company shall pay to the Converting Holder, in addition to all other
amounts contemplated in other provisions of this Certificate of Designation and
other agreements related hereto, and not in lieu thereof, the Buy-In Adjustment
Amount (as defined below). The "Buy-In Adjustment Amount" is the amount equal
to the excess, if any, of (x) the Converting Holder's total purchase price
(including brokerage commissions, if any) for the Covering Shares over (y) the
net proceeds (after brokerage commissions, if any) received by the Converting
Holder from the sale of the Sold Shares. The Company shall pay the Buy-In
Adjustment Amount to the Holder in immediately available funds immediately upon
demand by the Converting Holder. By way of illustration and not in limitation
of the foregoing, if the Converting Holder purchases shares of Common Stock
having a total purchase price (including brokerage commissions) of $11,000 to
cover a Buy-In with respect to shares of Common Stock it sold for net proceeds
of $10,000, the Buy-In Adjustment Amount which Company will be required to pay
to the Converting Holder will be $1,000. The remedies set forth in this Section
V.B shall be cumulative.
C. If the Common Stock issuable upon the conversion of the Series E
Preferred Stock shall be changed into the same or different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification or otherwise, then and in each such event, the holders of
Series E Preferred Stock shall have the right thereafter to convert such shares
into the kind and amount of shares of stock and other securities and property
receivable upon such capital reorganization, reclassification or other change
which such holders would have received had their shares of Series E Preferred
Stock been converted immediately prior to such capital reorganization,
reclassification or other change.
D. If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section)
or a merger or consolidation of the Company
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<PAGE>
with or into another corporation, or the sale of all or substantially all of the
Company's properties and assets to any other person (any of which events is
herein referred to as a "Reorganization"), then as a part of such
Reorganization, provision shall be made so that the holders of the Series E
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series E Preferred Stock, the number of shares of stock or other securities or
property of the Company, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled if such holder had
converted its shares of Series E Preferred Stock immediately prior to such
Reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section with respect to the rights of the
holders of the Series E Preferred Stock after the Reorganization, to the end
that the provisions of this Section (including adjustment of the number of
shares issuable upon conversion of the Series E Preferred Stock) shall be
applicable after that event in as nearly equivalent a manner as may be
practicable.
E. Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series E Preferred Stock as provided herein, the Company, at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of such
Series E Preferred Stock a certificate executed by the president and chief
financial officer (or in the absence of a person designated as the chief
financial officer, by the treasurer) setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment are based. The Company shall, upon written request at any time of
any holder of Series E Preferred Stock, furnish or cause to be furnished to such
holder a certificate setting forth (A) the Conversion Price at the time in
effect, and (B) the number or shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of Series E Preferred Stock.
F. Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of any Series E Preferred Stock certificate(s), and
(in the case of loss, theft or destruction) of indemnity or security reasonably
satisfactory to the Company, and upon the cancellation of the Series E Preferred
Stock certificate(s), if mutilated, the Company shall execute and deliver new
certificates for Series E Preferred Stock of like tenure and date. However, the
Company shall not be obligated to reissue such lost or stolen certificates for
shares of Series E Preferred Stock if the holder contemporaneously requests the
Company to convert such shares of Series E Preferred Stock into Common Stock.
G. The Company shall not issue any fraction of a share of Common Stock
upon any conversion. The Company shall round such fraction of a share of Common
Stock up to the nearest whole share.
H. In the event some but not all of the shares of Series E Preferred
Stock represented by a certificate or certificates surrendered by a holder are
converted, the Company shall execute and deliver to or on the order of the
holder, at the expense of the Company, a new certificate representing the number
of shares of Series E Preferred Stock which were not converted.
-7-
<PAGE>
I. Each share of Series E Preferred Stock outstanding two years from the
Issuance Date shall automatically be converted into Common Stock on such date at
the Conversion Price and such date shall be deemed the Conversion Date with
respect to such shares.
J. The Company shall pay any and all original issue and/or transfer taxes
which may be imposed upon it with respect to the issuance and delivery of Common
Stock upon conversion of the Series E Preferred Stock.
K. Subject to the provisions of this Section, if the Company at any time
shall issue any shares of Common Stock prior to the conversion of the entire
Stated Value of the Series E Preferred Stock and dividends on such Series E
Preferred Stock, otherwise than: (i) pursuant to options, warrants, or other
obligations to issue shares outstanding on the date hereof (including issuances
pursuant to the Company's proposed transaction with Breece Hill Technologies,
Inc.) as described in writing to the holders prior to the Issuance Date or in
SEC filings made by the Company prior to the Issuance Date, or (ii) all shares
reserved for issuance pursuant to the Company's existing stock option,
incentive, or other similar plan, which plan and which grant is approved by the
Board of Directors of the Company ((i) and (ii) collectively referred to as the
"Existing Obligations"), for a consideration less than the fixed Conversion
Price set forth in (i) of the definition of Conversion Price in Section V.B.
above (as adjusted from the date hereof (the "Fixed Conversion Price"), then,
and thereafter successively upon each such issue, the fixed Conversion Price
shall, from such date forward, equal the resulting quotient of the following
formula: (y) the number of shares of Common Stock outstanding immediately prior
to such issue shall be multiplied by the Fixed Conversion Price in effect at the
time of such issue and the product shall be added to the aggregate
consideration, if any received by the Company upon such issue of additional
shares of Common Stock; and (z) the sum so obtained shall be divided by the
number of shares of Common Stock outstanding immediately after such issue.
Except for the Existing Obligations and options that may be issued under any
employee incentive stock option and/or any qualified stock option plan adopted
by the Company, for purposes of this adjustment, the issuance of any security of
the Company carrying the right to convert such security into shares of Common
Stock or of any warrant, right, or option to purchase Common Stock shall result
in an adjustment to the Fixed Conversion Price upon the issuance of shares of
Common Stock upon exercise of such conversion or purchase rights.
L. In the event a holder shall elect to convert any share or shares of
Series E Preferred Stock as provided herein, the Company cannot refuse
conversion based on any claim that such holder or anyone associated or
affiliated with such holder has been engaged in any violation of law, unless an
injunction from a court, restraining and/or enjoining conversion of all or part
of said shares of Series E Preferred Stock shall have been issued and the
Company posts a surety bond for the benefit of such holder in the amount of 133%
of the Stated Value of the Series E Preferred Stock and dividends sought to be
converted, which is subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such holder in the event it obtains a favorable
judgment.
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<PAGE>
VI. No Reissuance of Series E Preferred Stock. No share or shares of Series E
-----------------------------------------
Preferred Stock acquired by the Company by reason of purchase, conversion or
otherwise shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Company shall be authorized to issue. The
Company may from time to time take such appropriate corporate action as may be
necessary to reduce the authorized number of shares of the Series E Preferred
Stock accordingly.
VII. Reservation of Shares. The Company shall, so long as any share or shares
---------------------
of the Series E Preferred Stock are outstanding reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Series E Preferred Stock, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the Series E Preferred Stock then outstanding; provided that the number of
shares of Common Stock so reserved shall at no time be less than 200% of the
number of shares of Common Stock for which the Series E Preferred Stock are at
any time convertible and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to maintain such number of shares
of Common Stock, the Company shall immediately take such corporate action as may
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
VIII. Restrictions and Limitations.
----------------------------
A. Except as expressly provided herein or as required by law, so long as
any shares of Series E Preferred Stock remain outstanding, the Company shall
not, without the approval by vote or written consent by the holders of at least
two thirds of the then outstanding shares of Series E Preferred Stock, voting as
a separate class take any action that would adversely affect the rights,
preferences or privileges of the holders of Series E Preferred Stock.
B. Without limiting the generality of the preceding paragraph, the
Company shall not so long as any shares of Series E Preferred Stock remain
outstanding amend its Articles of Incorporation without the approval by the
holders of all of the then outstanding shares of Series E Preferred Stock if
such amendment would:
1. create any other class or series of capital stock entitled to
seniority as to the payment of dividends in relation to the holders of Series E
Preferred Stock;
2. reduce the amount payable to the holders of Series E Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or winding up
of the Company, or change the relative seniority of the liquidation preferences
of the holders of Series E Preferred Stock to the rights upon liquidation of the
holders of other capital stock of the Company,
3. cancel or modify the conversion rights of the holders of Series
E Preferred Stock provided for in Section V herein; or
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<PAGE>
4. cancel or modify the rights of the holders of the Series E
Preferred Stock provided for in this Section.
IX. No Dilution or Impairment.
-------------------------
A. The Company shall not, by amendment of its Articles of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this
Certificate of Designation set forth herein, but shall at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
holders of the Series E Preferred Stock against dilution or other impairment.
Without limiting the generality of the foregoing, the Company (a) shall not
establish a par value of any shares of stock receivable on the conversion of the
Series E Preferred Stock above the amount payable therefor on such conversion,
(b) shall take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
stock on the conversion of all Series E Preferred Stock from time to time
outstanding, and (c) shall not consolidate with or merge into any other person
or entity, or permit any such person or entity to consolidate with or merge into
the Company (if the Company is not the surviving person), unless such other
person or entity shall expressly assume in writing and will be bound by all of
the terms of the Series E Preferred Stock set forth herein.
B. If the Company at any time after the Closing Date shall issue any
shares of Common Stock prior to the conversion of all shares of the Series E
Preferred and the dividends thereon, including without limitation, shares of
Common Stock issued (i) pursuant to options (including those options delivered
pursuant to any employee, officer or director stock option plan), warrants, or
other contractual obligations, (ii) upon any private placement or secondary
offering (iii) as a result of a stock dividend or split, then upon each such
issuance of Common Stock the Maximum Conversion Price shall be reduced by:
(y)(I) the number of shares of Common Stock outstanding immediately prior to
such issuance, multiplied by the Maximum Conversion Price in effect at the time
of such issuance, plus (II) the aggregate sum, if any, received by the Company
in consideration for such issuance; divided by (z) the number of shares of
Common Stock outstanding immediately after such issuance.
X. Notices of Record Date. In the event of:
----------------------
A. any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
B. any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger of the Company,
or any
-10-
<PAGE>
transfer of all or substantially all of the assets of the Company to any other
corporation, or any other entity or person, or
C. any voluntary or involuntary dissolution, liquidation or winding up of
the Company, then and in each such event the Company shall mail or cause to be
mailed to each holder of Series E Preferred Stock a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or winding up is
expected to become effective and (iii) the time, if any, that is to be fixed, as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, merger, dissolution, liquidation
or winding up. Such notice shall be mailed at least ten Business Days prior to
the date specified in such notice on which such action is to be taken.
XI. Redemption.
----------
A. For so long as the Company has not received a Notice of Conversion for
such shares, the Company may, at its option, repay, in whole or in part, the
Series E Preferred Stock shares at the Redemption Price (as defined below). The
Series E Preferred Stock is redeemable as a series, in whole or in part, by the
Company by providing written notice (the "Redemption Notice") to the holder of
the Series E Preferred Stock via facsimile at his or her address as the same
shall appear on the books of the Company (the Business Day between the hours of
6:30 a.m. and 4:00 p.m. Pacific Time the Redemption Notice is received by the
holders of the Series E Preferred Stock via facsimile is defined to be the
"Redemption Notice Date"). Within ten Trading Days after the Redemption Notice
Date the Company shall make payment of the Redemption Price (as defined below)
in immediately available funds to the holder for the shares of Series E
Preferred Stock which are the subject of the Redemption Notice (such date of
payment referred to as the "Redemption Date"). Partial redemptions shall be in
an aggregate principal amount of at least $100,000. If fewer than all of the
outstanding shares of Series E Preferred Stock are to be redeemed, the Company
will select those to be redeemed pro-rata amongst the then holders of the Series
E Preferred Stock based on the number of shares of Series E Preferred Stock then
outstanding.
B. In the event the Company serves a Redemption Notice, the Redemption
Price shall be equal to the greater of (i) 125% of the Stated Value of the
shares of Series E Preferred Stock which are subject to such Redemption Notice,
plus all accrued but unpaid dividends on such shares, or (ii) the "Economic
Benefit" of the shares of Series E Preferred Stock which are the subject of such
Redemption Notice. "Economic Benefit" shall mean the dollar value derived if
the shares of Series E Preferred Stock which were the subject of the Redemption
Notice were converted on the Redemption Notice Date and sold on the Redemption
Notice Date at the Closing Bid Price of the Common Stock on the Redemption
Notice Date.
-11-
<PAGE>
C. The Notice of Redemption shall set forth (i) the Redemption Date and
the place fixed for redemption, (ii) the Redemption Price, (iii) a statement
that dividends on the shares of Series E Preferred Stock to be redeemed will
cease to accrue on such Redemption Date, (iv) a statement of or reference to
the conversion right set forth herein, and (v) confirmation that the Company has
the full Redemption Price reserved as set forth in F. below. If fewer than all
the shares of the Series E Preferred Stock owned by such holders are then to be
redeemed, the notice shall specify the number of shares thereof that are to be
redeemed and, if practicable, the numbers of the certificates representing such
shares. Within five Trading Days of the Notice of Redemption Notice Date,
the Company shall wire transfer the appropriate amount of funds to the holders
of the Series E Preferred Stock. If the Company fails to comply with the
redemption provisions set forth herein by the sixth Trading Day after the
Redemption Notice Date (or in the case of a public offering as contemplated in F
below, by the sixth Trading Day after the Redemption Notice Date) relating to
the Redemption Notice, the redemption will be declared null and void and the
Company shall not be permitted to serve another Redemption Notice. For the
first five Trading Days after the Redemption Notice Date, the holders of the
Series E Preferred Stock will retain their conversion rights with respect
holders of the Series D Preferred Stock will retain their rights to convert up
to a maximum of twenty percent (20%) of the number of shares subject to the
redemption. If the holders of the Series E Preferred Stock elect to so convert
the Series E Preferred Stock after the receipt of the Redemption Notice, the
Company must receive notice of such election within twenty-four (24) hours from
the time the Redemption Notice was received by the holders of the Series E
Preferred Stock. In the event the Company has not complied with the redemption
provisions set forth herein the Company must comply with the delivery
requirements of any then outstanding Conversion Notice as set forth herein. The
holders shall send the shares of Series E Preferred Stock being redeemed or
converted to the Company within three (3) Business Days after they have received
good funds for the Redemption Price of the redeemed shares.
D. Subject to the receipt by the holders of the Series E Preferred Stock
being redeemed of the wire transfer of the Redemption Price as described above,
each share of Series E Preferred Stock to be redeemed shall be automatically
canceled and converted into a right to receive the Redemption Price, and all
rights of the Series E Preferred Stock, including the right to conversion shall
cease without further action.
E. The Redemption Price shall be adjusted proportionally upon any
adjustment of the Conversion Price as provided herein and in the event of any
stock dividend, stock split, combination of shares or similar event.
F. The Company shall not be entitled to send any Redemption Notice and
begin the redemption procedure hereunder unless it has:
(a) the full amount of the Redemption Price in cash, available in
a demand or other immediately available account in a bank or similar
financial institution, specifically allotted for such redemption;
-12-
<PAGE>
(b) immediately available credit facilities, in the full amount
of the Redemption Price with a bank or similar financial institution
specifically allotted for such redemption; or
(c) a combination of the items set forth in (i) and (ii) above,
aggregating the full amount of the Redemption Price.
Notwithstanding the foregoing, in the event the redemption is expected to be
made contemporaneously with the closing of a public offering of the Company's
securities for an amount in excess of the Redemption Price, the Company shall
not be required to have the full amount of the Redemption Price available to it
as set forth above.
XII. 4.99% Limitation. Notwithstanding the provisions hereof, in no
----------------
event shall each holder be entitled to convert any shares of the Series E
Preferred Stock to the extent that, after such conversion, the sum of (1) the
number of shares of Common Stock beneficially owned by such holder and its
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unconverted shares of the Series E Preferred
Stock), and (2) the number of shares of Common Stock issuable upon the
conversion of the shares of Series E Preferred Stock with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by such holder and its affiliates of more than 4.99% of the
outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"). Any issuance by the Company to a holder in excess of the limit
contained in this Paragraph shall be null and void, ab initio, and upon notice
of such invalid issuance, the Company shall correct its books and cause its
transfer agent's books to be corrected forthwith to reflect that the holder's
ownership of Common Stock is within the limit set forth herein. Holder shall
immediately deliver any certificates for invalidly issued Common Stock to the
Company's transfer agent. The Company further agrees to (i) immediately reissue
certificates for Common Stock to the extent that a portion of the Common Stock
represented by said certificates have been validly issued and (ii) immediately
reissue all or a portion of those shares which were deemed invalidly issued (at
a price set forth in the original conversion notices applicable to such shares)
upon notice from the holder that the reissuance of such shares would not cause
such holder to have a beneficial ownership interest in excess of 4.99%. The
Company hereby indemnifies and holds each holder free and harmless in connection
with any and all liabilities, losses, costs and expenses, including, without
limitation, attorneys' fees and costs arising from or relating to claims made by
any third parties with respect to any and all purported violations by each
holder under Sections 13(d) and 16 resulting from a conversion(s) of the Series
E Preferred Stock, unless such claim arises from such holder's default of its
obligations hereunder, or representations or warranties contained herein. The
4.99% limitation shall not apply to the automatic conversion upon the Maturity
Date as contained herein.
XIII "Cap Regulations". The Company shall take all steps reasonably
----------------
necessary to be in a position to issue shares of Common Stock on conversion
-13-
<PAGE>
of the Series E Preferred Stock without violating the "Cap Regulations". If
despite taking such steps, the Company is limited in the number of shares of
Common Stock it may issue by the "Cap Regulations," to the extent that the
Company cannot issue such shares of Common Stock, due upon a Notice of
Conversion, without violating the Cap Regulations, the Company shall immediately
notify Buyer the number of shares of the Series E Preferred Stock which are not
convertible as a result of said Cap Regulations (the "Unconverted Preferred
Stock") and within five (5) business days of the applicable Notice of Conversion
redeem the Unconverted Preferred Stock for an amount in cash (the "Redemption
Amount") equal to the "Economic Benefit" of such Unconverted Preferred Stock.
"Economic Benefit" for purposes of this Article XIII shall mean the dollar value
derived if such Unconverted Preferred Stock were converted into Common Stock as
set forth in the Notice of Conversion and the Common Stock was sold on the date
of the Notice of Conversion at the Closing Bid Price of the Common Stock on the
date of the Notice of Conversion.
IN WITNESS WHEREOF, I have subscribed my name this 29/th/ day of
December, 1999.
GLOBAL MAINTECH CORPORATION
By: /s/ James Geiser
------------------
Name: James Geiser
Title: Secretary
-14-
<PAGE>
EXHIBIT 4.10
SERIES D
FORM OF SPA
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
among
the Investors listed on Schedule A
and
Global Maintech Corporation
January 19, 2000
<PAGE>
SCHEDULES:
- ---------
A: List of Investors
4.3: Options and Warrants
4.14: Litigation
4.25: Private Placements
EXHIBITS:
- --------
A: Certificate of Designation
B: Escrow Agreement
C: Registration Rights Agreement
D: Common Stock Purchase Warrant
E: Opinion of Counsel
F: Instruction Letter to Transfer Agent, including forms of Notice of
Conversion, Exercise and Effectiveness of Registration Statement
<PAGE>
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
THIS SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of
January 19, 2000 (the "Agreement"), among the entities listed on Schedule A
attached hereto (collectively referred to as the "Investors") and GLOBAL
MAINTECH CORPORATION, a corporation organized and existing under the laws of the
State of Minnesota (NASD OTC Electronic Bulletin Board symbol "GLBM", the
"Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to certain of the
Investors (the "New Investors"), and the New Investors shall purchase up to (a)
700 shares of Preferred Stock (as defined below), and (b) 21,000 shares of the
Common Stock (the "New Investor Shares"); and
WHEREAS, the Company shall issue to certain of the Investors (the "Note
Investors"), an aggregate of 300 shares of Preferred Stock and 9,000 shares of
Common Stock (the "Note Investor Shares") upon conversion of convertible
promissory notes issued by the Company to the Note Investors in an aggregate
principal amount of $300,000 (the "Notes"); and
WHEREAS, the Company shall issue to certain of the Investors (the "Prior
Investors"), an aggregate of 1,600 shares of Preferred Stock in exchange of all
shares of Series C Convertible Preferred Stock (the "Series C Preferred Stock")
issued to such Prior Investors on or about March 24, 1999, warrants to purchase
up to 20,000 Warrant Shares in exchange of all warrants issued to such Prior
Investors on or about March 24, 1999 (the "Exchange Warrants"); and
WHEREAS, the Company shall issue for adequate consideration certain shares
of Common Stock as payment in full for all penalties and fees accrued due to the
Company's failure to file a registration statement in regard to the shares of
Common Stock into which the Series C Preferred Stock were convertible (the
"Prior Investor Shares" and collectively with the New Investor Shares and Note
Investor Shares, the "New Common Shares") to the Prior Investors; and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended, and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in the Preferred Stock and the Common Stock to
be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
ARTICLE I
---------
Certain Definitions
-------------------
Section 1.1 "Additional Shares" shall have that meaning set forth in
-----------------
Section 2.5 below.
Section 1.2 "Bid Price" shall mean the closing bid price (as reported by
---------
Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Business Day" means any day except Saturday, Sunday and any
------------
day which shall be a Federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
government actions to close.
Section 1.4 "Capital Shares" shall mean the Common Stock and any shares
--------------
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.5 "Capital Shares Equivalents" shall mean any securities,
--------------------------
rights, or obligations that are convertible into or exchangeable for, or giving
any right to subscribe for, any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.6 "Certificate of Designation" shall mean the Company's
--------------------------
Certificate of Designation setting forth all of the rights, privileges and
preferences of the Preferred Stock, as annexed hereto as Exhibit A and made a
part hereof.
Section 1.7 "Closing" shall mean the closing of a purchase and sale of
-------
the Preferred Stock, the New Common Shares and the Warrants pursuant to Article
II below.
Section 1.8 "Closing Date" shall mean the Subscription Date.
------------
Section 1.9 "Common Stock" shall mean the Company's common stock, no par
------------
value per share.
Section 1.10 "Damages" shall mean any loss, claim, damage, liability,
-------
costs and expenses which shall include, but not be limited to, reasonable
attorney's fees, disbursements, costs and expenses of expert witnesses and
investigation.
Section 1.11 "Effective Date" shall mean the date on which the SEC first
--------------
declares effective a Registration Statement registering the resale of (a) 200%
of the Underlying Shares (as of the date the Registration Statement is filed)
and 100% of (b)(i) the Warrant Shares issued to the Investors and (ii) the New
Common Shares issued to the Investors, as set forth in Section 2.7 below.
-2-
<PAGE>
Section 1.12 "Escrow Agent" shall mean the law firm of Parker Chapin
------------
Flattau & Klimpl, LLP, pursuant to the terms of the Escrow Agreement attached as
Exhibit B.
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
------------
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.14 "Legend" shall have the meaning set forth in Article VIII
------
below.
Section 1.15 "Material Adverse Effect" shall mean any effect on the
-----------------------
business, operations, properties, Bid Price, trading volume of the Common Stock,
prospects or financial condition of the Company that is material and adverse to
the Company and its subsidiaries and affiliates, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise in any
material respect interfere with the ability of the Company to enter into and
perform any of its obligations under this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Certificate of Designation or the Warrants
in any material respect.
Section 1.16 "NASD" shall mean the National Association of Securities
----
Dealers, Inc.
Section 1.17 "Outstanding" when used with reference to shares of Common
-----------
Stock, Preferred Stock, or Capital Shares (collectively the "Shares"), shall
mean, at any date as of which the number of such Shares is to be determined, all
issued and outstanding Shares, and shall include all such Shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; provided, however, that Outstanding shall not mean
-------- -------
any such Shares then directly or indirectly owned or held by or for the account
of the Company.
Section 1.18 "Person" shall mean an individual, a corporation, a
------
partnership, an association, a limited liability company, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.19 "Preferred Stock" shall mean the Company's Series D
---------------
Preferred Stock with the rights, privileges and preferences, as set forth in the
Certificate of Designation.
Section 1.20 "Prime Rate" shall mean the rate of interest per annum
----------
publicly announced from time to time by the principal New York City office of
the Chase Manhattan bank, or its successor, as its prime rate (which rate shall
change when and as such prime rate changes).
Section 1.21 "Principal Market" shall mean the NASD OTC Electronic
----------------
Bulletin Board, the Nasdaq National Market, the Nasdaq Small Cap Market, the
American Stock Exchange, or the New York Stock Exchange, whichever is at the
time the principal trading exchange or market for the Common Stock.
Section 1.22 "Purchase Price" shall mean $1,000,000 (with $300,000
--------------
allocated to the exchange of the Notes).
-3-
<PAGE>
Section 1.23 "Registrable Securities" shall mean the New Common Shares,
----------------------
Underlying Shares, the Additional Shares and the Warrant Shares (i) in respect
of which the Registration Statement (covering these securities) has not been
declared effective by the SEC, (ii) which have not been otherwise transferred to
holders who may trade such shares without restriction under the Securities Act,
or (iii) the sales of which, in the opinion of counsel to the Company, are
subject to any time, volume or manner of sale limitations pursuant to Rule
144(k) (or any similar provision then in effect) under the Securities Act.
Section 1.24 "Registration Rights Agreement" shall mean the agreement
-----------------------------
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investors on
the Subscription Date annexed hereto as Exhibit C.
Section 1.25 "Registration Statement" shall mean a registration statement
----------------------
on Form SB-2 or such other appropriate registration statement, for the
registration of the resale by the Investors of the Registrable Securities under
the Securities Act.
Section 1.26 "Regulation D" shall have the meaning set forth in the
------------
recitals of this Agreement.
Section 1.27 "SEC" shall mean the Securities and Exchange Commission.
---
Section 1.28 "Section 4(2)" shall have the meaning set forth in the
------------
recitals of this Agreement.
Section 1.29 "Securities" shall mean the New Common Shares, Underlying
----------
Shares, the Additional Shares and the Warrant Shares.
Section 1.30 "Securities Act" shall have the meaning set forth in the
--------------
recitals of this Agreement.
Section 1.31 "SEC Documents" shall mean the Company's latest Form 10-KSB
-------------
(and all amendments thereto) as of the time in question, all Form 10-QSBs and
Form 8-Ks filed thereafter, and the Proxy Statement for its latest fiscal year
as of the time in question until such time as the Company no longer has an
obligation to maintain the effectiveness of a Registration Statement as set
forth in the Registration Rights Agreement.
Section 1.32 "Subscription Date" shall mean the date on which this
-----------------
Agreement and all Exhibits and attachments hereto are executed and delivered by
the parties hereto and all of the conditions relating to the issuance of the
Preferred Stock, the New Common Shares and the Warrants shall have been
fulfilled.
Section 1.33 "Trading Day" shall mean any day during which the Principal
-----------
Market shall be open for business.
-4-
<PAGE>
Section 1.34 "Underlying Shares" shall mean all shares of Common Stock or
-----------------
other securities issued or issuable pursuant to conversion of the Preferred
Stock.
Section 1.35 "Warrants" shall mean the Exchange Warrants substantially in
--------
the form of the Common Stock Purchase Warrant annexed hereto as Exhibit D.
Section 1.36 "Warrant Shares" shall mean all shares of Common Stock or
--------------
other securities issued or issuable pursuant to the exercise of the Warrants.
ARTICLE II
----------
Purchase and Sale of the Preferred Stock, the New Common Shares and the Warrants
- --------------------------------------------------------------------------------
Section 2.1 Closing. On the Closing Date, the Company will (a)(i) sell
-------
and the New Investors will buy shares of Preferred Stock, (ii) issue shares of
Preferred Stock to the Prior Investors in exchange of the Series C Preferred
Stock, and (iii) issue shares of Preferred Stock to the Note Investors upon
conversion of the Notes, pursuant to the terms and conditions of this Agreement
(including the satisfaction or waiver in writing of the conditions set forth in
Section 2.6 below) up to an aggregate of 2,600 shares of Preferred Stock based
on U.S.$1,000 per share, and (b) issue New Common Shares to the Investors on a
pro rata basis as set forth on Schedule A hereto and (c) issue Warrants to
purchase that number of Warrant Shares as set forth in Section 2.4 below, for
the Purchase Price and in exchange of the Series C Preferred Stock and the
related warrants and upon conversion of the Notes.
Section 2.2 Form of Payment. The Investors shall pay the Purchase Price
---------------
by delivering good funds in United States Dollars by wire transfer to the Escrow
Agent, exchanging the Series C Preferred Stock for shares of Preferred Stock,
Exchange Warrants and New Common Shares and converting their Notes into shares
of Preferred Stock and New Common Shares, against delivery of the Series C
Preferred Stock and related warrants. The parties have entered into an Escrow
Agreement annexed hereto as Exhibit B.
Section 2.3 [Intentionally Omitted]
Section 2.4 New Common Shares and Warrants. The Company will issue to
------------------------------
the Investors (pro rata in proportion to the number of shares of Preferred Stock
purchased (or received for the exchange of the Series C Stock)) on the Closing
Date 30,000 New Common Shares per $1,000,000 funded to the Company pursuant to
the terms hereunder (pro rata amongst the Investors based upon each Investor's
portion of the Purchase Price or portion of the exchanged Series C Stock). All
of the New Common Shares shall be delivered by the Company to the Escrow Agent,
and delivered to the Investors pursuant to the terms of this Agreement and the
Escrow Agreement. All of the New Common Shares shall be registered for resale
pursuant to the Registration Rights Agreement. Furthermore, the Company will
issue to the Prior Investors (pro rata in proportion to the number of shares of
Preferred Stock received for the exchange of the Series C Stock) on the Closing
Date Exchange Warrants to purchase 20,000 shares of Common Stock.
-5-
<PAGE>
Section 2.5 Additional Shares. In the event that a "blackout period"
-----------------
occurs which is defined as any period in which the effectiveness of the
Registration Statement is suspended for a reason other than a suspension of the
Registration Statement arising in the event the Company possesses material non-
public information, and the Bid Price on the Trading Day immediately preceding
such "blackout period" (the "Old Bid Price") is greater than the Bid Price on
the first Trading Day following such "blackout period" (the "New Bid Price"),
the Company shall issue to the Investors the number of additional shares of
Common Stock equal to the difference between (y) the product of (i) the number
of Securities held by the Investors during such "blackout period" that are or
were not otherwise freely tradable and (ii) the Old Bid Price, divided by the
New Bid Price and (z) the number of Securities held by the Investors during such
"blackout period" that were not otherwise freely tradable during such Blackout
Period (the "Blackout Shares").
Section 2.6 Liquidated Damages. In addition to any other provisions for
------------------
liquidated damages in this Agreement or any Exhibit annexed hereto, in the event
that the Company does not deliver unlegended, freely tradable Common Stock in
connection with the sale of such Common Stock by the Investor(s) as set forth in
Article VIII below within six (6) Business Days of surrender by the Investor(s)
of the Common Stock certificate in accordance with the terms and conditions set
forth in Article VIII below (such date of receipt is referred to as the "Receipt
Date"), the Company shall pay to the Investor(s), in immediately available
funds, upon demand, as liquidated damages for such failure and not as a penalty,
for every day after the Receipt Date for the first ten days (the "Ten-Day
Period"), one percent of the product of (i) the number of shares of Common Stock
undelivered and (ii) the Bid Price on the Receipt Date, and two percent of the
product of (i) the number of shares of Common Stock undelivered and (ii) the Bid
Price on the Receipt Date, for every day after the Ten-Day Period that the
unlegended shares of Common Stock are not delivered. The parties hereto
acknowledge and agree that the sums payable pursuant to the Registration Rights
Agreement and as set forth above, and the obligation to issue Registrable
Securities under Section 2.5 above, shall constitute liquidated damages and not
penalties. The parties further acknowledge that the amount of loss or damages
likely to be incurred in the event of a failure to deliver unlegended, freely
tradable shares of Common Stock cannot be precisely estimated, and the parties
are sophisticated business parties and have been represented by sophisticated
and able legal and financial counsel and negotiated this Agreement at arm's
length. Notwithstanding the above, in the event that the Company does not
deliver unlegended Common Stock in connection with the sale of such Common Stock
by the Investor(s) as set forth in Article VIII below within six (6) Business
Days of the Receipt Date, the Company shall also pay to the Investor(s), in
immediately available funds, interest (at the then current Prime Rate), based
upon the product of (i) the number of undelivered unlegended freely tradable
shares, and (ii) the Bid Price of the Common Stock on the Receipt Date,
undelivered for every day thereafter that the unlegended shares of Common Stock
are not delivered. Any and all payments required pursuant to this paragraph
shall be payable only in cash, and any payment hereunder shall not relieve the
Company of its delivery obligations under this Section.
Section 2.7 Conditions to Closing.
---------------------
-6-
<PAGE>
(a) Conditions to the Company's Obligation to Sell. Each of the
Investors understands that the Company's obligation to sell the Preferred Stock,
the New Common Shares and the Warrants is subject to the satisfaction (or
written waiver) on the Closing Date, of each of the following conditions:
(i) delivery by each Investor of a copy of this Agreement and
each Exhibit annexed hereto to which it is a party
(substantially in the form annexed hereto), in each case
executed by a duly authorized signatory of such Investor;
(ii) delivery into escrow by the Investors of clear funds for
the Purchase Price (as more fully set forth in the Escrow
Agreement attached hereto as Exhibit B), the original
Series C Preferred Stock certificates and related warrants
for exchange and the original Notes for conversion into
shares of Preferred Stock; and
(iii) all representations and warranties of the Investors
contained herein shall remain true and correct in all
material respects as of the Closing Date.
Notwithstanding the foregoing, the Company may close on the cash Purchase
Price whether or not the Notes, the original Series C Preferred Stock and the
related warrants have been delivered to the Escrow Agent.
(b) Conditions to Investors' Obligation to Purchase. The Company
-----------------------------------------------
understands that the Investors' obligation to purchase the Preferred Stock, the
New Common Shares and the Warrants is subject to the satisfaction (or written
waiver) on the Closing Date, of each of the following conditions:
(i) delivery by the Company of a copy of this Agreement and
each Exhibit annexed hereto to which it is a party
(substantially in the form annexed hereto), in each case
executed by a duly authorized officer of the Company;
(ii) all representations and warranties of the Company
contained herein shall remain true and correct in all
material respects as of the Closing Date;
(iii) the Company shall have obtained all permits and
qualifications required by any state for the offer and
sale of the Preferred Stock, the New Common Shares and the
Warrants, or shall have the availability of exemptions
therefrom;
(iv) the sale and issuance of the Preferred Stock and the New
Common Shares, and the proposed issuance of the Additional
Shares, the
-7-
<PAGE>
Underlying Shares, the Warrants and the Warrant Shares
shall be legally permitted by all laws and regulations to
which the Investors and the Company are subject, and all
duly executed Exhibits hereto for the sale of the
Securities;
(v) delivery of the original Preferred Stock, the New Common
Shares and the Warrants as described herein;
(vi) receipt by the Investors of an opinion of counsel of the
Company as set forth in Exhibit E attached hereto;
(vii) receipt by the Investors of executed instructions to the
Transfer Agent as set forth in Exhibit F annexed hereto;
(viii) written proof that the Certificate of Designation has been
filed with the Secretary of State of the State of
Minnesota, and remains in full force and effect as of the
Closing Date;
(ix) the Company shall not be in default of any material
covenant representation, and/or warranty contained in this
Agreement or any Exhibit annexed hereto; and
(x) payment of all fees by the Company as set forth in Section
12.7 below and the Escrow Agreement.
ARTICLE III
-----------
Representations and Warranties of the Investors
-----------------------------------------------
Each of the Investors severally (as to itself) and not jointly represents
and warrants to the Company that:
Section 3.1 Intent. Without limiting its ability to resell the
------
Securities pursuant to an effective registration statement or an exemption from
registration, each of the Investors is entering into this Agreement for its own
account and has no present arrangement (whether or not legally binding) at any
time to sell the Securities to or through any person or entity; provided,
--------
however, that by making the representations herein, the Investors do not agree
- -------
to hold the Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with federal and
state securities laws applicable to such disposition.
Section 3.2 Sophisticated Investors. Each of the Investors is a
-----------------------
sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D) and
an accredited investor (as defined in Rule 501 of Regulation D), and each of the
Investors has such experience in business and financial matters that it is
capable of evaluating the merits and risks of an investment in the
-8-
<PAGE>
Preferred Stock and the Securities. Each of the Investors acknowledges that an
investment in the Common Stock is speculative and involves a high degree of risk
and can afford the complete loss of their investment.
Section 3.3 Authority. This Agreement has been duly authorized and
---------
validly executed and delivered by each of the Investors and assuming the due
execution and delivery hereof and acceptance thereof by the Company, will
constitute the legal, valid and binding obligations of the Investors,
enforceable against each of them in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application. The decision to invest and the
execution and delivery of this Agreement by the Investors, the performance by
the Investors of their obligations hereunder and the consummation by the
Investors of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investors. The undersigned
signatory has all right, power and authority to execute and deliver this
Agreement on behalf of each Investor.
Section 3.4 Not an Affiliate. None of the Investors is an officer,
----------------
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
Section 3.5 Organization and Standing. Each of the Investors is duly
-------------------------
organized, validly existing, and in good standing under the laws of the
countries and/or states of their incorporation or organization and has all
requisite power and authority to purchase the Securities.
Section 3.6 [Intentionally Omitted]
Section 3.7 Disclosure; Access to Information. Each of the Investors has
---------------------------------
received all documents, records, books and other information pertaining to
Investor's investment in the Company that have been requested by Investors,
including the opportunity to ask questions of, and receive answers from, the
Company. The Company is subject to the periodic reporting requirements of the
Exchange Act, and each of the Investors has reviewed or received copies of any
such reports that have been requested by it. Each of the Investors represents
that it has reviewed the Company's Form 10-KSB for the year ended December 31,
1998, Form 10-QSB's, and Form 8-K's filed for the twelve months prior to the
Subscription Date and is aware that the Company is in negotiations to sell its
Breece Hill Technologies, Inc. subsidiary ("BHT") and possibly other assets.
Section 3.8 Manner of Sale. At no time were any of the Investors
--------------
presented with or solicited by or through any leaflet, public promotional
meeting, television advertisement or any other form of general solicitation or
advertising in connection with the offer and sale of the Preferred Stock and the
Securities.
Section 3.9 Registration or Exemption Requirements. Each of the
--------------------------------------
Investors acknowledge and understand that the limited private offering and sale
of the Preferred Stock and the Securities pursuant to this Agreement has not
been reviewed or approved by the SEC or by any state securities commission,
authority or agency, and is not registered under the Securities
-9-
<PAGE>
Act or under the securities or "blue sky" laws, rules or regulations of any
state. Each of the Investors acknowledges, understands and agrees that the
Preferred Stock and the Securities are being offered and sold hereunder pursuant
to (i) a private placement exemption to the registration provisions of the
Securities Act pursuant to Section 4(2) of such Securities Act and Regulation D
promulgated under such Securities Act, and (ii) a similar exemption from the
registration provisions of applicable state securities laws.
Section 3.10 No Legal, Tax or Investment Advice. Each of the Investors
----------------------------------
understands that nothing in this Agreement or any other materials presented to
the Investors in connection with the purchase and sale of the Preferred Stock,
the New Common Shares and the Warrants constitutes legal, tax or investment
advice. The Investors have relied on, and have consulted with, such legal, tax
and investment advisors as they, in their sole discretion, have deemed necessary
or appropriate in connection with their purchase of the Preferred Stock, the New
Common Shares and the Warrants.
Section 3.11 No Violation. Each of the Investors agrees that it will not
------------
enter into any position in the Common Stock that in any manner would violate any
provision of the Exchange Act. Each of the Investors further agrees that as of
the Closing Date it does not maintain a short position in the Common Stock, and
does not have any current intention of entering into any short position in
connection with the Common Stock.
Section 3.12 Registered Broker-Dealer. None of the Investors is a
------------------------
registered broker-dealer or an affiliate of a registered broker-dealer.
ARTICLE IV
----------
Representations and Warranties of the Company
---------------------------------------------
The Company represents and warrants to the Investors that:
Section 4.1 Organization of the Company. The Company is a corporation
---------------------------
duly incorporated and existing in good standing under the laws of the State of
Minnesota and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted except as described in the SEC
Documents. The Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
other than those (individually or in the aggregate) in which the failure so to
qualify would not reasonably be expected to have a Material Adverse Effect. The
Company is not in violation of any material terms of its Articles of
Incorporation (as defined below) or Bylaws (as defined below).
Section 4.2 Authority. (i) The Company has the requisite corporate power
---------
and authority to enter into and perform its obligations under this Agreement,
and all Exhibits annexed hereto, and to issue the Preferred Stock, the New
Common Shares, the Warrants, the Underlying Shares, the Additional Shares, and
the Warrant Shares, (ii) the execution, issuance and delivery
-10-
<PAGE>
of this Agreement, and all Exhibits annexed hereto, by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors is necessary, and (iii)
this Agreement, and all Exhibits annexed hereto, have been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Upon their issuance and delivery pursuant to this Agreement, the Preferred
Stock, the New Common Shares, the Warrants and the Securities issuable will be
validly issued, fully paid and nonassessable and will be free of any liens or
encumbrances other than those created hereunder or by the actions of the
Investors; provided, however, that the aforementioned securities are subject to
-------- -------
restrictions on transfer under state and/or federal securities laws. The
issuance and sale of the Preferred Stock, the New Common Shares, the Warrants
and the Securities hereunder will not give rise to any preemptive right or right
of first refusal or right of participation on behalf of any Person.
Section 4.3 Capitalization. As of September 30, 1999, the authorized
--------------
capital stock of the Company consists of 10,711,724 shares, no par value, of
which 887,980 shares are designated as Series A Convertible Preferred Stock (the
"Series A Stock"), 123,077 shares are designated as Series B Convertible
Preferred Stock (the "Series B Stock"), and 1,675 shares are designated as
Series C Convertible Preferred Stock (the "Series C Stock") and 9,698,992 shares
are divisible into such other classes and series as the Board of Directors may
from time to time designate. As of September 30, 1999, there were 4,821,187
shares of Common Stock issued and outstanding; 129,176 shares of Series A Stock
issued and outstanding; 51,792 shares of Series B Stock issued and outstanding;
and 1,675 shares of Series C Stock issued and outstanding. All of the
outstanding shares of the Company's capital stock have been duly and validly
authorized and issued and are fully paid and nonassessable. No shares of Common
Stock are entitled to preemptive or similar rights. Except as specifically
disclosed in the SEC Documents and Schedule 4.3 hereto, there are no outstanding
options, warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the purchase and sale of the
Preferred Stock, the New Common Shares and the Warrants, securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
subsidiary is or may become bound to issue additional shares of Common Stock or
securities or rights convertible or exchangeable into shares of Common Stock.
Except as specifically disclosed on Schedule 4.3, to the knowledge of the
Company, no Person or group of Persons beneficially owns (as determined pursuant
to Rule 13d-3 promulgated under the Exchange Act) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial ownership of
in excess of five percent of the Common Stock.
Section 4.4 Common Stock. The Company has registered its Common Stock
------------
pursuant to Section 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of
-11-
<PAGE>
the Exchange Act, and such Common Stock is currently listed or quoted on the
NASD OTC Electronic Bulletin Board.
Section 4.5 SEC Documents. The Company has delivered or made available
-------------
to the Investors true and complete copies of the SEC Documents filed by the
Company with the SEC during the twelve (12) months immediately preceding the
Subscription Date (including, without limitation, proxy information and
solicitation materials). The Company has not provided to any of the Investors
any information that, according to applicable law, rule or regulation, should
have been disclosed publicly prior to the date hereof by the Company, but which
has not been so disclosed. The SEC Documents comply in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and rules and regulations of the SEC promulgated thereunder and none of the
SEC Documents contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 4.6 Valid Issuances. When issued and paid for in accordance
---------------
with the terms hereof, the Preferred Stock, the New Common Shares, the
Underlying Shares, the Warrants, the Warrant Shares and the Additional Shares,
will be duly and validly issued, fully paid, and nonassessable. Neither the
issuance of the Preferred Stock, the New Common Shares, the Underlying Shares,
the Warrants, the Warrant Shares or the Additional Shares, nor the Company's
performance of its obligations under this Agreement, and all Exhibits annexed
hereto, will (i) result in the creation or imposition by the Company of any
liens, charges, claims or other encumbrances upon the Warrants, the Preferred
Stock, the New Common Shares, the Warrant Shares, the Additional Shares, or the
Underlying Shares, issued or issuable hereunder, or any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive
or other rights to subscribe to or acquire any Capital Shares or other
securities of the Company.
Section 4.7 No General Solicitation or Advertising in Regard to this
--------------------------------------------------------
Transaction. Neither the Company nor any of its affiliates nor any distributor
- -----------
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising in connection with the offer and sale of the Preferred
Stock, the New Common Shares, the Additional Shares, the Underlying Shares, the
Warrants, or the Warrant Shares, or (ii) has made any offers or sales of any
security or solicited
12
<PAGE>
any offers to buy any security under any circumstances that would require
registration of the Preferred Stock, the New Common Shares, the Additional
Shares, the Underlying Shares, the Warrants, or the Warrant Shares under the
Securities Act.
Section 4.8 Corporate Documents. The Company has furnished or made
-------------------
available to each of the Investors true and correct copies of the Company's
articles of incorporation, as amended and in effect on the date hereof (the
"Articles of Incorporation"), and the Company's by-laws, as amended and in
effect on the date hereof (the "By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of
------------
this Agreement (including all Exhibits annexed hereto) by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Preferred Stock, the New
Common Shares, the Underlying Shares, the Warrants, the Warrant Shares and the
Additional Shares, do not and will not (i) result in a violation of the
Company's Articles of Incorporation or By-Laws or (ii) conflict with, or
constitute a material default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, patent, patent
license, indenture, instrument or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company is a party, or (iii)
result in a violation of any federal, state or local law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any property or asset of the
Company is bound or affected, nor is the Company otherwise in violation of, in
conflict with, or in default under, any of the foregoing except as would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. The business of the Company is not being conducted in violation
of any law, ordinance or regulation of any governmental entity, except for
possible violations that either singly or in the aggregate would not reasonably
be expected to have a Material Adverse Effect. Except for the filing of a Form D
within 15 days after the Closing Date (which the Company agrees it will file),
the Company is not required under federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or issue
and sell the Preferred Stock, the New Common Shares or the Warrants, in
accordance with the terms hereof; provided, that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Investors
herein.
Section 4.10 No Material Adverse Change. Since September 30, 1999, no
--------------------------
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents, or as publicly announced.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities
--------------------------
or obligations, known or unknown, absolute or otherwise, which are not disclosed
in the SEC Documents or otherwise publicly announced, other than those set forth
in the Company's financial statements or as incurred in the ordinary course of
the Company's businesses since September 30, 1999, and
-13-
<PAGE>
which, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect.
Section 4.12 No Undisclosed Events or Circumstances. Since September 30,
--------------------------------------
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company, but which
has not been so publicly announced or disclosed in the SEC Documents.
Section 4.13 No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act, or
cause the offering of the Preferred Stock, the New Common Shares and the
Warrants pursuant to this Agreement to be integrated with future offerings by
the Company for purposes of the Securities Act, the Nasdaq Stock Market, Inc.
marketplace rules, or any applicable stockholder approval provisions, except as
set forth in the SEC Documents.
Section 4.14 Litigation and Other Proceedings. Except as may be set forth
--------------------------------
in the SEC Documents and Schedule 4.14 annexed hereto, there are no lawsuits or
proceedings pending or to the knowledge of the Company threatened, against the
Company, nor has the Company received any written or oral notice of any such
action, suit, proceeding or investigation, which would reasonably be expected to
have a Material Adverse Effect. Except as set forth in the SEC Documents, no
judgment, order, writ, injunction or decree or award has been issued by or, so
far as is known by the Company, requested of any court, arbitrator or
governmental agency which would be reasonably expected to result in a Material
Adverse Effect.
Section 4.15 Accuracy of Reports and Information. The Company is in
-----------------------------------
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the Exchange Act. The Company has
registered its Common Stock pursuant to Section 12 of the Exchange Act and the
Common Stock is listed and trades on the NASD OTC Electronic Bulletin Board. The
Company has complied in all material respects and to the extent applicable with
all reporting obligations, under either Section 13(a) or 15(d) of the Exchange
Act for a period of at least twelve (12) months immediately preceding the offer
and sale of the Preferred Stock, the New Common Shares and the Warrants.
Section 4.16 Acknowledgment of Dilution. The Company is aware and
--------------------------
acknowledges that issuance of Common Stock upon the conversion of the Preferred
Stock, the New Common Shares and/or exercise of the Warrants, may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue the Additional Shares in accordance with the terms
herein, the Underlying Shares in accordance with the Certificate of Designation,
and the Warrant Shares in accordance with the Warrants is unconditional and
absolute regardless of the effect of any such dilution.
-14-
<PAGE>
Section 4.17 Employee Relations. The Company is not involved in any
------------------
labor dispute, nor, to the knowledge of the Company, is any such dispute
threatened which could reasonably be expected to have a Material Adverse Effect.
None of the Company's employees is a member of a union and the Company believes
that its relations with its employees are good.
Section 4.18 Environmental Laws. The Company is (i) in compliance with
------------------
any and all foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants and which the Company know is
applicable to them ("Environmental Laws"), (ii) has received all material
permits, licenses or other approvals required under applicable Environmental
Laws to conduct its business, and (iii) is in compliance with all terms and
conditions of any such permit, license or approval.
Section 4.19 Insurance. The Company is insured by insurers of recognized
---------
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged. The Company has no reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires, or obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operation, of the Company.
Section 4.20 Board Approval. The board of directors of the Company has
--------------
concluded, in its good faith business judgment, that the issuances of the
securities of the Company in connection with this Agreement are in the best
interests of the Company.
Section 4.21 Integration. Except in connection with the Company's
-----------
proposed sale of Breece Hill Technologies, Inc. and the sale of $3,000,000 of
Series E Preferred Stock on terms acceptable to the Investors, the Company shall
not and shall use its best efforts to ensure that no affiliate shall sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
security of the Company that would be integrated with the offer or sale of the
Preferred Stock, the New Common Shares and the Warrants in a manner that would
require the registration under the Securities Act of the issue, offer or sale of
the Preferred Stock, New Common Shares and Warrants to the Investors. The
Preferred Stock, the New Common Shares and the Warrants are being offered and
sold pursuant to the terms hereunder, are not being offered and sold as part of
a previously commenced private placement of securities.
Section 4.22 Patents and Trademarks. The Company has, or has rights to
----------------------
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses, trade secrets and other
intellectual property rights which are necessary for use in connection with its
business or which the failure to so have would have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). To the best knowledge of the
Company, none of the Intellectual Property Rights infringe on any rights of any
other Person, and the Company either owns or has duly licensed or otherwise
acquired all necessary rights with respect to the Intellectual Property Rights.
The Company has not received any notice from any
-15-
<PAGE>
third party of any claim of infringement by the Company of any of the
Intellectual Property Rights, and has no reason to believe there is any basis
for any such claim. To the best knowledge of the Company, there is no existing
infringement by another Person on any of the Intellectual Property Rights.
Section 4.23 Use of Proceeds. The net proceeds from this offering will
---------------
be used for working capital purposes, and not for the repayment of any judgment.
Section 4.24 Subsidiaries. Except as disclosed in the SEC Documents, the
------------
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
Section 4.25 No Private Placements. Except as set forth on Schedule 4.25
---------------------
annexed hereto, the Company has not conducted a private placement of its Common
Stock or of any debt or equity instrument convertible into Common Stock within
one year prior to the Closing Date. Except as set forth on Schedule 4.25 annexed
hereto and as disclosed in the SEC Documents, there are no outstanding
securities issued by the Company that are entitled to registration rights under
the Securities Act. Except as set forth on Schedule 4.25 there are no
outstanding securities issued by the Company that are directly or indirectly
convertible into, exercisable into, or exchangeable for, shares of Common Stock,
that have anti-dilution or similar rights that would be affected by the issuance
of the Preferred Stock, the New Common Shares, the Underlying Shares, the
Additional Shares, the Warrants, or the Warrant Shares.
Section 4.26 No Brokers. Except for its arrangement with a placement
----------
agent, the Company has taken no action which would give rise to any claim by any
person for brokerage commissions, finder's fees or similar payments by the
Company or any Investor relating to this Agreement or the transactions
contemplated hereby.
Section 4.27 Permits; Compliance. The Company and each of its
-------------------
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "Company
Permits"), and there is no action pending or, to the knowledge of the Company,
threatened regarding the suspension or cancellation of any of the Company
Permits except for such Company Permits, the failure of which to possess, or the
cancellation, or suspension of which, would not, individually or in the
aggregate, have a Material Adverse Effect. To the Company's knowledge, neither
the Company nor any of its subsidiaries is in material conflict with, or in
material default or material violation of, any of the Company Permits. Since
January 1, 1999 neither the Company nor any of its subsidiaries has received any
notification with respect to possible material conflicts, material defaults or
material violations of applicable laws.
Section 4.28 Taxes. All federal, state, city and other tax returns,
-----
reports and declarations required to be filed by or on behalf of the Company
have been filed and such returns are complete and accurate and disclose all
taxes (whether based upon income, operations,
-16-
<PAGE>
purchases, sales, payroll, licenses, compensation, business, capital, properties
or assets or otherwise) required to be paid in the periods covered thereby.
ARTICLE V
---------
Covenants of the Investors
--------------------------
Section 5.1 4.99% Limitation. The number of shares of Common Stock
----------------
which may be acquired by any of the Investors pursuant to the terms of this
Agreement shall not exceed the number of such shares which, when aggregated with
all other shares of Common Stock then owned by any of the Investors, would
result in any of the Investors owning more than 4.99% of the then issued and
outstanding Common Stock at any one time.
The preceding paragraph shall not interfere with any Investor's right to
convert Preferred Stock over time which in the aggregate totals more than 4.99%
of the then outstanding shares of Common Stock so long as such Investor does not
own more than 4.99% of the then outstanding Common Stock at any given time. The
foregoing limitation shall not apply to the Automatic Conversion provision
contained in the Certificate of Designation.
ARTICLE VI
----------
Covenants of the Company
------------------------
Section 6.1 Registration Rights. The Company shall cause the Registration
-------------------
Rights Agreement to remain in full force and effect so long as any Registrable
Securities remain outstanding and the Company shall comply in all material
respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
---------------------------
Company has authorized and reserved and the Company shall continue to reserve
and keep available at all times, free of preemptive rights, shares of Common
Stock for the purpose of enabling the Company to satisfy any obligation to issue
the New Common Shares, Additional Shares, Underlying Shares and Warrant Shares;
such amount of shares of Common Stock to be reserved shall be calculated based
upon the Purchase Price therefor under the terms of this Agreement, the
Certificate of Designation, and Warrants. The number of shares so reserved shall
be increased or decreased to reflect potential increases or decreases in the
Common Stock that the Company may thereafter be so obligated to issue by reason
of adjustments to the Preferred Stock, the New Common Shares and the Warrants.
Section 6.3 Listing of Common Stock. If the Principal Market requires
-----------------------
the Company to file a listing application or an additional shares listing
application for the Common Stock listed on such Principal Market (the date the
Company becomes subject to such requirement is hereinafter referred to as the
"Requirement Date"), the Company shall (a) not later than the fifth Business Day
following the Requirement Date prepare and file with the Principal Market (as
well as any other national securities exchange, market or trading facility on
which the Common Stock is then listed) an additional shares listing application
covering at least the sum of (i) two times
-17-
<PAGE>
the number of Underlying Shares as would be issuable upon a conversion in full
of (and as payment of dividends in respect of) the shares of Preferred Stock,
assuming such conversion occurred on the Closing Date, and (ii)(x) the New
Common Shares and (y) the Warrant Shares issuable upon exercise in full of the
Warrants, (b) take all steps necessary to cause such shares to be approved for
listing on the Principal Market (as well as on any other national securities
exchange, market or trading facility on which the Common Stock is then listed)
as soon as possible thereafter, and (c) provide to the Investors evidence of
such listing, and the Company shall maintain the listing of its Common Stock on
such exchange or market for so long as the Registrable Securities, the Preferred
Stock, the New Common Shares and/or the Warrants are owned by the Investors. In
addition, if at any time the number of (i) shares of Common Stock issuable on
conversion of all then outstanding shares of Preferred Stock, on account of
accrued and unpaid dividends thereon, (ii) shares of Common Stock issuable upon
exercise in full of the Warrants and the number of New Common Shares issued on
the Closing Date is greater than the number of shares of Common Stock
theretofore listed with the Principal Market (and any such other national
securities exchange, market or trading facility), the Company shall promptly
take such action (including the actions described in the preceding sentence), if
required pursuant to the rules and regulations of the Principal Market, to file
an additional shares listing application with the Principal Market (and any such
other national securities exchange, market or trading facility) covering at
least a number of shares equal to the sum of (x) 200% of (A) the number of
Underlying Shares as would then be issuable upon a conversion in full of the
shares of Preferred Stock, and (B) the number of Underlying Shares as would be
issuable as payment of dividends on the Preferred Stock, (y) the number of
Warrant Shares as would be issuable upon exercise in full of the Warrants, and
(z) the number of New Common Shares issued on the Closing Date. The Company
warrants that it (i) has not received any notice, oral or written, affecting its
continued listing on the NASD OTC Electronic Bulletin Board, and (ii) is in full
compliance with the requirements for continued listing on the NASD OTC
Electronic Bulletin Board. The Company will take no action which would impact
its continued listing or the eligibility of the Company for such listing. The
Company will comply with the listing and trading requirements of its Common
Stock on the NASD OTC Electronic Bulletin Board (and of any then Principal
Market) and will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the Principal Market. In the
event the Company receives notification from Nasdaq or any other controlling
entity stating that the Company is not in compliance with the listing
qualifications of such Principal Market, the Company will immediately thereafter
give written notice to each Investor and take all action necessary to bring the
Company within compliance with all applicable listing standards of the Principal
Market.
Section 6.4 Exchange Act Registration. The Company will maintain the
-------------------------
registration of its Common Stock under Section 12 of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under the Exchange Act.
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<PAGE>
Section 6.5 Legends. The securities to be sold by the Company pursuant
-------
to this Agreement shall be free of legends, except as set forth in Article VIII.
Section 6.6 Corporate Existence. The Company will take all steps
-------------------
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Notice of Certain Events Affecting Registration. The Company
-----------------------------------------------
will immediately notify each of the Investors upon the occurrence of any of the
following events in respect of a registration statement or related prospectus in
respect of an offering of Registrable Securities: (i) receipt of any request for
additional information by the SEC or any other federal or state governmental
authority during the period of effectiveness of the Registration Statement for
amendments or supplements to the Registration Statement or related prospectus;
(ii) the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose; (iii) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate. The Company will
promptly provide each of the Investors with copies of all correspondence
received by the Company with regard to any of the events described in the
preceding sentence and make available to the Investors any written responses to
the SEC and any such supplement or amendment to the related prospectus.
Section 6.8 Consolidation; Merger. For so long as the Preferred Stock,
---------------------
the New Common Shares, the Warrants, and/or the Registrable Securities are owned
by any Investor, the Company shall not, at any time after the date hereof,
effect any merger or consolidation of the Company with or into, or a transfer of
all or substantially all of the assets of the Company to, another entity (a
"Consolidation Event") unless the resulting successor or acquiring entity (if
not the Company) assumes by written instrument the obligation to deliver to the
Investors such shares of stock and/or securities as the Investors are entitled
to receive pursuant to this Agreement.
Section 6.9 Issuance of New Common Shares, Underlying Shares and Warrant
------------------------------------------------------------
Shares. The issuance of the New Common Shares, Underlying Shares and
- ------
the Warrant Shares pursuant to exercise of the Warrants, and the conversion of
the Preferred Stock, shall be made in accordance
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<PAGE>
with the provisions and requirements of Section 4(2) of the Securities Act or
Regulation D and any applicable state securities law.
Section 6.10 Legal Opinion. The Company's independent counsel shall
-------------
deliver to the Investors upon execution of this Agreement, an opinion in the
form of Exhibit E annexed hereto. The Company will obtain for the Investors, at
the Company's expense, any and all opinions of counsel which may be reasonably
required in order to convert the Preferred Stock and/or exercise the Warrants,
including, but not limited to, obtaining for the Investors an opinion of
counsel, subject only to receipt of a notice of conversion (the "Notice of
Conversion") in the form of Exhibit G, and/or subject only to a receipt of a
notice of exercise in the form annexed to the Warrant, directing the Transfer
Agent to remove the legend from the certificate.
Section 6.11 20% Rule Limitation. If and when required by the Principal
-------------------
Market or otherwise on the market or exchange on which the Company's Common
Stock is then listed, the Company shall call a meeting of its shareholders, to
be held no later than 60 calendar days after becoming subject to such
requirement, seeking shareholder approval of the below market issuances of
shares of Common Stock (and securities convertible into and exercisable for
Common Stock) to the Investors of 20% or more of the number of shares of Common
Stock outstanding as of the Subscription Date. In the event that the
aforementioned proposal is not so approved within such 60 calendar day period,
the Company shall seek a waiver from the Principal Market for such below market
issuances. In the event the Company does not receive such waiver within the
earlier of ten calendar days after the aforementioned shareholders meeting, or
70 calendar days after becoming subject to such requirement, the Company will
repurchase from the Investors based on the Redemption Price (as defined in the
Certificate of Designation) that number of shares of Preferred Stock which would
result in the Company issuing, in the aggregate, 20% or more of the outstanding
Common Stock as of the Subscription Date.
Section 6.12 Restrictions on Future Financings. The Company agrees that
---------------------------------
it will not, without the prior written consent of all of the Investors, enter
into any subsequent or further offer or sale of Common Stock, or any securities
or other instruments convertible into shares of Common Stock, with any party
that is not a party to this Agreement, until the Registration Statement has been
effective for 60 calendar days. This restriction shall not apply to: (a) the
issuance of securities (other than for cash) in connection with a merger,
consolidation, sale of assets, or other disposition, (b) the exchange of Capital
Shares for assets, stock, or joint venture interest, (c) an offering of any of
the Company's securities at then current market prices with no repricing or
reset provisions, (d) any employee benefit plan or (e) one offering of the
Company's proposed Series E Preferred Stock, on terms acceptable to the
Investors, for a total consideration of less than $3,000,000; provided, however,
that any action contemplated under this Section is subject to the condition that
registration rights, if any, in connection with such action shall not require
the filing by the Company of a registration statement of such shares prior to 60
calendar days after the Effective Date.
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<PAGE>
Section 6.13 Conversion of Preferred Stock. The Company will permit
-----------------------------
the Investors to exercise their right to convert the Preferred Stock by
telecopying an executed and completed Notice of Conversion to the Company as is
set forth in the Certificate of Designation.
Section 6.14 Exercise of Warrants. The Company will permit the Investors
--------------------
to exercise their right to purchase shares of Common Stock pursuant to the
Warrants by telecopying an executed and completed Notice of Exercise to the
Company as is set forth in the Warrants.
Section 6.15 Restriction on Future Issuances of Preferred Stock. The
--------------------------------------------------
Company agrees that except as provided for in this Agreement, it will not issue
any additional share or shares of Preferred Stock.
Section 6.16 Increase in Authorized Shares. At such time as the Company
-----------------------------
would be, if a notice of conversion or exercise (as the case may be) were to be
delivered on such date, precluded from (a) converting in full all of the shares
of Preferred Stock that remain unconverted at such date (and paying any accrued
but unpaid dividends in respect thereof in shares of Common Stock), or (b)
honoring the exercise in full of the Warrants, due to the unavailability of a
sufficient number of shares of authorized but unissued or re-acquired Common
Stock, the Board of Directors of the Company shall promptly (and in any case
within 60 calendar days from such date) hold a shareholders meeting in which the
shareholders would vote for authorization to amend the Company's Articles of
Incorporation to increase the number of shares of Common Stock which the Company
is authorized to issue to at least a number of shares equal to the sum of (i)
all shares of Common Stock then outstanding, (ii) the number of shares of Common
Stock issuable on account of all outstanding warrants, options and convertible
securities (other than the Preferred Stock and the Warrants) and on account of
all shares reserved under any stock option, stock purchase, warrant or similar
plan, (iii) 200% of the number of Underlying Shares as would then be issuable
upon a conversion in full of the then outstanding shares of Preferred Stock and
as payment of all future dividends thereon in shares of Common Stock in
accordance with the terms of this Agreement and the Certificate of Designation,
and (iv) such number of Warrant Shares as would then be issuable upon the
exercise in full of the Warrants. In connection therewith, the Board of
Directors shall (x) adopt proper resolutions authorizing such increase, (y)
recommend to its shareholders, and otherwise use its best efforts to promptly
and duly obtain shareholder approval to carry out such resolutions and (z)
within five Business Days of obtaining such shareholder authorization, file an
appropriate amendment to the Company's Articles of Incorporation to evidence
such increase.
Section 6.17 Notice of Breaches. The Company shall give prompt written
------------------
notice to each of the Investors of any breach by it of any representation,
covenant, warranty or other agreement contained in this Agreement or any Exhibit
annexed hereto, as well as any events or occurrences arising after the date
hereof, which would reasonably be likely to cause any representation, covenant,
or warranty or other agreement of the Company, contained in this Agreement or
any Exhibit annexed hereto, to be incorrect or breached as of such Closing Date.
However, no disclosure by the Company pursuant to this Section shall be deemed
to cure any breach of any representation, warranty or other agreement contained
in this Agreement or any
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<PAGE>
Exhibit annexed hereto. Notwithstanding the generality of the foregoing, the
Company shall promptly notify each Investor of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by this Agreement or any Exhibit
annexed hereto, violates or would violate any written agreement or understanding
between such lender and the Company, and the Company shall promptly furnish by
facsimile to each Investor a copy of any written statement in support of or
relating to such claim or notice.
Section 6.18 Transfer of Intellectual Property Rights. Except in the
----------------------------------------
ordinary course of the Company's business consistent with past practice or in
connection with the sale of all or substantially all of the assets of the
Company, the Company shall not transfer, sell or otherwise dispose of, any
Intellectual Property Rights, except that the Company may do so in connection
with the proposed sale of BHT or other assets constituting less than 5% of the
Company's total assets based on the value of such assets as disclosed in the
Company's most recently filed SEC Documents, or allow the Intellectual Property
Rights to become subject to any Liens, or fail to renew such Intellectual
Property Rights (if renewable and would otherwise expire).
Section 6.19 Notices. The Company agrees to provide all holders of the
-------
Preferred Stock and the Warrants with copies of all notices and information,
including, without limitation, notices and proxy statements in connection with
any meetings, that are provided to the holders of shares of Common Stock,
contemporaneously with the delivery of such notices or information to such
Common Stock holders.
ARTICLE VII
-----------
Due Diligence Review; Non-Disclosure Of Non-Public Information
--------------------------------------------------------------
Section 7.1 Due Diligence Review. The Company shall make available for
--------------------
inspection and review by the Investors, advisors to and representatives of the
Investors (who may or may not be affiliated with the Investors), and any
underwriter participating in any disposition of the Registrable Securities on
behalf of the Investors pursuant to the Registration Statement, any such
registration statement or amendment or supplement thereto or any blue sky, NASD
or other filing, all financial and other records, all SEC Documents and other
filings with the SEC, and all other corporate documents and properties of the
Company as may be reasonably necessary for the purpose of such review, and cause
the Company's officers, directors and employees to supply all such information
reasonably requested by any of the Investors or any such representative, advisor
or underwriter in connection with such Registration Statement (including,
without limitation, in response to all questions and other inquiries reasonably
made or submitted by any of them), prior to and from time to time after the
filing and effectiveness of the Registration Statement for the sole purpose of
enabling the Investors and such representatives, advisors and underwriters and
their respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 7.2 Non-Disclosure of Non-Public Information.
----------------------------------------
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<PAGE>
(a) The Company shall not disclose non-public information to the
Investors, or advisors to or representatives of, the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides each Investor, and its advisors and
representatives with the opportunity to accept or refuse to accept such non-
public information for review. The Company may, as a condition to disclosing any
non-public information hereunder, require each of the Investors advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose non-
public information to any of the Investors or their advisors or representatives,
and the Company represents that it does not disseminate non-public information
to any investors who purchase stock in the Company in a public offering, to
money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, immediately notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed in
the prospectus included in the Registration Statement would cause such
prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein, in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section shall be construed to mean that such persons or entities other
than the Investors (without the written consent of the Investors prior to
disclosure of such information) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
ARTICLE VIII
------------
Legends
-------
Section 8.1 Legends. The Investors agree to the imprinting, so long as is
-------
required by this Section, of the following legend (or such substantially similar
legend as is acceptable to the Investors and their counsel, the parties agreeing
that any unacceptable legended securities shall be replaced promptly by and at
the Company's cost, the "Legend") on the securities:
[FOR PREFERRED STOCK AND WARRANTS] NEITHER THESE SECURITIES NOR THE
SECURITIES INTO WHICH THESE SECURITIES MAY BE [CONVERTIBLE OR EXERCISABLE]
HAVE BEEN REGISTERED WITH THE SECURITIES
-23-
<PAGE>
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
[ONLY FOR NEW COMMON SHARES, UNDERLYING SHARES, ADDITIONAL SHARES
AND WARRANT SHARES TO THE EXTENT THE RESALE THEREOF IS NOT COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT AT THE TIME OF CONVERSION, ISSUANCE OR
EXERCISE] THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
The New Common Shares, Underlying Shares, Additional Shares and/or Warrant
Shares shall not contain the legend set forth above or any other restrictive
legend (other than as pursuant to the Registration Statement) if the conversion
of the Preferred Stock, exercise of the Warrants or other issuances of the New
Common Shares, the Underlying Shares, the Additional Shares, and/or the Warrant
Shares, as the case may be, occurs at any time while a Registration Statement is
effective under the Securities Act or, in the event there is not an effective
Registration Statement at such time, if in the opinion of counsel to the Company
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the SEC). The Company agrees that it will provide the Investors, upon request,
with a certificate or certificates representing New Common Shares, Underlying
Shares, Additional Shares and/or Warrant Shares, free from such legend at such
time as such legend is no longer required hereunder. The Company may not take
any action or make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions of transfer set
forth in this Section.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit F hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
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<PAGE>
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investors to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and except as provided below, without consultation
by the transfer agent with the Company or its counsel and without the need for
any further advice or instruction or documentation to the transfer agent by or
from the Company or its counsel or the Investors:
(a) at any time after the Effective Date, upon surrender of one
or more certificates evidencing the Warrants, the Preferred Stock, the New
Common Shares, the Underlying Shares or the Warrant Shares that bear the
aforementioned Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the aforementioned legend to replace those
surrendered; provided that (i) the Registration Statement shall then be
effective; (ii) the Investor(s) confirm to the transfer agent that it has sold,
pledged or otherwise transferred or agreed to sell, pledge or otherwise transfer
such Common Stock in a bona fide transaction to a third party that is not an
affiliate of the Company; and (iii) the Investor(s) confirm to the transfer
agent that the Investor(s) have complied with the prospectus delivery
requirement; or
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities, that bear the aforementioned Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of such legend to replace those surrendered and containing representations that
(i) the Investor(s) is permitted to dispose of such Registrable Securities,
without limitation as to amount or manner of sale pursuant to Rule 144(k) under
the Securities Act (or any other similar exemption as may then be in effect), or
(ii) the Investor(s) has sold, pledged or otherwise transferred or agreed to
sell, pledge or otherwise transfer such Registrable Securities, in a manner
other than pursuant to an effective registration statement, to a transferee who
will upon such transfer be entitled to freely tradable securities. The Company
shall have counsel provide any and all opinions necessary for the sale under
Rule 144 (or such other applicable exemption).
Any of the notices referred to above in this Section may be sent by
facsimile to the Company's transfer agent.
Section 8.2 No Other Legend or Stock Transfer Restrictions. No legend
----------------------------------------------
other than the one specified in this Article (or pursuant to the Registration
Statement) has been or shall be placed on the share certificates representing
the Common Stock, and no instructions or "stop transfer orders," so called,
"stock transfer restrictions," or other restrictions have been or shall be given
to the Company's transfer agent with respect thereto other than as expressly set
forth in this Article.
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<PAGE>
Section 8.3 Investor's Compliance. Nothing in this Article shall affect
---------------------
in any way any of the Investors' obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
ARTICLE IX
----------
Choice of Law
-------------
Section 9.1 Choice of Law; Venue; Jurisdiction. This Agreement will be
----------------------------------
construed and enforced in accordance with and governed exclusively by the laws
of the State of New York, except for matters arising under the Securities Act,
without reference to principles of conflicts of law. Each of the parties
consents to the exclusive jurisdiction of the U.S. District Court sitting in the
Southern District of the State of New York sitting in Manhattan in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
-----
non conveniens, to the bringing of any such proceeding in such jurisdictions.
- --- ----------
Each party hereby agrees that if another party to this Agreement obtains a
judgment against it in such a proceeding, the party which obtained such judgment
may enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury. In the event that any Investor, or any person
claimed to be affiliated or associated with such Investor becomes involved in
any capacity in any action, proceeding or investigation brought by or against
any such person, including shareholders of the Company, in connection with or as
a result of any matter referred to in this Agreement or any exhibit annexed
hereto, the Company shall reimburse such Investor and/or those claimed to be
affiliated or associated with such Investor for its legal fees and expenses and
other expenses (including the cost of any investigation and preparation)
incurred in connection therewith, as those fees and expenses are incurred,
provided, however, that if at the conclusion of such action, proceeding or
investigation it shall be finally judicially determined by a court of competent
jurisdiction, without availability of an appeal, that indemnity for such fees
and expenses is contrary to law, or that such Investor is not the prevailing
party then in that event, such Investor and/or any other person having received
such advances of fees and/or expenses shall reimburse the Company in full for
the sums advanced.
ARTICLE X
---------
Assignment; Entire Agreement, Amendment; Termination
----------------------------------------------------
Section 10.1 Assignment. The Investor's interest in this Agreement and
----------
its ownership of the Preferred Stock and the Warrants may be assigned or
transferred at any time, in whole or
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<PAGE>
in part, to any other person or entity (including any affiliate of the
Investors) who agrees to, and truthfully can, make the representations and
warranties contained in Article III, and who agrees to be bound by the covenants
of Article V. The provisions of this Agreement shall inure to the benefit of,
and be enforceable by, any transferee of any of the shares of the Preferred
Stock and/or the Warrants purchased or acquired by the Investors hereunder with
respect to the Common Stock held by such person.
Section 10.2 Termination. This Agreement shall terminate upon the
-----------
earliest of (i) the date that all the Registrable Securities have been sold by
the Investors pursuant to the Registration Statement; or (ii) five years after
the Closing Date.
ARTICLE XI
----------
Notices
-------
Section 11.1 Notices. All notices, demands, requests, consents,
-------
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day during normal business hours where such notice is to
be received), or the first Business Day following such delivery (if delivered
other than on a Business Day during normal business hours where such notice is
to be received) or (b) on the second Business Day following the date of mailing
by reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company:
Global Maintech Corporation
7578 Market Place Drive
Eden Prairie, MN 55344
Attention: Chief Executive Officer
Facsimile: (612) 944-0400
Telephone: (612) 944-3311
If to the Investors, at the addresses listed on Schedule A.
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 11.1 by giving at least ten calendar days'
prior written notice of such changed address or facsimile number to the other
party hereto.
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<PAGE>
Section 11.2 Indemnification. The Company agrees to indemnify and hold
---------------
harmless each of the Investors and each officer, director of the Investors or
person, if any, who controls the Investors within the meaning of the Securities
Act against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), to which the
Investors may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the breach by the Company of any term of this
Agreement, the Certificate of Designation, the Escrow Agreement or the
Registration Rights Agreement. This indemnity agreement will be in addition to
any liability which the Company may otherwise have.
Each Investor severally (and not jointly) agrees that it will indemnify and
hold harmless the Company, and each officer, director of the Company or person,
if any, who controls the Company within the meaning of the Securities Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees) to which the Company or any such
officer, director or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon the breach by such
Person of any term of this Agreement, the Certificate of Designation, the Escrow
Agreement and the Registration Rights Agreement. This indemnity agreement will
be in addition to any liability which the Investors or any subsequent assignee
may otherwise have.
Promptly after receipt by an indemnified party under this Section of notice
of the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party under this Section,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve the indemnifying party from
any liability which it may have to any indemnified party otherwise than as to
the particular item as to which indemnification is then being sought solely
pursuant to this Section. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
one of the Investors, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the
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<PAGE>
indemnifying party, or (ii) the named parties to any such action (including any
impleaded parties) include both the Investors and the indemnifying party and the
Investors shall have been advised by such counsel that there may be one or more
legal defenses available to the indemnifying party different from or in conflict
with any legal defenses which may be available to the Investors (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of the Investors, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Investor(s), which
firm shall be designated in writing by the Investor(s)). No settlement of any
action against an indemnified party shall be made without the prior written
consent of the indemnified party, which consent shall not be unreasonably
withheld.
Section 11.3 Contribution. In order to provide for just and equitable
------------
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 11.2 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 11.2 hereof
provide for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any indemnified party, then the
Company and the applicable Investor shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in Section 11.2 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contributions from any person who was
not guilty of such fraudulent misrepresentation.
Section 11.4 Remedies, Characterizations, Other Obligations, Breaches and
------------------------------------------------------------
Injunctive Relief. The remedies provided in this Agreement, the Registration
- -----------------
Rights Agreement and the Certificate of Designation shall be cumulative and in
addition to all other remedies available under this Agreement, the Registration
Rights Agreement and the Certificate of Designation, at law or in equity
(including a decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing herein shall limit a holder's
right to pursue actual damages for any failure by the Company to comply with the
terms of this Agreement, the Registration Rights Agreement and the Certificate
of Designation. Amounts set forth or provided for herein and therein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the Investors thereof and shall not, except as
expressly provided herein, be subject to any other obligation of the Company (or
the performance thereof). The
-29-
<PAGE>
Company acknowledges that a breach by it of its obligations hereunder and
thereunder will cause irreparable harm to the holders of the Preferred Stock and
that the remedy at law for any such breach may be inadequate. Furthermore, the
Company agrees that, in the event of any breach or threatened breach of Sections
6.12, 6.13, 6.14, 6.15, 8.1 or 12.6 herein or Section V of the Certificate of
Designation, the holders of the Preferred Stock shall be entitled, in addition
to all other available remedies, to an injunction restraining any breach or
threatened breach, without the necessity of showing economic loss and without
any bond or other security being required.
ARTICLE XII
-----------
Miscellaneous
-------------
Section 12.1 Counterparts; Facsimile; Amendments. This Agreement may be
-----------------------------------
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by the Company, all of the Investors.
Section 12.2 Entire Agreement. This Agreement, the Exhibits or
----------------
Attachments hereto, which include, but are not limited to the Certificate of
Designation, the Warrant, the Escrow Agreement, and the Registration Rights
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits and Attachments to this Agreement are incorporated
herein by this reference and shall constitute part of this Agreement as is fully
set forth herein.
Section 12.3 Survival; Severability. The representations, warranties,
----------------------
covenants and agreements of the parties hereto shall survive the Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 12.4 Title and Subtitles. The titles and subtitles used in this
-------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 12.5 Reporting Entity for the Common Stock. The reporting entity
-------------------------------------
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg, L.P. or any
-30-
<PAGE>
successor thereto. The written mutual consent of the Investors and the Company
shall be required to employ any other reporting entity.
Section 12.6 Replacement of Certificates. Upon (i) receipt of evidence
---------------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Preferred Stock, the New Common
Shares, the Warrants, the Underlying Shares, the Additional Shares, or the
Warrant Shares, and (ii) in the case of any such loss, theft or destruction of
such certificate, upon delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or (iii) in the case of any such
mutilation, on surrender and cancellation of such certificate, the Company at
its expense will execute and deliver, in lieu thereof, a new certificate of like
tenor.
Section 12.7 Fees and Expenses. Each of the parties shall pay its own
-----------------
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby, except that the Company shall pay on the
Subscription Date $40,000 in cash, out of escrow, to Parker Chapin Flattau &
Klimpl, LLP for legal fees in connection with the preparation and negotiation of
the Notes, this Agreement, the Certificate of Designation, the Registration
Rights Agreement, the Warrants and related documents contemplated hereunder.
Section 12.8 Noncircumvention. The Company and the Investors agree that
----------------
they shall not circumvent this Agreement and the Company and the Investors agree
that they will not circumvent the provisions of this Agreement or the Escrow
Agreement and the Company's obligation for the payment of fees to the Escrow
Agent.
Section 12.9 Publicity. The Company and the Investors shall consult with
---------
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Investors without the prior written consent of the Investors, except to
the extent required by law, in which case the Company shall provide the
Investors with prior written notice of such public disclosure.
Section 12.10 No Group. It is hereby agreed and acknowledged by the
--------
parties hereto that each Investor is acting individually and for its own account
in purchasing the Preferred Stock, the New Common Shares and the Warrants, with
no agreement to act together for the purpose of acquiring, holding, voting or
disposing of any equity securities or otherwise.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Series D
Convertible Preferred Stock Purchase Agreement to be executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.
GLOBAL MAINTECH CORPORATION
By: /s/ James Geiser
------------------------------------------
James Geiser
Chief Financial Officer and Secretary
ESQUIRE TRADE & FINANCE INC.
By: /s/ Roland Winiger
------------------------------------------
Roland Winiger, Director
AUSTINVEST ANSTALT BALZERS
By: /s/ Dr. Walter Grill
-------------------------------------------
Dr. Walter Grill, Director
ASSANZON DEVELOPMENT CORPORATION
By /s/
---------------------------------------------_
NESHER INC.
By: /s/
--------------------------------------------
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<PAGE>
GARROS, LTD.
By: /s/
----------------------------------------
AMRO INTERNATIONAL
By: /s/
----------------------------------------
-33-
<PAGE>
SCHEDULE A
----------
PRIOR INVESTORS:
1. Esquire Trade & Finance Inc.
Trident Chambers
P.O. Box 2154
6342 Baar, Switzerland
Facsimile: 41-41-760-1031
Attention: Roland Winiger, Director
Initial Investment Amount: $500,000
No. of Shares of Preferred Stock: 500
No. of New Common Shares: 28,125
2. Austinvest Anstalt Balzers
Landstrasse 938
9494 Furstentums
Balzers, Liechtenstein
Attention: Dr. Walter Grill
Facsimile: 431-534-532-895
Initial Investment Amount: $500,000
No. of Shares of Preferred Stock: 500
No. of New Common Shares: 28,125
3. Nesher, Inc.
18 Peel Road
Douglas, Isle of Man
1M1-4L2 United Kingdom
Attention: David Grin
Facsimile: 01197236050756
Initial Investment Amount: $100,000
No. of Shares of Preferred Stock: 100
No. of New Common Shares: 5,625
4. Assanzon Development Corporation
3501 Bamboo Grove
76 Kennedy Road
Mid-levels, Hong Kong
Attention:
Facsimile:
<PAGE>
Initial Investment Amount: $500,000
No. of Shares of Preferred Stock: 500
No. of New Common Shares: 28,125
NOTE INVESTORS
1. Garros, Ltd.
P.O. Box 146
Road Town, Tortola
British Virgin Islands
Attention: Giora Lavie
Facsimile: (011) 972-3-544-1870
Initial Investment Amount: $150,000
No. of Shares of Preferred Stock: 150
No. of New Common Shares: 4,500
2. Austinvest Anstalt Balzers
Landstrasse 938
9494 Furstentums
Balzers, Liechtenstein
Attention: Dr. Walter Grill
Facsimile: 431-534-532-895
Initial Investment Amount: $75,000
No. of Shares of Preferred Stock: 75
No. of New Common Shares: 2,250
3. Esquire Trade & Finance Inc.
Trident Chambers
P.O. Box 2154
6342 Baar, Switzerland
Facsimile: 41-41-760-1031
Attention: Roland Winiger, Director
Initial Investment Amount: $75,000
No. of Shares of Preferred Stock: 75
No. of New Common Shares: 2,250
NEW INVESTORS
1. Amro International
Ultra Finance
Grossmuenster Platz, No. 6
<PAGE>
Zurich, Switzerland CH8022
Attention: Thomas Badian
Facsimile: (212) 214-0440
Investment Amount: $500,000
No. of Shares of Preferred Stock: 500
No. of New Common Shares: 15,000
2. Garros, Ltd.
P.O. Box 146
Road Town, Tortola
British Virgin Islands
Attention: Giora Lavie
Facsimile: (011) 972-3-544-1870
Investment Amount: $200,000
No. of Shares of Preferred Stock: 200
No. of New Common Shares: 6,000
<PAGE>
SCHEDULE 4.3
------------
5% BENEFICIAL OWNERS
--------------------
1. One Person (or group of Persons) has recently exceeded (or is
about to exceed) a 5% beneficial ownership of shares of the Company's Common
Stock outstanding that has not been previously disclosed. In November 1999 the
Company sold Common Stock in the amount of $500,000 at $4.00 per share to
Liviakis Financial Communications, Inc., John M. Liviakis and Renee A. Liviakis
(collectively, "Liviakis Group") and entered into an amendment to its Consulting
Agreement with Liviakis Financial Communications, Inc. The shares of Common
Stock have not been issued for these transactions but when such issuances occur,
the Company expects the Liviakis Group's beneficial ownership of the Company's
Common Stock to exceed 5%. Attorneys for the Liviakis Group presently are
preparing the necessary forms for filing the required SEC documents.
<PAGE>
SCHEDULE 4.14
-------------
LITIGATION
----------
<PAGE>
SCHEDULE 4.25
--------------
PRIVATE PLACEMENTS
------------------
1. Common Stock issued at $4.00 per share. Total shares issued were
125,000 for gross proceeds of $500,000.00. The transaction closed on November
17, 1999.
<PAGE>
EXHIBIT 4.11
RESTRICTIVE LEGENDS ON REVERSE SIDE HEREOF
Incorporated under the laws of the State of Minnesota
SPECIMEN SPECIMEN
GLOBAL MAINTECH CORPORATION
This Certifies that SPECIMEN is the owner and
______________________________________________
registered holder of _________________________________________________ Shares of
______________________________________________
fully paid and nonassessable shares of Series D Convertible Preferred Stock,
no par value, of
Global MAINTECH Corporation
transferable only on the books of the corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed.
IN WITNESS WHEREOF, the said corporation has caused this certificate to be
signed by its duly authorized officers and be sealed with the seal of the
corporation.
NO this day of ' .
______________________ ____________ _______
____________________________ __________________________
Secretary President
[CORPORATE
SEAL]
<PAGE>
Neither these securities nor the securities into which these securities may be
convertible have been registered with the securities and exchange commission or
the securities commission of any state in reliance upon an exemption from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, may not be offered or sold except pursuant to an
effective registration statement under the securities act or pursuant to an
available exemption from, or in a transaction not subject to, the registration
requirements of the securities act and in accordance with applicable state
securities laws.
A full statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof of the corporation and the qualifications, limitations or restrictions
of such preferences and/or rights will be furnished by said corporation to any
stockholder under request and without charge.
<PAGE>
EXHIBIT 4.12
SERIES E
FORM OF SPA
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of December 30/th/, 1999, is
entered into by and between Global MAINTECH Corp., a Minnesota corporation, with
headquarters located at 7578 Market Place Drive Eden Prairie, MN 55344 (the
"Company"), and the undersigned (referred to individually as the "Buyer" and
collectively as the ("Buyers").
W I T N E S S E T H:
WHEREAS, the Company and the Buyers are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
----- ----
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or
Section 4(2) of the 1933 Act;
WHEREAS, in consideration of the foregoing, the Buyer wishes to purchase,
upon the terms and subject to the conditions of this Agreement, 8% Cumulative
Convertible Redeemable Preferred Stock, Series E, $1,000 stated value (the
"Preferred Stock"), of the Company which will be convertible into shares of
Common Stock, no par value per share of the Company (the "Common Stock"),
together with the Common Stock Purchase Warrants described herein, upon the
terms and subject to the conditions of such Preferred Stock, and subject to
acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase; Certain Definitions. (i) The undersigned hereby agrees to
purchase from the Company shares of the Preferred Stock in the amount set forth
on the signature page of this Agreement, out of a total offering of up to
$2,650,000 of such Preferred Stock, and having the terms and conditions set
forth in the Certificate of Designations, attached hereto as Annex I (the
"Certificate of Designations"). The purchase price for the Preferred Stock shall
be as set forth on the signature page hereto (the "Purchase Price") and shall be
payable in United States Dollars.
(ii) As used herein, the term "Preferred Stock" includes all preferred
1
<PAGE>
shares, if any, issued as dividends thereon, unless the context otherwise
requires.
(iii) As used herein, the term "Securities" means the Preferred
Stock and the Common Stock issuable upon conversion of the Preferred Stock.
b. Form of Payment. The Buyer shall pay the purchase price for the
Preferred Stock by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as Annex II (the "Joint Escrow Instructions"). No
later than the Closing Date (as defined below), the Company shall deliver one or
more certificates representing the Preferred Stock duly executed on behalf of
the Company (collectively, the "Certificate") to the Escrow Agent. By signing
this Agreement, the Buyer and the Company, and subject to acceptance by the
Escrow Agent, each agrees to all of the terms and conditions of, and becomes a
party to, the Joint Escrow Instructions, all of the provisions of which are
incorporated herein by this reference as if set forth in full.
c. Method of Payment. Payment into escrow of the Purchase Price for
the Preferred Stock shall be made by wire transfer of funds to:
City National Bank
1950 Avenue of the Stars
Los Angeles, CA 90067
ABA# 122016066
For credit to the account of Law Offices of Michael S. Rosenblum
Escrow for Nash, LLC
Account No.: 009477772
Not later than 1:00 p.m., PST time, on the date which is one (1) New York Stock
Exchange trading day after the Company shall have accepted this Agreement and
returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, the Buyer shall deposit with the Escrow Agent the aggregate purchase
price for the Preferred Stock, in immediately available funds. Time is of the
essence with respect to such payment, and failure by the Buyer to make such
payment shall allow the Company to cancel this Agreement.
d. Escrow Property. The Purchase Price and the Certificate delivered
to the Escrow Agent as contemplated by Sections 1(b) and (c) hereof are referred
to as the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
Each Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
2
<PAGE>
a. Without limiting Buyer's right to sell the Common Stock pursuant
to the Registration Statement (as that term is defined in the Registration
Rights Agreement defined below), the Buyer is purchasing the Preferred Stock and
will be acquiring the shares of Common Stock issuable upon conversion of the
Preferred Stock (the "Converted Shares") for its own account for investment, and
not with a view towards the public sale or distribution thereof and not with a
view to or for sale in connection with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term is defined
in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the entire loss of its investment in the
Securities.
c. All subsequent offers and sales of the Preferred Stock and the
shares of Common Stock representing the Converted Shares (such Common Stock
sometimes referred to as the "Shares") by the Buyer shall be made pursuant to
registration of the Shares under the 1933 Act or pursuant to an exemption from
registration.
d. The Buyer understands that the Preferred Stock are being offered
and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Buyer's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Preferred Stock.
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Preferred Stock and the offer of
the Shares which have been requested by the Buyer, including Annex V hereto. The
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers to
any such inquiries. Without limiting the generality of the foregoing, the Buyer
has also had the opportunity to obtain and to review (i) the Company's annual
report on Form 10-KSB for the year ending December 31, 1998, (ii) the Company's
reports on Form 10-QSB for the periods ending March 31, 1999, June 30, 1999 and
September 30, 1999 (the "SEC Reports");
f. The Buyer understands that its investment in the Securities
involves a high degree of risk.
3
<PAGE>
g. The Buyer understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
i. Notwithstanding the provisions hereof or of the Preferred Stock,
in no event (except with respect to an automatic conversion of the Preferred
Stock as provided in the Certificate of Designations) shall each Buyer be
entitled to convert any Preferred Stock to the extent that, after such
conversion, the sum of (1) the number of shares of Common Stock beneficially
owned by such Buyer and its affiliates (other than shares of Common Stock which
may be deemed beneficially owned through the ownership of the unconverted
portion of the Preferred Stock), and (2) the number of shares of Common Stock
issuable upon the conversion of the Preferred Stock with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by such Buyer and its affiliates of more than 4.99% of the outstanding
shares of Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Any
issuance by the Company to the Buyer in excess of the limit contained in this
Paragraph 3.i. shall be null and void, ab initio, and upon notice of such
invalid issuance, the Company shall correct its books and cause its transfer
agent's books to be corrected forthwith to reflect that the Buyer's ownership of
Common Stock is within the limit set forth herein. Buyer shall immediately
deliver any certificates for invalidly issued Common Stock to the Company's
transfer agent. The Company further agrees to (i) immediately reissue
certificates for Common Stock to the extent that a portion of the Common Stock
represented by said certificates have been validly issued and (ii) immediately
reissue all or a portion of those shares which were deemed invalidly issued (at
a price set forth in the original conversion notices applicable to such shares)
upon notice from the Buyer that the reissuance of such shares would not cause
such Buyer to have a beneficial ownership interest in excess of 4.99%. The
Company hereby indemnifies and holds each Buyer free and harmless in connection
with any and all liabilities, losses, costs and expenses, including, without
limitation, attorneys' fees and costs arising from or relating to claims made by
any third parties with respect to any and all purported violations by each Buyer
under Sections 13(d) and 16 resulting from a conversion(s) of Preferred Stock,
unless such claim arises from such Buyer's default of its obligations hereunder,
or representations or warranties contained herein. Buyer agrees that it shall
not knowingly attempt to convert that number of shares of Common Stock that
would cause it to own beneficially an amount greater than 4.99% of the Common
Stock.
j. Buyer represents that it neither is nor will be obligated for any
finders' fee or commission nor is it aware of any such fee or commission payable
in connection with this transaction other than as set forth on the Joint Escrow
Instructions (attached hereto as Annex II). Buyer agrees to indemnify and to
hold harmless the Company from any liability for any
4
<PAGE>
commission or compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability) for which
such Buyer or any of its officers, partners, employees, or representatives is
responsible.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants and hereby covenants and agrees
with each Buyer that:
a. Concerning the Preferred Stock and the Shares. The Preferred
Stock has been duly authorized and, when issued, will be duly and validly
issued, fully paid and non-assessable and will not subject the holder thereof to
personal liability by reason of being such holder. There are no preemptive
rights of any stockholder of the Company, as such, to acquire the Preferred
Stock or the Shares.
b. Reporting Company Status. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations
or prospects or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole. The Company has registered its Common Stock
pursuant to Section 12 of the 1934 Act, and the Common Stock is listed and
traded on the NASDAQ "Bulletin Board" market. The Company has received no
notice, either oral or written, with respect to the continued eligibility of the
Common Stock for such listing, and the Company has maintained all requirements
for the continuation of such listing.
c. Authorized Shares. The Company has at November 15, 1999,
4,823,187 shares of Common Stock outstanding, and has sufficient authorized and
unissued Shares as may be reasonably necessary to effect the conversion of the
Preferred Stock (assuming all future conversions occurred are based upon an
average 5-day closing bid of the Common Stock, as reported by Bloomberg, LP
which was one-half (1/2) of the closing bid price of the Common Stock on the
Closing Date [the "Closing Date Bid"]) and exercise of the Warrants (as defined
in Section 4.j.) at the Closing Date Bid. The Common Stock has been duly
authorized and, when issued upon conversion of the Preferred Stock in accordance
with its terms, will be duly and validly issued, fully paid and non-assessable
and will not subject the holder thereof to personal liability by reason of being
such holder.
d. Securities Purchase Agreement; Registration Rights Agreement and
Stock. This Agreement and the Registration Rights Agreement, the form of which
is attached hereto as Annex IV (the "Registration Rights Agreement"), and the
transactions contemplated hereby and thereby, have been duly and validly
authorized by the Company, this Agreement has been duly
5
<PAGE>
executed and delivered by the Company and this Agreement is, and the Preferred
Stock, and the Registration Rights Agreement, when executed and delivered by or
on behalf of the Company, will be, valid and binding agreements of the Company
enforceable in accordance with their respective terms, subject, as to
enforceability, to general principles of equity and to bankruptcy, insolvency,
moratorium, and other similar laws affecting the enforcement of creditors'
rights generally.
e. Non-contravention. The execution and delivery of this Agreement
and the Registration Rights Agreement by the Company, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Preferred Stock do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under (i)
the articles of incorporation or by-laws of the Company, each as currently in
effect, (ii) except as disclosed in Annex V, any indenture, mortgage, deed of
trust, or other material agreement or instrument to which the Company is a party
or by which it or any of its properties or assets are bound, including any
listing agreement for the Common Stock (except as herein set forth), (iii) to
its knowledge, any existing applicable law, rule, or regulation or any
applicable decree, judgment, or order of any court, United States federal or
state regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, or (iv) any
listing agreement for its Common Stock, except such conflict, breach or default
which would not have a material adverse effect on the transactions contemplated
herein.
f. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC Filings. None of the Company's SEC Reports contained, at the
time they were filed, any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were
made, not misleading, except as corrected by an amended filing made prior to the
date hereof. Except as set forth on Annex V hereto, the Company has since June
1997 timely filed all requisite forms, reports and exhibits thereto with the
SEC.,
h. Absence of Certain Changes. Since December 31, 1998 there has
been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or otherwise), or results
of operations of the Company has not (i) incurred or become subject to any
material liabilities (absolute or contingent) except liabilities incurred in the
ordinary course of business consistent with past practices; (ii) discharged or
satisfied any material lien or encumbrance or paid any material obligation or
liability (absolute or contingent) , other than current liabilities paid in the
ordinary course of business consistent with past practices; (iii) declared or
made any payment or distibution of cash or other
6
<PAGE>
property to stockholders with respect to its capital stock, or purchased or
redeemed, or made any agreements to purchase or redeem, any shares of its
capital stock; (iv) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business
consistent with past practices; (v) suffered any substantial losses or waived
any rights of material value, whether or not in the ordinary course of business,
or suffered the loss of any material amount of existing business; (vi) made any
changes in employee compensation, except in the ordinary course of business
consistent with past practices; or (vii) experienced any material problems with
labor or management in connection with the terms and conditions of their
employment.
i. Full Disclosure. There is no fact known to the Company (other
than general economic conditions known to the public generally or as disclosed
in the Company's SEC Reports), that has not been disclosed in writing to the
Buyer that (i) would reasonably be expected to have a material adverse effect on
the business or financial condition of the Company or (ii) would reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement or any of the agreements
contemplated hereby (collectively, including this Agreement, the "Transaction
Agreements").
j. Absence of Litigation. Except as set forth in Annex V hereto, and
in the Company's SEC Reports, which the Buyer has reviewed, there is no action,
suit, proceeding, inquiry or investigation before or by any court, public board
or body pending or, to the knowledge of the Company, threatened against or
affecting the Company, wherein an unfavorable decision, ruling or finding would
have a material adverse effect on the properties, business or financial
condition. results of operation or prospects of the Company and its subsidiaries
taken as a whole or the transactions contemplated by any of the Transaction
Agreements or which would adversely affect the validity or enforceability of, or
the authority or ability of the Company to perform its obligations under, any of
the Transaction Agreements.
k. Absence of Events of Default. Except as set forth in Annex V
hereto or the Company's SEC Reports, no Event of Default (or its equivalent
term), as defined in the respective agreement to which the Company is a party,
and no event which, with the giving of notice or the passage of time or both,
would become an Event of Default (or its equivalent term) (as so defined in such
agreement), has occurred and is continuing, which would have a material adverse
effect on the Company's financial condition or results of operations.
l. Prior Issues. Except as set forth in Annex V or the Company's SEC
Reports, during the twelve (12) months preceding the date hereof, the Company
has not issued any Common Stock or convertible securities in capital
transactions which have not been fully disclosed in the Company's filings with
the SEC. Except as set forth in Annex V, all such issuances (except for
issuances to Buyer) have been fully converted into shares of common stock and
there are no outstanding unconverted debt or convertible securities from those
transactions.
m. No Undisclosed Liabilities or Events. Except as set forth in
Annex V, the Company has no liabilities or obligations other than those
disclosed in the Company's SEC Reports
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<PAGE>
or those incurred in the ordinary course of the Company's business since
December 31, 1998, and which, individually or in the aggregate, do not or would
not have a material adverse effect on the properties, business, condition
(financial or otherwise), results of operations or prospects of the Company and
its subsidiaries, taken as a whole. No event or circumstances has occurred or
exists with respect to the Company or its properties, business, condition
(financial or otherwise), results of operations or prospects, which, under
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so publicly
announced or disclosed.
n. No Default. Except as disclosed in Annex V hereto or the
Company's SEC Reports, the Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material instrument
or agreement to which it is a party or by which it or its property is bound.
o. No Integrated Offering. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, made any offer or sales of any security or solicited any offers to
buy any security under circumstances that would eliminate the availability of
the exemption from registration under Regulation D in connection with the offer
and sale of the Securities as contemplated hereby.
p. Dilution. The number of Shares issuable upon conversion of the
Preferred Stock may increase substantially in certain circumstances, including,
but not necessarily limited to, the circumstance wherein the trading price of
the Common Stock declines prior to the conversion of the Preferred Stock. The
Company's executive officers and directors have studied and fully understand the
nature of the Securities being sold hereby and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded
that, in its good faith business judgment, such issuance is in the best
interests of the Company. The Company specifically acknowledges that its
obligation to issue the Shares upon conversion of the Preferred Stock is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
q. Acknowledgment by Company. Company represents and warrants that
neither the Buyer, nor any persons or entities representing or purporting to
represent the Buyer have made any representation or warranty which is not
contained expressly in this Agreement or any other agreements referred to
herein. Without limiting the foregoing, Company specifically acknowledges that
the Buyer has made no representations that it is a "long term" investor in the
Company, or that it intends to hold the Preferred Stock or shares of stock in
the Company (obtained by conversions of the Preferred Stock) for any period
beyond that which is required under the Securities Act. Company further
acknowledges that the Buyer may hedge the shares of stock in the Company prior
to or after the conversions of any of the Preferred Stock, provided that such
hedging is done in compliance with the Securities Act, Securities Exchange Act,
any rules applicable to securities traded on the NASDAQ "Bulletin Board" and the
express terms of this Agreement, the Certificate of Designation for the
Preferred Stock and the Registration Rights Agreement. Notwithstanding the
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<PAGE>
foregoing, provided that the Company has not defaulted hereunder or under any
other agreement entered into in connection herewith (including, without
limitation, the Registration Rights Agreement and the Certificate of Designation
for the Preferred Stock, both dated the date hereof), each Buyer acting
individually shall not "short" (as such term is defined by the Securities Act)
shares of Common Stock (calculated pursuant hereto at the time such shares of
Common Stock are shorted) in excess of twenty percent (20%) of the sum of (i)
the aggregate number of shares of Common Stock the Buyer would receive if all of
the shares of Preferred Stock (then held by such Buyer) were converted by Buyer
on the day of the "short" sale, plus (ii) the number of shares of Common Shares
held by (or deliverable to) such Buyer on the day of the "short sale" as a
result of prior conversions.
r. Brokers Fee. The Company represents that it neither is nor will
be obligated for any finders' fee or commission nor is it aware of any such fee
or commission payable in connection with this transaction other than as set
forth on the Joint Escrow Instructions (attached hereto as Annex II). The
Company agrees to indemnify and to hold harmless the Buyer from any liability
for any commission or compensation in the nature of a finders' fee (and the
costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, partners, employees, or
representatives is responsible.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the
Preferred Stock has not been and is not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement, the
Shares have not been and are not being registered under the 1933 Act, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that the
Preferred Stock and, until such time as the Common Stock has been registered
under the 1933 Act as contemplated by the Registration Rights Agreement and sold
pursuant to an effective Registration Statement, certificates and other
instruments representing any of the Securities shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
9
<PAGE>
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO
THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
c. Registration Rights Agreement. The parties hereto agree to enter
into the Registration Rights Agreement on or before the Closing Date.
d. Filings. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Preferred Stock to the Buyer under
any United States laws and regulations, or by any domestic securities exchange
or trading market, and to provide a copy thereof to the Buyer promptly after
such filing.
e. Reporting Status. So long as the Buyer beneficially owns any of
the Preferred Stock, the Company shall file all reports required to be filed
with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
permit such termination.
f. Use of Proceeds. The Company will use the proceeds from the sale
of the Preferred Stock (excluding amounts paid by the Company for legal fees,
finder's fees and escrow agent fees in connection with the sale of the Preferred
Stock) for general capital purposes and, without limiting the foregoing, shall
not, directly or indirectly, use any of such proceeds for investment in any
other affiliate.
g. Future Purchases. Intentionally deleted.
h. Certain Agreements. (i) The Company covenants and agrees that it
will not, without the prior written consent of the Buyer, enter into any
subsequent or further offer or sale of Common Stock or securities convertible
into Common Stock with any third party until one hundred eighty (180) days after
the Effective Date (as defined below).
(ii) The provisions of subparagraph (h)(i) will not apply to (w)
Common Stock issued as "restricted stock" as defined in SEC Rule 144, provided
the holder thereof holds such Common Stock for at least one year from the date
of issuance; (x) a secondary public offering of shares of Common Stock at
market; (y) an offering of convertible debentures at market or above; or (z) the
issuance of securities (other than for cash) in connection with a merger,
consolidation, sale of assets, disposition or the exchange of the capital stock
for assets, stock or other joint venture interests; provided, such securities
would not be included in the Registration Statement relating to
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<PAGE>
the Shares and a registration statement in respect of such stock shall not be
filed prior to sixty (60) days after the Effective Date.
(iii) The term "Effective Date" means the effective date of the
Registration Statement covering the Registrable Securities (as defined in the
Registration Rights Agreement).
(iv) In the event the Company breaches the provisions of this
Paragraph 4(h), the Conversion Price shall be amended to be the lesser of (I)
70% of the average of the three (3) lowest closing bid prices (not necessarily
consecutive) during the fifteen (15) day trading period immediately prior to the
Conversion Date, (II) $5.125 [the lowest closing bid price during the ten (10)
day trading period immediately prior to the Closing Date], and Buyer may, within
thirty (30) days after it receives written notice of such breach from the
Company, require the Company to immediately redeem all outstanding Preferred
Stock in accordance with Section 4(k)(y).
i. Available Shares. The Company shall have at all times authorized
and reserved for issuance, free from preemptive rights, shares of Common Stock
equal to two hundred percent (200%) of the number of shares of Common Stock
issuable upon conversion of all of the outstanding Preferred Stock, and the
exercise of the Warrants (as defined below).
j. Warrants. The Company agrees to issue to Buyer at the
Closing, transferable divisible warrants with cashless exercise provisions (the
"Warrants") for 50,000 shares of Common Stock. Such Warrants shall bear an
exercise price equal to the Closing Bid price of the Company's common stock on
the Closing Date, and shall be exercisable immediately upon issuance, and for a
period of five (5) years thereafter, in the form annexed hereto as Annex VI,
together with piggy-back registration rights, and demand registration rights
under the Registration Rights Agreement.
k. Limitation on Issuance of Shares. The Certificate of Designation
for the Preferred Stock shall provide that the Company shall take all steps
reasonably necessary to be in a position to issue shares of Common Stock on
conversion of the Preferred Stock without violating the "Cap Regulations". If
despite taking such steps, the Company is limited in the number of shares of
Common Stock it may issue by the "Cap Regulations," to the extent that the
Company cannot issue such shares of Common Stock, due upon a Notice of
Conversion, without violating the Cap Regulations, the Company shall immediately
notify Buyer the number of shares of the Preferred Stock which are not
convertible as a result of said Cap Regulations (the "Unconverted Preferred
Stock") and within five (5) business days of the applicable Notice of Conversion
redeem the Unconverted Preferred Stock for an amount in cash (the "Redemption
Amount") equal to the "Economic Benefit" of such Unconverted Preferred Stock.
"Economic Benefit" for purposes of this Section 4.k. shall mean the dollar value
derived if such Unconverted Preferred Stock were converted into Common Stock as
set forth in the Notice of Conversion and the Common Stock was sold on the date
of the Notice of Conversion at the closing bid price of the Common Stock on the
date of the Notice of Conversion. The Certificate of Designation for the
Preferred Stock shall contain provisions substantially consistent with the above
terms, with such additional provisions as may be
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<PAGE>
consented to by the Buyer. The provisions of this section are not intended to
limit the scope of the provisions otherwise included in the Certificate of
Designation.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the aggregate
purchase price for the Preferred Stock in accordance with Section 1(c) hereof,
the Company will irrevocably instruct its transfer agent to issue Common Stock
from time to time upon conversion of the Preferred Stock in such amounts as
specified from time to time by the Company to the transfer agent, bearing the
restrictive legend specified in Section 4(b) of this Agreement prior to
registration of the Shares under the 1933 Act, registered in the name of the
Buyer or its nominee and in such denominations to be specified by the Buyer in
connection with each conversion of the Preferred Stock. The Company warrants
that no instruction other than such instructions referred to in this Section 5
and stop transfer instructions to give effect to Section 4(a) hereof prior to
registration and sale of the Shares under the 1933 Act will be given by the
Company to the transfer agent and that the Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement, and applicable
law. Nothing in this Section shall affect in any way the Buyer's obligations
and agreement to comply with all applicable securities laws upon resale of the
Securities. If the Buyer provides the Company with an opinion of counsel
reasonably satisfactory to the Company that registration of a resale by the
Buyer of any of the Securities in accordance with clause (1)(B) of Section 4(a)
of this Agreement is not required under the 1933 Act, the Company shall (except
as provided in clause (2) of Section 4(a) of this Agreement) permit the transfer
of the Securities and, in the case of the Shares, promptly instruct the
Company's transfer agent to issue one or more certificates for Common Stock
without legend in such name and in such denominations as specified by the Buyer.
b. (i) The Company will permit the Buyer to exercise its right to
convert the Preferred Stock by telecopying an executed and completed Notice of
Conversion (as defined in the Certificate of Designation) to the Company and
delivering within three (3) business days thereafter, the original Notice of
Conversion, together with the original share certificate, by express courier.
(ii) The term "Conversion Date" means, with respect to any
conversion elected by the holder of the Preferred Stock after the Effective
Date, the date specified in the Notice of Conversion, provided the copy of the
Notice of Conversion is telecopied to or otherwise delivered to the Company in
accordance with the provisions hereof so that is received by the Company on or
before such specified date. The Conversion Date for any mandatory conversion at
maturity shall be the Maturity Date of the Preferred Stock.
(iii) The Company shall, at its expense, take all actions and
use all means necessary and diligent to cause its transfer agent to transmit the
certificates representing the Shares issuable upon conversion of any Preferred
Stock (together with Preferred Stock not being so converted) to the Buyer via
express courier, by electronic transfer or otherwise, within three (3) business
days after receipt by the Company of the later of (i) receipt by the Company of
the copy of
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<PAGE>
the original Notice of Conversion and share certificate, and (ii) the Conversion
Date (the "Delivery Date").
c. The Company understands that a delay in the issuance of the
Shares of Common Stock beyond the Delivery Date could result in economic loss to
the Buyer. As compensation to the Buyer for such loss, the Company agrees to
pay late payments to the Buyer in the event that due entirely to the Company's
failure to issue and deliver the Shares upon Conversion in accordance with the
following schedule (where "No. Business Days Late" is defined as the number of
business days beyond five (5) business days from Delivery Date):
<TABLE>
<CAPTION>
Late Payment For Each $10,000
of Preferred Stock Liquidation
No. Business Days Late Amount Being Converted
---------------------- ----------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
>5 $500 +$200 for each Business
Day Late beyond 5 days from
The Delivery Date
</TABLE>
c. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit the Buyer's
right to pursue actual damages or to cause the Company to redeem the Preferred
Shares as provided below for the Company's actions or inactions resulting in the
transfer agent's failure to issue and deliver the Common Stock to the Buyer.
Furthermore, in addition to any other remedies which may be available to the
Buyer, in the event that the Company fails to deliver such shares of Common
Stock within five (5) business days after the Delivery Date, the Buyer will be
entitled to revoke the relevant Notice of Conversion by delivering a notice to
such effect to the Company whereupon the Company and the Buyer shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion. In the event the Company's actions or inactions result in
the transfer agent's failure to issue and deliver the Common Stock to the Buyer
within ten (10) days after the Delivery Date, Buyer may, at its option, require
the Company (without limiting its other remedies hereunder) to immediately
redeem all outstanding Preferred Stock in accordance with Section 4(k)(y).
d. If, by the relevant Delivery Date, the Company fails for any
reason to deliver the Shares to be issued upon conversion of the Preferred Stock
and after such Delivery Date, the holder of the Preferred Stock being converted
(a "Converting Holder") purchases, in an open market transaction or otherwise,
shares of Common Stock (the "Covering Shares") in order to make delivery in
satisfaction of a sale of Common Stock by the Converting Holder made after a
Conversion Date (the "Sold Shares"), which delivery such Converting Holder
anticipated to make using the Shares
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<PAGE>
to be issued upon such conversion (a "Buy-In"), the Company shall pay to the
Converting Holder, in addition to all other amounts contemplated in other
provisions of the Transaction Agreements, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by the
Converting Holder from the sale of the Sold Shares. The Company shall pay the
Buy-In Adjustment Amount to the Buyer in immediately available funds immediately
upon demand by the Converting Holder. By way of illustration and not in
limitation of the foregoing, if the Converting Holder purchases shares of Common
Stock having a total purchase price (including brokerage commissions) of $11,000
to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000. The remedies set forth in
paragraphs 5(c) and (d) shall be cumulative.
e. In lieu of delivering physical certificates representing the
unlegended securities issuable upon conversion, provided the Company's transfer
agent is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of the Buyer and its compliance with
the provisions contained in this paragraph, so long as the certificates therefor
do not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
f. The original certificate representing the Preferred Stock shall
be delivered by the Buyer to the Company simultaneous with the final Notice of
Conversion.
6. DELIVERY INSTRUCTIONS.
The Preferred Stock shall be delivered by the Company to the Escrow
Agent pursuant to Section 1(b) hereof, on a delivery against payment basis, no
later than on the Closing Date.
7. CLOSING DATE.
(i) The closing of the issuance and sale of the Preferred Stock shall
occur on the date (the "Closing Date") which is the first NYSE trading day
after the fulfillment or waiver of all closing conditions pursuant to Sections 8
and 9 hereof or such other date and time as is mutually agreed upon by the
Company and the Buyer.
(ii) The closing of the purchase and issuance of Preferred Stock shall
occur on the Closing Date, at the offices of the Escrow Agent and shall take
place no later than 12:00 Noon, PST, on such day or such other time as is
mutually agreed upon by the Company and the Buyer.
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<PAGE>
(iii) Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the Escrow Property (as defined in
the Escrow Agreement) only upon satisfaction of the conditions set forth in
Sections 8 and 9 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the
Preferred Stock on the Closing Date and to the Buyer pursuant to this Agreement
is conditioned upon:
a. The receipt and acceptance by the Buyer of this Agreement as
evidenced by execution of this Agreement by the Buyer for Two Million Six
Hundred Fifty Thousand Dollars ($2,650,000) in principal amount of the Preferred
Stock (or such lesser amount as the Company, in its sole discretion, shall
determine on the Closing Date);
b. Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the Purchase Price for the Preferred Stock
in accordance with Section 1(c) hereof;
c. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date, and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before the
Closing Date;
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Stock on the Closing Date is conditioned upon:
a. Acceptance by the Company of this Agreement for the sale of
Preferred Stock, as indicated by execution of this Agreement;
b. Delivery by the Company to the Escrow Agent of the appropriate
Preferred Stock in accordance with this Agreement;
c. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Closing Date and the performance by the Company on or before the
Closing Date of all covenants and agreements of the Company required to be
performed on or before the Closing Date and as to Preferred Stock, the
conditions set forth in Paragraph 4g; and
15
<PAGE>
d. On the Closing Date, Buyer having received (i) an opinion of
counsel for the Company, dated the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer, to the effect set forth in Annex III
attached hereto, (ii) the Registration Rights Agreement annexed hereto as Annex
IV and the Warrants.
e. No statute, rule, regulation, executive order, decree, ruling or
injunction shall be enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits or adversely
effects any of the transactions contemplated by this Agreement or the
Transaction Documents, and no proceeding or investigation shall have been
commenced or threatened which may have the effect of prohibiting or adversely
effecting any of the transactions contemplated by this Agreement or the
Transaction Documents.
f. From and after the date hereof to and including the Closing Date,
the trading of the Common Stock shall not have been suspended by the SEC, or the
NASD and trading in securities generally on the New York Stock Exchange,
NASDAQ/Small Cap, or Bulletin Board, as applicable, shall not have been
suspended or limited, nor shall minimum prices been established for securities
traded on NASDAQ/Small Cap or Bulletin Board, as applicable, nor shall there be
any outbreak or escalation of hostilities involving the United States or any
material adverse change in any financial market that in either case in the
reasonable judgment of the Buyer makes it impracticable or inadvisable to
purchase the Preferred Stock.
10. GOVERNING LAW; MISCELLANEOUS.
a. This Agreement and all agreements entered into in connection
herewith shall be governed by and interpreted in accordance with the laws of the
State of California for contracts to be wholly performed in such state and
without giving effect to the principles thereof regarding the conflict of laws.
Any litigation based thereon, or arising out of, under, or in connection with,
this agreement or any course of conduct, course of dealing, statements (whether
oral or written) or actions of the Company or Buyer shall be brought and
maintained exclusively in the state or Federal courts of the State of
California, sitting in the City of Los Angeles. The Company hereby expressly
and irrevocably submits to the jurisdiction of the state and federal Courts of
the State of California for the purpose of any such litigation as set forth
above and irrevocably agrees to be bound by any final judgment rendered thereby
in connection with such litigation. The Company further irrevocably consents to
the service of process by registered mail, postage prepaid, or by personal
service within or without the State of California. The Company hereby expressly
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may have or hereafter may have to the laying of venue of any such
litigation brought in any such court referred to above and any claim that any
such litigation has been brought in any inconvenient forum. To the extent that
the Company has or hereafter may acquire any immunity from jurisdiction of any
court or from any legal process (whether through service or notice, attachment
prior to judgment, attachment in aid of execution or otherwise) with respect to
itself or its property, the Company hereby irrevocably waives such immunity in
respect of its obligations under this Agreement and the related agreements
entered
16
<PAGE>
into in connection herewith.
b. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
c. This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original.
d. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
e. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
f. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
g. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
h. In the event of any action for breach of or to enforce or declare
rights under any provision of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees and costs, to be paid by the losing
party.
11. NOTICES. Any notice or communication required or permitted by this
Agreement shall be given in writing addressed as follows:
COMPANY: Global MAINTECH Corp.
7578 Market Place Drive
Eden Prairie, MN 55344
ATTN: CEO
Telecopier No.: (612) 944-0400
Telephone No.: (612) 944-3311
with a copy to:
17
<PAGE>
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
Attention: Ken Cutler
Telephone: (612) 340-2740
Facsimile: (612) 340-8378
BUYER: At the address set forth on the signature page of this Agreement.
ESCROW AGENT: Law Offices of Michael S. Rosenblum
1875 Century Park East, Suite 700
Los Angeles, CA 90067
Telecopier No. (310) 286-2100
All notices shall be served personally by telecopy, by telex, by overnight
express mail service or other overnight courier, or by first class registered or
certified mail, postage prepaid, return receipt requested. If served
personally, or by telecopy, notice shall be deemed delivered upon receipt
(provided that if served by telecopy, sender has written confirmation of
delivery); if served by overnight express mail or overnight courier, notice
shall be deemed delivered forty-eight (48) hours after deposit; and if served by
first class mail, notice shall be deemed delivered seventy-two (72) hours after
mailing. Any party may give written notification to the other parties of any
change of address for the sending of notices, pursuant to any method provided
for herein.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
representations and warranties herein shall survive the execution and delivery
of this Agreement and the delivery of the Preferred Stock and the Purchase
Price, and shall inure to the benefit of the Buyer and its successors and
assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE>
NUMBER OF SHARES OF PREFERRED STOCK TO BE PURCHASED: 2,650*
AGGREGATE PURCHASE PRICE OF SUCH PREFERRED STOCK: $2,650,000*
*As detailed below
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf as of this 30/th/ day of December,
1999.
Printed Names of Buyers
By: See Annexed
---------------------------------
(Signature of Authorized Person)
--------------------------------------
Printed Name and Title
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
Global MAINTECH Corp., a Minnesota corporation
By: ___________________________
Title: _____________________________
Date: _________________________
<PAGE>
ANNEX TO SIGNATURE PAGE
AMOUNT SHARES
- ------ ------
$2,500,000 2,500 Nash, LLC, a Cayman Islands
limited liability company
By: /s/
-----------------------------------------
Manager
$100,000 100 Greenfield Capital Partners, LLC, a
Delaware limited liability company
By: /s/
-----------------------------------------
Manager
$50,000 50 Carbon Mesa, LLC, a Bahamian
limited liability company
By: /s/
-----------------------------------------
Manager
ADDRESS: c/o Thomson Kernaghan & Co.
365 Bay Street, Suite 1000, 10/th/ Fl.
Toronto, Ontario M5H 2V2
Telephone No.: (416) 860-4160
Telecopier No.: (416) 860-8313
<PAGE>
ANNEX I CERTIFICATE OF DESIGNATION
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI COMMON STOCK PURCHASE WARRANT
<PAGE>
ANNEX V
COMPANY DISCLOSURE
------------------
Securities Purchase Agreement
Between Global MAINTECH Corp and Buyers
Dated December 30, 1999
ANNEX V
The Company is in negotiations to sell its Breece Hill Technologies, Inc.
subsidiary and may sell other assets constituting less than 5% of the Company's
total assets as disclosed in the Company's most recently filed SEC Reports.
In November 1999 the Company sold common stock in the amount of $500,000 at
$4.00 per share to Liviakis Financial Communications, Inc, John M. Liviakis and
Renee A. Liviakis and entered into an amendment to its Consulting Agreement with
Liviakis Financial Communications, Inc.
The Company is in the process of negotiating final documentation with investors
and their representatives for $1,000,000 of 8% Cumulative Convertible
Redeemable Preferred Stock, Series D.
<PAGE>
EXHIBIT 4.13
RESTRICTIVE LEGENDS ON REVERSE SIDE HEREOF
Incorporated under the laws of the State of Minnesota
SPECIMEN SPECIMEN
GLOBAL MAINTECH CORPORATION
This Certifies that SPECIMEN is the owner and
____________________________________________
registered holder of _________________________________________________ Shares of
____________________________________________________
fully paid and nonassessable shares of Series E Convertible Preferred Stock,
no par value, of
Global MAINTECH Corporation
transferable only on the books of the corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this certificate
properly endorsed.
IN WITNESS WHEREOF, the said corporation has caused this certificate to be
signed by its duly authorized officers and be sealed with the seal of the
corporation.
NO this day of , .
______________________ ____________________ ____
_________________________ ________________________________
Secretary President
[CORPORATE
SEAL]
<PAGE>
Neither these securities nor the securities into which these securities may be
convertible have been registered with the securities and exchange commission or
the securities commission of any state in reliance upon an exemption from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, may not be offered or sold except pursuant to an
effective registration statement under the securities act or pursuant to an
available exemption from, or in a transaction not subject to, the registration
requirements of the securities act and in accordance with applicable state
securities laws.
A full statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof of the corporation and the qualifications, limitations or restrictions
of such preferences and/or rights will be furnished by said corporation to any
stockholder under request and without charge.
<PAGE>
EXHIBIT 4.14
CERTIFICATE OF DESIGNATION
of
SERIES F CONVERTIBLE PREFERRED STOCK
of
GLOBAL MAINTECH CORPORATION
(Adopted pursuant to Section 302A of the Minnesota Business Corporation Act)
The undersigned hereby certifies that the Board of Directors of GLOBAL
MAINTECH CORPORATION, a Minnesota corporation (the "Company"), duly adopted the
following resolutions effective as of February 17, 2000:
RESOLVED, a series of preferred stock of the Company is created and the
relative rights, preferences, and limitations of the shares of such series are
as follows:
I. Designation and Amount. The shares of such series of Preferred Stock
shall be designated as "Series F Convertible Preferred Stock" (the "Series F
Preferred Stock") and the number of shares constituting the Series F Preferred
Stock shall be 2,000. The Series F Preferred Stock shall have a stated value
(the "Stated Value") of $1,000 per share.
II. Dividends.
A. The holders of shares of Series F Preferred Stock shall be entitled
to receive dividends, out of any assets legally available therefor, subject
to the prior declaration or payment of any dividend to which the holders of
Series A Convertible Preferred Stock of the Company (the "Series A Stock")
the Series B Convertible Preferred Stock of the Company (the "Series B
Stock") the Series D Convertible Preferred Stock of the Company (the
"Series D Stock") and the Series E Convertible Preferred Stock of the
Company (the "Series E Stock") are entitled, and prior to, and in
preference to, any declaration or payment of any dividend on the Common
Stock of this Company, at a per share rate equal to eight percent (8%) per
annum of the amount of the Stated Value of the Series F Preferred Stock,
which is payable upon conversion (based upon a 365 calendar day year) as
set forth below. Dividends shall begin to accrue as of the Issuance Date
(as defined below). Any dividends payable pursuant to the provisions of
this paragraph shall, at the Company's option, be payable in cash, or
unrestricted shares of Common Stock of the Company within five Business
Days (as defined below) of when due. The number of shares of Common Stock
to be issued by the Company in lieu of a cash payment for dividends due as
set forth herein shall be equal to the number of shares of Common Stock
resulting from dividing the dollar amount of dividends owed
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<PAGE>
by the Conversion Price (as defined below) on such date as the dividends
are payable (if such date is not a Trading Day, then the next Trading Day
(as defined below) immediately thereafter).
B. Such dividends shall accrue on each share of Series F Preferred
Stock from the Issuance Date, and shall accrue from day to day whether or
not earned or declared. Such dividends shall be cumulative so that if such
dividends in respect of any previous or current annual dividend period, at
the annual rate specified above, shall not have been paid or declared and a
sum sufficient for the payment thereof set apart, for all Series F
Preferred Stock at the time outstanding, the deficiency shall first be
fully paid before any dividend or other distribution shall be paid on or
declared or set apart for the Series F Preferred Stock, Common Stock or
other security of the Company subordinate in liquidation to the Series F
Preferred Stock. Dividends on the Series F Preferred Stock shall be
non-participating and the holders of the Series F Preferred Stock shall not
be entitled to participate in any other dividends beyond the cumulative
dividends specified herein.
III. Liquidation, Dissolution or Winding Up.
A. In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, subject to the prior liquidation
preference of the holders of Series A Stock, Series B Stock, Series C
Stock, Series D Stock and Series E Stock, and prior and in preference to
any distribution of any assets of the Company to the holders of Common
Stock , holders of each share of Series F Preferred Stock shall be entitled
to receive out of the assets available for distribution to shareholders the
Stated Value per share of Series F Preferred Stock plus eight percent (8%)
per annum thereon from the Issuance Date (as defined below) to the Trading
Day (as defined below) immediately prior to such liquidation, dissolution
or winding up of the Company (the "Liquidation Amount").
B. Upon the completion of any required distribution to the holders of
the Series A Stock, Series B Stock, Series C Stock, Series D Stock and
Series E Stock, if the assets of the Company available for distribution to
shareholders shall be insufficient to pay the holders of shares of Series F
Preferred Stock the full Liquidation Amount to which they shall be
entitled, then any such distribution of assets of the Company shall be
distributed ratably to the holders of shares of Series F Preferred Stock.
C. After the payment of the Liquidation Amount shall have been made in
full to the holders of the Series F Preferred Stock or funds necessary for
such payment shall have been set aside by the Company in trust for the
account of holders of the Series F Preferred Stock so as to be available
for such payments, the holders of the Series F Preferred Stock shall be
entitled to no further participation in the distribution of the assets of
the Company, and the remaining assets of the Company legally available for
distribution to shareholders shall be distributed among the holders of
Common Stock and any other classes or series of Preferred Stock of the
Company in accordance with their respective terms.
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<PAGE>
IV. Voting. Holders of Series F Preferred Stock shall have no voting rights
except as expressly required by law or as expressly provided herein.
V. Conversion of Series F Preferred Stock. The holders of Series F
Preferred Stock shall have the right, at such holder's option, to convert the
Series F Preferred Stock into shares of Common Stock, on the following terms and
conditions:
A. Subject to the provisions of Section XI hereof, at any time or
times after the earlier of (i) 61 days following the Effective Date, or
(ii) 61 days following the Issuance Date, any holder of the Series F
Preferred Stock shall be entitled to convert any whole number of such
holder's shares of Series F Preferred Stock into that number of fully paid
and nonassessable shares of Common Stock, which is determined (per share of
Series F Preferred Stock) by dividing (x) $1,000, by (y) the Conversion
Price (as defined below) (the "Conversion Rate").
B. For purposes of this Certificate of Designation, the following
terms shall have the following meanings:
A "Business Day" shall be any day other than a Saturday, Sunday,
national holiday or a day on which the New York Stock Exchange is
closed.
The "Closing Bid Price" shall mean, for any security as of any
date, the last closing bid price for such security on the Nasdaq Stock
Market as reported by Bloomberg L.P. ("Bloomberg"), or, if the Nasdaq
Stock Market is not the principal trading market for such security,
the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the
last closing bid price of such security in the over-the-counter market
on the NASD OTC Electronic Bulletin Board for such security as
reported by Bloomberg, or, the last closing trade price of such
security as reported by Bloomberg, or, if no last closing bid or trade
price is reported for such security by Bloomberg, the closing bid
price shall be determined by reference to the closing bid price as
reported on the Principal Market. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing
bases, the Closing Bid Price of such security on such date shall be
the fair market value as mutually agreed by the Company and the
holders of two thirds of the outstanding shares of Series F Preferred
Stock.
The "Conversion Price" shall mean, as of any Conversion Date (as
defined below) the lesser of (i) $6.75 (the lowest Closing Bid Price
of the Common Stock over the ten Trading Days ending on the Trading
Day immediately prior to February 17, 2000 (the "Closing Date")) (the
"Maximum Conversion Price") or (ii) 75% of the average of the three
lowest Closing Bid Prices of the Common Stock during the 15 Trading
Days (the "Lookback Period") immediately prior to the Conversion Date.
On the last Trading Day of each month, starting on the first day of
the fourth calendar month immediately following the Issuance Date, the
Lookback Period will be increased by two Trading Days until the
Lookback Period equals a maximum of 30 Trading Days.
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<PAGE>
"Effective Date" shall mean the date on which the Securities and
Exchange Commission (the "SEC") first declares effective a
Registration Statement registering the resale of up to 200% of the
greater of (i) the number of shares of Common Stock issuable upon
conversion of all of the Series F Preferred Stock outstanding on the
Trading Day immediately preceding the day such Registration Statement
is filed (ii) the number of shares of Common Stock issuable upon
conversion of all of the Series F Preferred Stock outstanding on the
Trading Day immediately preceding the day any amendment to such
Registration Statement is filed.
The "Issuance Date" shall mean, with respect to each share of
Series F Preferred Stock, the date of issuance of the applicable share
of Series F Preferred Stock.
A "Trading Day" shall mean a day on which the Principal Market is
open.
The "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq Small Cap Stock Market, the American Stock Exchange, the NASD
OTC Electronic Bulletin Board operated by the National Association of
Securities Dealers, Inc., or the New York Stock Exchange, whichever is
at the time the principal trading exchange or market for the Common
Stock.
Holders of Series F Preferred Stock may exercise their right to
convert the Series F Preferred Stock by telecopying an executed and
completed notice of conversion in the agreed upon form (the "Notice of
Conversion") to the Company and delivering to Company the original
Notice of Conversion and the certificate representing the Series F
Preferred Stock being converted by reputable overnight courier within
three (3) Business Days thereafter. Each Business Day (between the
hours of 6:30 a.m. and 4:00 p.m. Pacific Time) on which a Notice of
Conversion is telecopied to and received by the Company shall be
deemed a "Conversion Date." The Company will deliver the certificates
representing shares of Common Stock issuable upon conversion of any
share of Series F Preferred Stock (together with the certificates
representing the share or shares of Series F Preferred Stock not so
converted) to the holder thereof via reputable overnight courier, by
electronic transfer or otherwise within three Business Days after the
Conversion Date, provided the Company has received the original Notice
of Conversion and Series F Preferred Stock certificate being so
converted on or before the close of business of the third Business Day
after the Conversion Date. In addition to any other remedies which may
be available to the holders of shares of Series F Preferred Stock, in
the event that the Company fails to deliver such shares of Common
Stock within such three Business Day period, the holder will be
entitled to revoke the relevant Notice of Conversion by delivering a
notice (by similar method) to such effect to the Company whereupon the
Company and such holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion.
The Notice of Conversion and Series F Preferred Stock certificates
representing the portion of the Series F Preferred Stock converted
shall be delivered as follows:
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<PAGE>
To the Company:
Global MAINTECH Corporation
7578 Market Place Drive
Eden Prairie, MN 55344
Attention: CEO
Telephone: (612) 944-0400
Facsimile: (612) 944-3311
with a copy to:
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
Attention: Ken Cutler
Telephone: (612) 340-2740
Facsimile: (612) 340-8378
The Company understands that a delay in the issuance of the
shares of Common Stock beyond the Delivery Date could result in
economic loss to the holder. As compensation to the holder for such
loss, the Company agrees to pay late payments to the holder in the
event that Company's failure to issue and deliver the shares on the
Delivery Date in accordance with the following schedule (where "No.
Business Days Late" is defined as the number of Business Days beyond
three (3) Business Days after the Delivery Date):
Late Payment For Each $10,000
of Preferred Stock Liquidation
No. Business Days Late Amount Being Converted
---------------------- ------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
>5 $500 +$200 for each
Business Day Late
beyond 5 days from
The Delivery Date
The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit
the holder's right to pursue actual damages or to cause the Company to
redeem the Preferred Shares as provided below for the Company's
actions or inactions resulting in the transfer agent's
-5-
<PAGE>
failure to issue and deliver the Common Stock to the holder.
Furthermore, in addition to any other remedies which may be available
to the holder, in the event that the Company fails to deliver such
shares of Common Stock within five (5) Business Days after the
Delivery Date, the Holder will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and the holder shall each be restored to
their respective positions immediately prior to delivery of such
Notice of Conversion. In the event the Company's actions or inactions
result in the transfer agent's failure to issue and deliver the Common
Stock to the holder within ten (10) days after the Delivery Date,
holder may, at its option, require the Company (without limiting its
other remedies hereunder) to immediately redeem all outstanding
Preferred Stock in accordance with Section XI hereof.
If, by the relevant Delivery Date, the Company fails for any
reason to deliver the Shares to be issued upon conversion of the
Preferred Stock and after such Delivery Date, the holder of the
Preferred Stock being converted (a "Converting Holder") purchases, in
an open market transaction or otherwise, shares of Common Stock (the
"Covering Shares") in order to make delivery in satisfaction of a sale
of Common Stock by the Converting Holder made after a Conversion Date
(the "Sold Shares"), which delivery such Converting Holder anticipated
to make using the Shares to be issued upon such conversion (a
"Buy-In"), the Company shall pay to the Converting Holder, in addition
to all other amounts contemplated in other provisions of this
Certificate of Designation and other agreements related hereto, and
not in lieu thereof, the Buy-In Adjustment Amount (as defined below).
The "Buy-In Adjustment Amount" is the amount equal to the excess, if
any, of (x) the Converting Holder's total purchase price (including
brokerage commissions, if any) for the Covering Shares over (y) the
net proceeds (after brokerage commissions, if any) received by the
Converting Holder from the sale of the Sold Shares. The Company shall
pay the Buy-In Adjustment Amount to the Converting Holder in
immediately available funds immediately upon demand by the Converting
Holder. By way of illustration and not in limitation of the foregoing,
if the Converting Holder purchases shares of Common Stock having a
total purchase price (including brokerage commissions) of $11,000 to
cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will
be required to pay to the Converting Holder will be $1,000. The
remedies set forth in this Section V.B shall be cumulative.
C. If the Common Stock issuable upon the conversion of the Series F
Preferred Stock shall be changed into the same or different number of
shares of any class or classes of stock, whether by capital reorganization,
reclassification or otherwise, then and in each such event, the holders of
Series F Preferred Stock shall have the right thereafter to convert such
shares into the kind and amount of shares of stock and other securities and
property receivable upon such capital reorganization, reclassification or
other change which such holders would have received had their shares of
Series F Preferred Stock been converted immediately prior to such capital
reorganization, reclassification or other change.
D. If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of
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<PAGE>
shares provided for elsewhere in this Section) or a merger or consolidation
of the Company with or into another corporation, or the sale of all or
substantially all of the Company's properties and assets to any other
person (any of which events is herein referred to as a "Reorganization"),
then as a part of such Reorganization, provision shall be made so that the
holders of the Series F Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series F Preferred Stock, the number of
shares of stock or other securities or property of the Company, or of the
successor corporation resulting from such Reorganization, to which such
holder would have been entitled if such holder had converted its shares of
Series F Preferred Stock immediately prior to such Reorganization. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section with respect to the rights of the holders of the
Series F Preferred Stock after the Reorganization, to the end that the
provisions of this Section (including adjustment of the number of shares
issuable upon conversion of the Series F Preferred Stock) shall be
applicable after that event in as nearly equivalent a manner as may be
practicable.
E. Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series F Preferred Stock as provided herein, the
Company, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of such Series F Preferred Stock a certificate executed by the
president and chief financial officer (or in the absence of a person
designated as the chief financial officer, by the treasurer) setting forth
such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment are based. The Company shall, upon written
request at any time of any holder of Series F Preferred Stock, furnish or
cause to be furnished to such holder a certificate setting forth (A) the
Conversion Price at the time in effect, and (B) the number or shares of
Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of a share of Series F Preferred
Stock.
F. Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of any Series F Preferred Stock certificate(s),
and (in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon the cancellation of the
Series F Preferred Stock certificate(s), if mutilated, the Company shall
execute and deliver new certificates for Series F Preferred Stock of like
tenure and date. However, the Company shall not be obligated to reissue
such lost or stolen certificates for shares of Series F Preferred Stock if
the holder contemporaneously requests the Company to convert such shares of
Series F Preferred Stock into Common Stock.
G. The Company shall not issue any fraction of a share of Common Stock
upon any conversion. The Company shall round such fraction of a share of
Common Stock up to the nearest whole share.
H. In the event some but not all of the shares of Series F Preferred
Stock represented by a certificate or certificates surrendered by a holder
are converted, the Company shall execute and deliver to or on the order of
the holder, at the expense of the Company, a new certificate representing
the number of shares of Series F Preferred Stock which were not converted.
-7-
<PAGE>
I. Each share of Series F Preferred Stock outstanding two years from
the Issuance Date shall automatically be converted into Common Stock on
such date at the Conversion Price and such date shall be deemed the
Conversion Date with respect to such shares.
J. The Company shall pay any and all original issue and/or transfer
taxes which may be imposed upon it with respect to the issuance and
delivery of Common Stock upon conversion of the Series F Preferred Stock.
K. Subject to the provisions of this Section, if the Company at any
time shall issue any shares of Common Stock prior to the conversion of the
entire Stated Value of the Series F Preferred Stock and dividends on such
Series F Preferred Stock, otherwise than: (i) pursuant to options,
warrants, or other obligations to issue shares outstanding on the date
hereof (including issuances pursuant to the Company's proposed transaction
with Breece Hill Technologies, Inc.) as described in writing to the holders
prior to the Issuance Date or in SEC filings made by the Company prior to
the Issuance Date, or (ii) all shares reserved for issuance pursuant to the
Company's existing stock option, incentive, or other similar plan, which
plan and which grant is approved by the Board of Directors of the Company
((i) and (ii) collectively referred to as the "Existing Obligations"), for
a consideration less than the fixed Conversion Price set forth in (i) of
the definition of Conversion Price in Section V.B. above (as adjusted from
the date hereof (the "Fixed Conversion Price"), then, and thereafter
successively upon each such issue, the fixed Conversion Price shall, from
such date forward, equal the resulting quotient of the following formula:
(y) the number of shares of Common Stock outstanding immediately prior to
such issue shall be multiplied by the Fixed Conversion Price in effect at
the time of such issue and the product shall be added to the aggregate
consideration, if any received by the Company upon such issue of additional
shares of Common Stock; and (z) the sum so obtained shall be divided by the
number of shares of Common Stock outstanding immediately after such issue.
Except for the Existing Obligations and options that may be issued under
any employee incentive stock option and/or any qualified stock option plan
adopted by the Company, for purposes of this adjustment, the issuance of
any security of the Company carrying the right to convert such security
into shares of Common Stock or of any warrant, right, or option to purchase
Common Stock shall result in an adjustment to the Fixed Conversion Price
upon the issuance of shares of Common Stock upon exercise of such
conversion or purchase rights.
L. In the event a holder shall elect to convert any share or shares of
Series F Preferred Stock as provided herein, the Company cannot refuse
conversion based on any claim that such holder or anyone associated or
affiliated with such holder has been engaged in any violation of law,
unless an injunction from a court, restraining and/or enjoining conversion
of all or part of said shares of Series F Preferred Stock shall have been
issued and the Company posts a surety bond for the benefit of such holder
in the amount of 133% of the Stated Value of the Series F Preferred Stock
and dividends sought to be converted, which is subject to the injunction,
which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be
payable to such holder in the event it obtains a favorable judgment.
-8-
<PAGE>
VI. No Reissuance of Series F Preferred Stock. No share or shares of Series
F Preferred Stock acquired by the Company by reason of purchase, conversion or
otherwise shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Company shall be authorized to issue. The
Company may from time to time take such appropriate corporate action as may be
necessary to reduce the authorized number of shares of the Series F Preferred
Stock accordingly.
VII. Reservation of Shares. The Company shall, so long as any share or
shares of the Series F Preferred Stock are outstanding reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Series F Preferred Stock, such number
of shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Series F Preferred Stock then outstanding; provided
that the number of shares of Common Stock so reserved shall be up to 200% of the
number of shares of Common Stock for which the Series F Preferred Stock are at
any time convertible and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to maintain such number of shares
of Common Stock, the Company shall immediately take such corporate action as may
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
VIII. Restrictions and Limitations.
A. Except as expressly provided herein or as required by law, so long
as any shares of Series F Preferred Stock remain outstanding, the Company
shall not, without the approval by vote or written consent by the holders
of at least two thirds of the then outstanding shares of Series F Preferred
Stock, voting as a separate class take any action that would adversely
affect the rights, preferences or privileges of the holders of Series F
Preferred Stock.
B. Without limiting the generality of the preceding paragraph, the
Company shall not so long as any shares of Series F Preferred Stock remain
outstanding amend its Articles of Incorporation without the approval by the
holders of all of the then outstanding shares of Series F Preferred Stock
if such amendment would:
1. create any other class or series of capital stock entitled to
seniority as to the payment of dividends in relation to the holders of
Series F Preferred Stock;
2. reduce the amount payable to the holders of Series F Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the Company, or change the relative seniority of the
liquidation preferences of the holders of Series F Preferred Stock to
the rights upon liquidation of the holders of other capital stock of
the Company,
3. cancel or modify the conversion rights of the holders of
Series F Preferred Stock provided for in Section V herein; or
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<PAGE>
4. cancel or modify the rights of the holders of the Series F
Preferred Stock provided for in this Section.
IX. No Dilution or Impairment.
A. The Company shall not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Certificate of Designation set
forth herein, but shall at all times in good faith assist in the carrying
out of all such terms and in the taking of all such actions as may be
necessary or appropriate in order to protect the rights of the holders of
the Series F Preferred Stock against dilution or other impairment. Without
limiting the generality of the foregoing, the Company (a) shall not
establish a par value of any shares of stock receivable on the conversion
of the Series F Preferred Stock above the amount payable therefor on such
conversion, (b) shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of stock on the conversion of all Series F
Preferred Stock from time to time outstanding, and (c) shall not
consolidate with or merge into any other person or entity, or permit any
such person or entity to consolidate with or merge into the Company (if the
Company is not the surviving person), unless such other person or entity
shall expressly assume in writing and will be bound by all of the terms of
the Series F Preferred Stock set forth herein.
B. If the Company at any time after the Closing Date shall issue any
shares of Common Stock prior to the conversion of all shares of the Series
F Preferred and the dividends thereon, including without limitation, shares
of Common Stock issued (i) pursuant to options (including those options
delivered pursuant to any employee, officer or director stock option plan),
warrants, or other contractual obligations, (ii) upon any private placement
or secondary offering (iii) as a result of a stock dividend or split, then
upon each such issuance of Common Stock the Maximum Conversion Price shall
be reduced by: (y)(I) the number of shares of Common Stock outstanding
immediately prior to such issuance, multiplied by the Maximum Conversion
Price in effect at the time of such issuance, plus (II) the aggregate sum,
if any, received by the Company in consideration for such issuance; divided
by (z) the number of shares of Common Stock outstanding immediately after
such issuance.
X. Notices of Record Date. In the event of:
A. any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or
B. any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger of the
Company, or any
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<PAGE>
transfer of all or substantially all of the assets of the Company to any
other corporation, or any other entity or person, or
C. any voluntary or involuntary dissolution, liquidation or winding up
of the Company, then and in each such event the Company shall mail or cause
to be mailed to each holder of Series F Preferred Stock a notice specifying
(i) the date on which any such record is to be taken for the purpose of
such dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, merger, dissolution,
liquidation or winding up is expected to become effective and (iii) the
time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or winding up.
Such notice shall be mailed at least ten Business Days prior to the date
specified in such notice on which such action is to be taken.
XI. Redemption.
A. For so long as the Company has not received a Notice of Conversion
for such shares, the Company may, at its option, repay, in whole or in
part, the Series F Preferred Stock shares at the Redemption Price (as
defined below). The Series F Preferred Stock is redeemable as a series, in
whole or in part, by the Company by providing written notice (the
"Redemption Notice") to the holder of the Series F Preferred Stock via
facsimile at his or her address as the same shall appear on the books of
the Company (the Business Day between the hours of 6:30 a.m. and 4:00 p.m.
Pacific Time the Redemption Notice is received by the holders of the Series
F Preferred Stock via facsimile is defined to be the "Redemption Notice
Date"). Within ten Trading Days after the Redemption Notice Date the
Company shall make payment of the Redemption Price (as defined below) in
immediately available funds to the holder for the shares of Series F
Preferred Stock which are the subject of the Redemption Notice (such date
of payment referred to as the "Redemption Date"). Partial redemptions shall
be in an aggregate principal amount of at least $100,000. If fewer than all
of the outstanding shares of Series F Preferred Stock are to be redeemed,
the Company will select those to be redeemed pro-rata amongst the then
holders of the Series F Preferred Stock based on the number of shares of
Series F Preferred Stock then outstanding.
B. In the event the Company serves a Redemption Notice, the Redemption
Price shall be equal to the greater of (i) 125% of the Stated Value of the
shares of Series F Preferred Stock which are subject to such Redemption
Notice, plus all accrued but unpaid dividends on such shares, or (ii) the
"Economic Benefit" of the shares of Series F Preferred Stock which are the
subject of such Redemption Notice. "Economic Benefit" shall mean the dollar
value derived if the shares of Series F Preferred Stock which were the
subject of the Redemption Notice were converted on the Redemption Notice
Date and sold on the Redemption Notice Date at the Closing Bid Price of the
Common Stock on the Redemption Notice Date.
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<PAGE>
C. The Notice of Redemption shall set forth (i) the Redemption Date
and the place fixed for redemption, (ii) the Redemption Price, (iii) a
statement that dividends on the shares of Series F Preferred Stock to be
redeemed will cease to accrue on such Redemption Date, (iv) a statement of
or reference to the conversion right set forth herein, and (v) confirmation
that the Company has the full Redemption Price reserved as set forth in F.
below. If fewer than all the shares of the Series F Preferred Stock owned
by such holders are then to be redeemed, the notice shall specify the
number of shares thereof that are to be redeemed and, if practicable, the
numbers of the certificates representing such shares. Within five Trading
Days of the Redemption Notice Date, the Company shall wire transfer the
appropriate amount of funds to the holders of the Series F Preferred Stock.
If the Company fails to comply with the redemption provisions set forth
herein by the sixth Trading Day after the Redemption Notice Date (or in the
case of a public offering as contemplated in F below, by the sixth Trading
Day after the Redemption Notice Date) relating to the Redemption Notice,
the redemption will be declared null and void and the Company shall not be
permitted to serve another Redemption Notice. For the first five Trading
Days after the Redemption Notice Date, the holders of the Series F
Preferred Stock will retain their conversion rights with respect to a
maximum of twenty percent (20%) of the number of shares subject to the
redemption. If the holders of the Series F Preferred Stock elect to so
convert the Series F Preferred Stock after the receipt of the Redemption
Notice, the Company must receive notice of such election within twenty-four
(24) hours from the time the Redemption Notice was received by the holders
of the Series F Preferred Stock. In the event the Company has not complied
with the redemption provisions set forth herein the Company must comply
with the delivery requirements of any then outstanding Conversion Notice as
set forth herein. The holders shall send the shares of Series F Preferred
Stock being redeemed or converted to the Company within three (3) Business
Days after they have received good funds for the Redemption Price of the
redeemed shares.
D. Subject to the receipt by the holders of the Series F Preferred
Stock being redeemed of the wire transfer of the Redemption Price as
described above, each share of Series F Preferred Stock to be redeemed
shall be automatically canceled and converted into a right to receive the
Redemption Price, and all rights of the Series F Preferred Stock, including
the right to conversion shall cease without further action.
E. The Redemption Price shall be adjusted proportionally upon any
adjustment of the Conversion Price as provided herein and in the event of
any stock dividend, stock split, combination of shares or similar event.
F. The Company shall not be entitled to send any Redemption Notice and
begin the redemption procedure hereunder unless it has:
(a) the full amount of the Redemption Price in cash, available in
a demand or other immediately available account in a bank or similar
financial institution, specifically allotted for such redemption;
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<PAGE>
(b) immediately available credit facilities, in the full amount
of the Redemption Price with a bank or similar financial institution
specifically allotted for such redemption; or
(c) a combination of the items set forth in (i) and (ii) above,
aggregating the full amount of the Redemption Price.
Notwithstanding the foregoing, in the event the redemption is expected to
be made contemporaneously with the closing of a public offering of the
Company's securities for an amount in excess of the Redemption Price, the
Company shall not be required to have the full amount of the Redemption
Price available to it as set forth above.
XII. 4.99% Limitation. Notwithstanding the provisions hereof, in no event
shall each holder be entitled to convert any shares of the Series F Preferred
Stock to the extent that, after such conversion, the sum of (1) the number of
shares of Common Stock beneficially owned by such holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted shares of the Series F Preferred
Stock), and (2) the number of shares of Common Stock issuable upon the
conversion of the shares of Series F Preferred Stock with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by such holder and its affiliates of more than 4.99% of the
outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"). Any issuance by the Company to a holder in excess of the limit
contained in this Paragraph shall be null and void, ab initio, and upon notice
of such invalid issuance, the Company shall correct its books and cause its
transfer agent's books to be corrected forthwith to reflect that the holder's
ownership of Common Stock is within the limit set forth herein. Holder shall
immediately deliver any certificates for invalidly issued Common Stock to the
Company's transfer agent. The Company further agrees to (i) immediately reissue
certificates for Common Stock to the extent that a portion of the Common Stock
represented by said certificates have been validly issued and (ii) immediately
reissue all or a portion of those shares which were deemed invalidly issued (at
a price set forth in the original conversion notices applicable to such shares)
upon notice from the holder that the reissuance of such shares would not cause
such holder to have a beneficial ownership interest in excess of 4.99%. The
Company hereby indemnifies and holds each holder free and harmless in connection
with any and all liabilities, losses, costs and expenses, including, without
limitation, attorneys' fees and costs arising from or relating to claims made by
any third parties with respect to any and all purported violations by each
holder under Sections 13(d) and 16 resulting from a conversion(s) of the Series
F Preferred Stock, unless such claim arises from such holder's default of its
obligations hereunder, or representations or warranties contained herein. The
4.99% limitation shall not apply to the automatic conversion upon the Maturity
Date as contained herein.
XIII "Cap Regulations". The Company shall take all steps reasonably
necessary to be in a position to issue shares of Common Stock on conversion
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of the Series F Preferred Stock without violating the "Cap Regulations". If
despite taking such steps, the Company is limited in the number of shares of
Common Stock it may issue by the "Cap Regulations," to the extent that the
Company cannot issue such shares of Common Stock, due upon a Notice of
Conversion, without violating the Cap Regulations, the Company shall immediately
notify Buyer the number of shares of the Series F Preferred Stock which are not
convertible as a result of said Cap Regulations (the "Unconverted Preferred
Stock") and within five (5) Business Days of the applicable Notice of Conversion
redeem the Unconverted Preferred Stock for an amount in cash (the "Redemption
Amount") equal to the "Economic Benefit" of such Unconverted Preferred Stock.
"Economic Benefit" for purposes of this Article XIII shall mean the dollar value
derived if such Unconverted Preferred Stock were converted into Common Stock as
set forth in the Notice of Conversion and the Common Stock was sold on the date
of the Notice of Conversion at the Closing Bid Price of the Common Stock on the
date of the Notice of Conversion.
IN WITNESS WHEREOF, I have subscribed my name this 17th day of February,
2000.
GLOBAL MAINTECH CORPORATION
By: /s/ James Geiser
-------------------------------
Name: James Geiser
Title: Secretary
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<PAGE>
EXHIBIT 4.16
RESTRICTIVE LEGENDS ON REVERSE SIDE HEREOF
Incorporated under the laws of the State of Minnesota
SPECIMEN SPECIMEN
GLOBAL MAINTECH CORPORATION
This Certifies that SPECIMEN is the owner and
____________________________________________
registered holder of _________________________________________________ Shares of
____________________________________________________
fully paid and nonassessable shares of Series F Convertible Preferred Stock,
no par value, of
Global MAINTECH Corporation
transferable only on the books of the corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this certificate
properly endorsed.
IN WITNESS WHEREOF, the said corporation has caused this certificate to be
signed by its duly authorized officers and be sealed with the seal of the
corporation.
NO this day of , .
______________________ ____________________ ____
_________________________ ________________________________
Secretary President
[CORPORATE
SEAL]
<PAGE>
Neither these securities nor the securities into which these securities may be
convertible have been registered with the securities and exchange commission or
the securities commission of any state in reliance upon an exemption from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, may not be offered or sold except pursuant to an
effective registration statement under the securities act or pursuant to an
available exemption from, or in a transaction not subject to, the registration
requirements of the securities act and in accordance with applicable state
securities laws.
A full statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof of the corporation and the qualifications, limitations or restrictions
of such preferences and/or rights will be furnished by said corporation to any
stockholder under request and without charge.
<PAGE>
Exhibit 5
---------
DORSEY & WHITNEY LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
Global MAINTECH Corporation
7578 Market Place Drive
Eden Prairie, Minnesota 55344
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as counsel to Global MAINTECH Corporation, a Minnesota
corporation (the "Company"), in connection with a Registration Statement on Form
SB-2, together with any subsequent amendments thereto (the "Registration
Statement"), relating to the proposed registration by the Company of 3,074,726
shares of the Company's common stock, no par value per share, to be soled by the
selling shareholders named therein.
We have examined such documents and have reviewed such questions of law
as we have considered necessary and appropriate for the purposes of our opinion
set forth below. In rendering our opinion, we have assumed the authenticity of
all documents submitted to us as originals, the genuineness of all signatures
and the conformity to authentic originals of all documents submitted to us as
copies. We have also assumed the legal capacity for all purposes relevant hereto
of all natural persons and, with respect to all parties to agreements or
instruments relevant hereto other than the Company. As to questions of fact
material to our opinion, we have relied upon certificates of officers of the
Company and of public officials.
Based on the foregoing, we are of the opinion that the Common Stock has
been duly authorized by all requisite corporate action and, upon issuance,
delivery and payment therefor will be validly issued, fully paid and
nonassessable.
The opinion set forth above is subject to the following qualifications
and exceptions:
(a) In rendering the opinion set forth above, we have assumed
that, at the time of the issuance and delivery of the Common Stock,
resolutions of the board of directors of the Company relating hereto
will not have been modified or rescinded, there will not have occurred
any change in the law affecting the authorization, issuance or delivery
of the Common Stock, the Registration Statement will have been declared
effective by the Securities and Exchange Commission and will continue
to be effective, and neither the issuance and sale thereof will result
in a violation of any agreement or instrument then binding upon the
Company or any order of any court or governmental body having
jurisdiction over the Company.
<PAGE>
Global MAINTECH Corporation
Page 2
Our opinion expressed above is limited to the laws of the State of
Minnesota and the federal laws of the United States of America.
We hereby consent to your filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the caption
"Legal Matters" contained in the prospectus included therein.
Dated: March 3, 2000
Very truly yours,
/s/ Dorsey & Whitney LLP
KLC
<PAGE>
EXHIBIT 21
List of Subsidiaries
--------------------
Name State of Incorporation
- ---- ----------------------
Global MAINTECH, Inc. Minnesota
Breece Hill Technologies, Inc. Delaware
Envisio, Inc. Minnesota
Generation Systems, Inc. California
Singlepoint Systems, Inc. Minnesota
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
The Board of Directors
Global MAINTECH Corporation:
We consent to the use of our report dated March 29, 1999, except as to Note 12
which is as of September 2, 1999, included herein and to the reference to our
firm under the heading "Experts" in the prospectus in this Form SB-2
registration statement.
/s/ KPMG LLP
Minneapolis, Minnesota
March 3, 2000
